Have agricultural laborers fared better than farmers in India over the past two decades? Data on terms of trade (ToT), or the ratio of prices received to those paid, suggests so.
The Ministry of Agriculture compiles an index of the price received (IPR) for the produce sold by farmers and the price paid (IPP) for the produce they buy.
The latter includes final consumption goods (purchased food items such as sugar, salt, edible oil, biscuits, bread and tea, clothes, soap, toothpaste, medicine, health and education, mobile services, two-wheelers and gold jewellery). inputs (seeds, fertilisers, crop protection chemicals, hired labour, diesel, irrigation charges, livestock feed and interest on loans) and capital goods (tractors, farm implements, electric motors/diesel pumps, cement, bricks, steel and other construction materials). .
IPRs and IPPs are constructed taking the triennial (2009-10, 2010-11 and 2011-12) ending 2011-12 as a base period or reference point, against which prices are compared over time.
Farmers’ Business Terms
Table 1 shows the value of crops received by farmers, reflected in their IPR, increased by 111.2% between 2004-05 and 2013-14, from 62.4 to 131.7. During this period, the price of the products purchased by them (i.e. IPP) increased from 71 to 133.6 percent only.
Express Graphic: Ritesh Kumar
As a result, ToT for farmers – the ratio of IPR to IPP – increased from 87.8% to 98.6% in these nine years. Only in 2009-10 and 2010-11 was the ToT ratio above 1 (100%) which is a different matter. Those were years when farmers enjoyed favorable pricing power, because the prices they received for their produce (relative to the base period) were tied to the basket of goods they purchased.
Over the following nine years, the IPR for farmers increased by only 56.3% (from 131.7 to 205.8) and their IPP increased by 58.4% (from 133.6 to 211.7). As costs increased over prices received at the farm gate, ToT remained below 1 and declined from 98.6% to 97.2% between 2013-14 and 2022-23.
A more detailed breakdown of costs (not shown in the table) reveals the IPP for intermediate inputs registering the highest jump at 274.6% between 2004-05 and 2022-23. This is in contrast to 198.1% of the overall combined IPP. The IPP for final consumption goods and capital formation goods grew even less at 165.1% and 119.7% respectively during these 18 years.
Simply put, the cost squeeze for farmers is mainly coming from the inputs – be it labour, fuel or pesticides – going into crop production. And they are not able to completely pass these as high prices.
Trade Conditions of Agricultural Labourers
IPR for agricultural laborers is basically the wages they receive. In their case IPP is only for final consumption goods: unlike farmers, agricultural laborers have only their labor power to sell, the proceeds of which are mostly spent on consumption goods.
From Table 2, it can be seen that the IPR of agricultural laborers has more than tripled between 2004-05 and 2013-14, from 49.1 to 151.4, while their IPP has increased by 1.7 times (from 76.4 to 129.3) during this period. An increase in wages has translated into an improved ToT, outpacing consumer product inflation. The improvement was spectacular – from extremely unfavorable (64.2%) to rather favorable (117.1%) terms of exchange.
Moreover, the ToT ratio for agricultural laborers continued to rise even after 2013-14, peaking at 134.4% in 2016-17 and persisting at 130%-plus by 2018-19. However, it has since fallen to 111.7%, which is also consistent with the current trend. Steady, if not declining, rural wage growth In real inflation-adjusted terms.
However, the ratio of IPR to IPP has remained above 1 (100%) for agricultural laborers since 2010-11. The overall improvement from 64.2% in 2004-04 to 111.7% in 2022-23 has also been greater for farmers (87.8% to 97.2%).
Implications of Political Economy
Agricultural laborers traditionally occupy the lowest rung of India’s socio-economic ladder and most come from Dalit, tribal and backward class backgrounds.
Rapid economic growth from the early 2000s helped create new job opportunities for them in non-agricultural manufacturing, urban informal services and construction. That, along with government interventions such as the Mahatma Gandhi National Rural Employment Guarantee Act and a more efficient targeted public delivery system, tightened the rural labor market. Then, farm laborers looked for the hitherto non-existent “opportunity cost” or alternative to planting rice, cutting sugar cane, spraying pesticides and mowing by hand.
The last few years have also seen new welfare programs, especially cash transfers aimed at women. Some 14 states now have income support schemes (offering Rs 1,000-2,000 per month). Neelkanth Mishra, Chief Economist, Axis Bank, estimates that women make up a fifth of India’s adult population and their total annual budget expenditure is Rs 2 lakh crore. Such schemes further reduced the supply of agricultural labourers. Farmers complain that even those who are available demand more, or work fewer hours for the same wages.
Farmers experienced increasing ToT from the mid-2000s to 2013-14, which coincided with a surge in global agricultural commodity prices. The Food and Agriculture Organization’s World Food Price Index (base value: 2014-2016=100) increased from 58.1 to 120.1 between 2003 and 2013. Since then, they have been squeezed between high costs and no relative increase in product prices.
Subsidies in fertilisers, electricity, canal water, farm credit and crop insurance have enabled stable receipts of minimum support prices in some crops such as rice, wheat and sugarcane while partially shielding farmers from rising production costs.
But despite these, farmers’ ToT is fairly stable, made worse by land fragmentation, many new crop production successes and growing climate-related uncertainties. It also explains the discontent among Jats, Marathas, Patidars, Kapus and other agricultural communities – and the clamor for reservation in government jobs and educational institutions, apart from a general desire by them to get out of farming.
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