Farmers are selling land out of desperation

September 22, 2011, 10:39 am IST in Something Fresh | Economy | ET
Farms are disappearing in India. In the last decade, 2 million hectares of farm land – equal to Kerala’s entire arable area – has been lost to industrialization and urbanization. More will be sold after new land acquisition laws are introduced by states. Given the shortage of land, why are farmers in such a rush to sell? Is it old-fashioned greed? Or do they know something city slickers don’t? 
It is clear crop prices will rise as food, feed and fuel demand increases with growing population and incomes. Across the world, higher crop prices have made farm land more precious. During 2010 alone, land values rose by 13% in the UK, 8% in US corn-growing belt and 24% in Brazil’s sugarcane-growing Sao Paulo state, according to the Knight Frank Farmland Index. In India the equation is not so simple.
Despite high crop prices, Indian farmer returns are declining because the cost of cultivation, especially wages, is rising faster. Mechanization is expensive. Small and marginal farmers unable to invest in new technology are the worst hit. Erratic weather is increasing risks for rain-fed farms that add up to 60% of total farmland.   
In states where higher yields have overcome this challenge, government curbs on inter-district and inter-state trade prohibit farmers from maximizing gains. Farmers in coastal Andhra, for instance, actually save money if they let their paddy fields lie fallow. This is exactly what they did this season too. Farmers in UP can’t sell their sugarcane to highest bidder.
So whenever they meet a buyer willing to offer even a small premium, such farmers jump at the offer. This is the trend across eastern India, UP, parts of Maharashtra, Rajasthan and the South. They are exhausted battling the risks of agriculture.
Well-to-do farmers are also willing to sell, albeit at a significant premium. Most are above 60 years, with sons and sons-in-law settled in the city and unlikely to return. In Tamil Nadu and Andhra villages, all farmers are above 45 years. No one wants their son to be a farmer because it implies he is good for nothing else. Leasing land to tenant farmers is increasingly difficult with no willing takers. So the empty-nesters are keen to sell. 
The lakhs of tenant farmers who may wish to continue cultivation despite the odds anyway have no voice. If the landlord gets a good offer, the deal is on.
Farmers themselves understand these trends very well. Often when a farmer sells his own land to a speculator/investor, he uses part of the cash to buy land in areas where land is still cheap because of poor crop margins. Punjab farmers have bought large tracts in UP, Jharkhand, and Chhattisgarh from local small and marginal farmers desperate to exit. Ditto Andhra farmers in Tamil Nadu and Orissa. The attraction is low land prices arising from low crop returns.
The new farmer-owners then wait for the other category of buyers such as investors in infrastructure and factories to arrive. Or even the pure speculators who are creating a land bank.  State governments are keen to buy land for industrial hubs, airports and roads.
Even the sons who fled to the city are now willing to buy a few hectares in their village as a good investment. All these buyers and sellers are betting on the scarcity created by tough land acquisition and land usage laws. No one is betting on higher profits from farming.
Herein is the irony of Indian agriculture. Even with record food demand, it remains an unprofitable business. Curbs on inter-state and international trade to keep food inflation low have prevented crop prices from rising to their full potential. Lack of infrastructure in processing and storage don’t allow efficient management of bumper harvests. This becomes a disincentive for farmers to invest in new technology. The resultant fall in yields keep their cost of production extraordinarily high. And so the vicious cycle continues. 
A decade ago, textile mill land in Mumbai fetched record prices because it could be used more efficiently for other things. Not because textiles was a profitable business. The situation is identical in the countryside today.
In countries such as Brazil, Ethiopia, and Australia, land is becoming expensive because crops are fetching more. In India, farmland prices are rising because the land has many other uses. Not because its current use – production of crops – is profitable. In a country where 833 million people are dependent on agriculture and a third of these live below the poverty line, this desperation to exit can only be a silent scream for help. Ignoring it will push India towards greater import dependence and higher food inflation. 
DISCLAIMER : Views expressed above are the author's own.
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