Finding symmetries in an unsymmetrical world ..

Economics of Farmer suicides – The speaking numbers

Posted on: February 12, 2010

India is a largely agricultural land. But given that, it is both ironic and shame that each year we have thousands of deaths due to malnutrition, starving, and farmer suicides.

Here, I (attempt) to describe the anatomy of the increasing suicide cases year after year

Problem –

Farmer suicides due to inability to pay loans , low returns on the produce , famine -adversary conditions, poverty, cheating on the interest rates by landlords and deceptive and spurious/vicious circle of loans which are required for the initial investment into crop produce , to find and fund alternative sources of irrigation .

Insurance instruments existing in the market –

Currently a few players are in the market who “cover the risk” of vagaries of bad weather, rains and famine, lesser/low return(S) produce due to large scale damages due to pests and crop disease .

Agricultural insurance company of India (Estb1956)

Insurance for Agriculture ,LLC (Estb 1986)

What we , however need – is a safeguard against the price controls affected by the government as a policy measure of vote bank politics , the adequate and cheap availability of Agricultural produce backed loans and insurance installments , the removal of middle men, better Inventory management , storage and retrieval systems. Crops being a perishable commodity, we need quick access to take this produce to the market.

That calls for a massive change in the infrastructure. But a fundamental question remains- If we perceive it according to the thumb rule of Game theory- would enough incentives remain with the government to support the farmers?

For the change to happen the governments must perceive it as a “threat” that it must act, or its utility function will reduce overall.

In a democracy, and yet not so answerable government, it gets even tougher .This is not to say that there is not adequate transparency, just a “lack of will” to implement these decisions.

As Adam Smith quoted in his much known – “An inquiry into the wealth of nations “

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. “

Given we all are driven by different order, dimensions and magnitude of self Interest – what is the interest for the government to vest effort to do something about it ?

This question is more important than it looks- simply because it has both the problem statement and the answer in itself ,at the same time . And that is precisely what is interesting.

Let’s see what drives most of the farmer suicides –

The Government often lowers the price of the basic commodities like rice, wheat, potato, onions, and tomatoes to create popularity – vote bank Politics .This however hits the farmer as he still has to take the produce to the local market where it is sold at a subsidized rate, and consequently it hits his returns .

Let us now see what this means for the farmer to maximize his utility function –

The options available to the farmer now are –

  1. To produce the commodities/produce which are not subsidized and give him maximum Return on Investment and labor to ensure that he can pay off a part of the loans and sustain himself (and his family)
  2. Driven by the adverse loans and consequently being hag-ridden by the land lords (Most of the farmers in India grow produce on leased lands ,and borrow part of most initial investments from local landlords and other private(local) money lends , this being in major due to lack of adequate loans available )
  3. To create an artificial lack of supply by destroying the produce, throwing it off hoarding it, hence giving the supply and demand a gentle tremor. This is very damaging to the GDP of the country as the goods and the services produced are lost after sufficient man hours are invested in it .

Let us now evaluate the options for the government –

  1. Being indifferent – it can gain unpopularity if sufficient people are aware of the suicides driven by facts aforementioned. Also the opposition party can challenge this question in the parliament, mostly for its vested interests though.

b.    Taking action – and not subsidizing produce –

—Can cause a lost of substantial votes due to inflation and its subsequent un popularity from the middle class families who do not have their primary occupation as agriculture ,and the section using the loan instruments to  make money betting on the produce of the farmers .

—Can cause a lost of substantial votes due to inflation and its subsequent un popularity from the middle class families who do not have their primary occupation as agriculture ,and the section using the loan instruments to  make money betting on the produce of the farmers .

—Might result into increased popularity (and votes) – from the learned section and the section having agriculture as the primary occupation

Has the potential for increased returns from the exports – if the additional produce is not “killed” to create an artificial supply tremor .

Thus, as is seen, the risks or the rewards materialize only near its end terms – so being indifferent is the major chosen “Action” – rather inaction.

Here’s what we need to change –

Getting both private players and public players into the agriculture insurance sector

Creating more answerability (Will be taken in more detail- in a day or two)

Easy and quick accessibility of loans

Encouraging more social entrepreneurs to solve the challenges in the rural sector

Adding more value to the lifestyle of the rural populace – this could mean lower suicide rates

Building more efficient “systems” – and inventory and supply management systems to do away with the loss due its perishable nature .

Initiatives which connect the farmer to the market – like e-choupal (ITC) , and other such ventures .

Organizations like ITC echoupal are already making the impact through its initiates – here is the time for a bigger impact .

In sum ,

The more stronger the self interest is – the stronger will be the Impact -and the potential CHANGE that can happen to this largely ignored sector .

The nature of commodity prices affecting the commodities is a little uncertain .However it has a huge potential for the betterment of an average farmer.

Anyone willing to answer this ?

~
ek

Do the new ..

Advertisements

3 Responses to "Economics of Farmer suicides – The speaking numbers"

Hi,

Very nice article with an interesting academic economics perspective to it. Out of curiosity, are you an economics grad student or something?

Hi Aditya ,

Thanks for reading.No, I am not an Economics Grad , but want to get one soon 🙂
Besides, if we are interested , you find a way. It is such a pleasure when you know what Mathematics and numbers really imply .
I m just (trying to) decipher these patterns .

~
ek

Hey Ekta,
That’s an interesting article with an indepth analysis and easy to understand. The solutions/suggestions given are really impressive. Some time back I had come across one UN deck. If you are thinking further on this..then you can also look at it at,

http://www.un.org/esa/sustdev/csd/csd16/PF/presentations/farmers_relief.pdf

May be u might have seen it already..:) but just thought of sharing with you.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Hey there, would be nice to have you around !

That’s me

My live Rantings @Twitter

Blog Stats

  • 13,216 hits
February 2010
M T W T F S S
« Jan   Apr »
1234567
891011121314
15161718192021
22232425262728
%d bloggers like this: