Farmers bear all the risks in Agriculture
But the rewards are in other places. That is the reason why farmers remain poor. This is also true globally. Let me explain in this short post.
If we map out all the transactions in any industry from raw materials to finished products, you will find that there are risks within every industry. The entrepreneur bears this risks and for this, s/he is rewarded. The entrepreneur uses capital investments to reduce the risk or to mitigate it or make it easier to bear.
You will find that where there is risk, there is capital.
This capital refers to financial capital, intellectual capital, human capital. Financial capital is loans or funds. Intellectual capital refers to new ideas or designs (e.g. coca cola recipe ) or new ways of doing business. Human capital refers to skills and productivity of those employed (jewellery craftsmen for instance).
Agricutlure is different - it is misaligned.
In agriculture, all the risks is borne by the farmer. The creditors, supplier to the farmer and customers of the farmer are in collusion.
Modi’s farm laws were meant to tackle collusion present in the Indian agricultural system. This is a reform that is necessary.
The collusion aspect is not present in developed countries’ agricultural industry. But the rest of the story is the same. There is far too much risk in the system and farmer is not capital-rich (in all forms of capital) to bear the risk. The entire focus in global agrictulral development has been to improve yields and productivity.
Farmers will need institutional support from multiple directions - choice of crops, farming know-how (called agricultural extension), market synchronisation through different types of contracts and contract enforcement, transportation and storage of agri-produce, etc.
We need a comprehensive system in place which allows all the parts to work together. I proposed a Smart Agriculture Management System to do just that. You can read about it here.
Till such a reform is brought in, agriculture will be in difficulty as a business.