Why in the News?

Crop prices have lagged behind the rising production costs, while agricultural wages have grown faster than inflation over the past two decades.

What is ‘Terms of Trade’?

Terms of Trade (ToT) refers to the relative prices of goods and services that a country exports compared to the prices of goods and services it imports. In the context of agriculture, it specifically relates to the prices received by farmers for their produce versus the prices they pay for inputs (like seeds, fertilizers, and equipment).
A favourable ToT means that farmers are receiving higher prices for their products relative to their costs, which enhances their profitability.

Wage Growth: Agricultural labourers have experienced significant increases in wages, with their Index of Prices Received (IPR) rising more than threefold from 49.1 to 151.4 between 2004-05 and 2013-14, while their Index of Prices Paid (IPP) increased only modestly from 76.4 to 129.3 during the same period. This resulted in a substantial improvement in their ToT from 64.2% to 117.1%.
Stagnation of Farmer Incomes: In contrast, farmers’ IPR rose by only 56.3% from 2013-14 to 2022-23, while their IPP increased by 58.4%. This led to a decline in their ToT from 98.6% to 97.2%, indicating that farmers are facing a cost squeeze as input prices rise faster than the prices they receive for their produce.
Economic Diversification: The expansion of employment opportunities outside agriculture has allowed agricultural labourers to seek better-paying jobs in sectors like construction and services, increasing their bargaining power and wage rates.

Employment Schemes: Government initiatives such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) have provided rural labourers with guaranteed employment, improving their income stability and negotiating power against employers.
Income Support Programs: Various states have implemented income support schemes targeting women, which have further tightened the labour market and increased wage demands among agricultural workers. For example, Mukhya Mantri Mahila Kisan Sashaktikaran Yojana (MMKSY).
Subsidies and Minimum Support Prices: While subsidies on inputs like fertilizers and electricity have provided some relief to farmers, they have not sufficiently offset the rising costs or improved farmers’ ToT significantly, leading to ongoing economic distress among this group.

Shift in Economic Power: The improved ToT for agricultural labourers relative to farmers reflects a shift in economic power dynamics within rural areas, potentially leading to greater social mobility for labourers but also highlighting the vulnerabilities faced by farmers.
Increased Demand for Labor: As agricultural labourers gain better wages and conditions, there may be a reduction in available labour for farming activities, leading to challenges for farmers who may struggle to find enough workers willing to accept lower wages or demand better working conditions.
Social Tensions: The disparities between the economic conditions of farmers and agricultural labourers can lead to social tensions, especially as farmers express dissatisfaction over stagnant incomes while labourers experience wage growth. This situation may exacerbate calls for policy reforms aimed at addressing these inequities.

Enhance Farmer Profitability: Introduce policies to ensure fair pricing for crops, reduce input costs through targeted subsidies, and promote crop diversification and value addition to improve farmers’ income and Terms of Trade (ToT).
Strengthen Rural Employment: Expand employment opportunities in rural non-farm sectors and align government schemes like MGNREGA with skill development programs to sustain wage growth for agricultural labourers while addressing labour shortages in farming.

Q What are the main constraints in the transport and marketing of agricultural produce in India? (UPSC IAS/2020)