Financial observation: Farmers' difficulties weaken Modi's bargaining chip in US trade negotiations

Editor's note: Late October is the harvest season for crops such as cotton and soybeans in India, but widespread rainfall has led to reduced crop quality and yield this year. The purchase price of crops has significantly decreased compared to previous years due to a decline in quality, resulting in a significant reduction in farmers' income. Indian media analysis believes that crop failures, coupled with the high debt pressure that Indian farmers have long endured, have made already impoverished Indian farmers face more difficulties. At this time, the US India trade negotiations are deadlocked due to agricultural issues, and the plight of Indian farmers makes it even more difficult for the Modi government to compromise with the United States in the agricultural sector.

The price of crops is much lower than the government's minimum purchase price

"Indian crops were damaged by rainstorm." According to a recent report of the Indian Economic Times, Indian farmers had hoped to have abundant rainfall this year and get a good harvest, but the rainstorm before harvest hit them hard. Summer crops such as soybeans, cotton, rice, beans, and vegetables begin to mature in September, and the rainfall in September this year was 15% higher than the average, with some areas even receiving 115% higher than normal.

Hanjagelka, a farmer in Maharashtra State, said: "We had hoped to harvest 10-12 kilograms of soybeans per acre (each one is equivalent to 100 kilograms), but now it is good to harvest 2-3 kilograms." In this area, rainstorm has caused crops to be flooded. Economist Kapoor from Lala Securities in Mumbai stated that due to reduced crop yields, it is expected that the agricultural growth rate for this quarter will drop to 3% to 3.5%, compared to a growth rate of 6.6% in the same period last year.

According to a report by Nikkei Asia Review on the 1st, in the village of Kadwali Buzurga in Madhya Pradesh, India, 60 year old farmer Anjaba is struggling in ankle deep mud to save more soybean plants. Anjabai's harvest this season was only 80 kilograms, far below the expected 500 kilograms. She needs these soybeans to repay the cost of purchasing seeds on credit and pay for her living expenses in the coming months. Local farmer Choudhury only harvested 1/4 of the expected soybean yield, which is not enough to repay the payment for seeds and fertilizers, nor to pay for the next round of sowing.

Like other agricultural states in India, the problem of farmer debt is very common in Madhya Pradesh. The Nikkei Asian Review reported that in October, three farmers in Anjabai's area committed suicide due to poor soybean yields. Their families stated in an interview with local media that they are under immense pressure due to crop failures and debt burdens.

The report states that the bean production in Madhya Pradesh accounts for 42% of the total national production. Over the past four years, local farmers have been enduring the continuous decline in crop prices. Although the import volume of Indian beans remains stable, the import volume of soybean oil has increased significantly. At the same time, animal feed producers have turned to purchasing corn. The decrease in demand for soybeans has caused the price of legumes in the state to be much lower than the official minimum price of 5328 rupees per 100 kilograms. The government does purchase some beans at this price, but only occasionally. The wholesale price of soybeans in Madhya Pradesh has fallen by 10% since August this year. At the beginning of last month, in Indore, the largest city in Madhya Pradesh, soybean prices in wholesale markets ranged from 1500 rupees to 4500 rupees per 100 kilograms, depending on the quality. The Economic Times mentioned that crops damaged by rainwater have decreased in quality and are priced much lower than the government's minimum purchase price.

The Economic Times reported that farmer Nanavare from the Dalashif region stated that traders purchased damaged crops at extremely low prices, selling them for 3200 rupees per 100 kilograms. Navarai originally hoped to buy a motorcycle and a television, but now he only cares about whether he can repay the loan. Many farmers express a lack of funds to purchase seeds and fertilizers. A farmer named Javalle said, "We have no choice but to mortgage our gold jewelry

At the same time, the agricultural sector has become a focus of debate in the India US trade negotiations. Over the past decade, the United States has been attempting to enter India's $452 billion agricultural market. Indore soybean purchaser Dakard said that if the import volume grows too much or too fast, it will harm the interests of purchasers and farmers.

Why Indian farmers are mired in debt quagmire

According to statistics released by Indian media, about half of Indian farmers are in debt, with an average debt of 74000 rupees per household. Most of the debt is borrowed from large growers, who typically provide seeds and fertilizers to farmers on credit. Farmers in Madhya Pradesh say that loans often come with annual interest rates as high as 30%. At this interest rate, debt will quickly accumulate to an unbearable level, which is the key reason behind the 10786 rural suicide incidents recorded by the Indian National Crime Records Agency in 2023.

The tenant farmers are deeply mired in debt, "Hans India newspaper recently reported that a silent crisis is unfolding in Andhra Pradesh. Tenant farmers rent land for farming year after year, but are overwhelmed by rising debts, meager incomes, and government indifference. A nationwide survey shows that 92.1% of tenant farmers believe that no political party cares about their plight. This 57 page investigation report states that both the state government and the central government have failed to fulfill their promises.

The leader of the Andhra Pradesh Farmers' Association gave the example of a farmer in Konasima district who rented two acres of land and could harvest about 140 bags of rice per year. After paying 48 bags as rent, he sold the remaining rice for 147000 rupees. However, after repaying the loan and interest of up to 160000 rupees, he only had 3000 rupees left each year.

According to Al Jazeera in Qatar, Indian farmers have been struggling to make ends meet due to a lack of capital and low production efficiency, as well as continuing to face large expenses such as weddings, funerals, medical care, and tuition fees. The Indian government has launched low interest loans to support farmers, helping them purchase agricultural production materials such as seeds and pesticides with loans before sowing. But the chaotic management of these loans has led to a large amount of debt accumulation and high debt repayment pressure for grassroots farmers.

Qian Feng, a researcher at the National Institute for Strategic Studies at Tsinghua University, stated in an interview with Global Times that the problem of Indian farmers' debt is difficult to solve due to various reasons. On the one hand, India's agricultural productivity level is relatively low, production technology is relatively backward, it relies heavily on natural conditions, and its ability to resist risks is weak. In recent years, many farmers have switched to planting more profitable economic crops, which require extra money to purchase fertilizers, pesticides, and high-quality seeds. If the harvest is not as expected, farmers will fall into a vicious cycle of having no money to repay debts and borrowing high interest loans to repay debts. On the other hand, the development of rural finance in India is not perfect, and formal financial and credit institutions have strict loan conditions and cumbersome procedures, making it difficult for many farmers to obtain sufficient loans, resulting in high interest loans becoming another major source of borrowing for farmers. Although the Indian government has introduced some subsidy policies, the coverage of debt relief policies is not high, and there are often cases of untimely and inadequate subsidy distribution in the specific implementation process, which makes it difficult to effectively alleviate the financial pressure on farmers.

The game between our country's farmers and your country's farmers

The plight of Indian farmers has limited the room for maneuver in trade negotiations between Modi and the Trump administration. The Nikkei Asian Review stated that for Indian Prime Minister Modi, the precarious situation of farmers poses a huge challenge. On the one hand, nearly half of India's population of approximately 1.45 billion relies on agriculture for their livelihood. Most farmers have unstable livelihoods and are heavily in debt. Millions of farmers cultivate crops such as soybeans, which are currently not heavily affected by competition from overseas industrial plantations due to import restrictions. On the other hand, since the US government began imposing a 50% tariff on most Indian goods in August, India's major export companies have seen a significant decline in their exports to the United States. India's exports to the United States in September decreased by 20.7% year-on-year. Tariffs may reduce India's annual economic growth rate by 0.5 to 0.6 percentage points.

Some people are concerned that if the Indian government succumbs to US demands and lowers import tariffs or relaxes bans on genetically modified soybeans in trade agreements, local soybean prices may further plummet. The Nikkei Asian Review reported that poor harvests, falling agricultural prices, and increasing debt have exacerbated discontent in rural India.

Kumar Kaka, leader of the United Farmers' Front in India, said that American farmers enjoy a large amount of government subsidies and own a large amount of land, so they cannot compete with them.

Siroshi, who is responsible for agricultural extension work in Madhya Pradesh, the Indian National Congress Party, said that although most small farmers in the state did not pay attention to the news of trade negotiations, young and technically proficient farmers began to pay attention to this matter.

According to Nikkei Asia Review, as a condition for reducing the 50% tax rate, Washington is demanding that New Delhi stop importing Russian oil and lower trade barriers to American agricultural products, including soybeans, corn, wheat, and dairy products. But the Modi government refused to make concessions in agriculture.

The Indian newspaper "Coinage" recently cited informed sources as saying that after India agreed to reduce its purchases of oil from Russia, the United States agreed to lower tariffs to 16%. Previously, Trump and Modi had a phone call, but neither side disclosed details or confirmed the trade-off between tariffs and oil. Insiders revealed that the plan may also include increasing imports of non GMO US corn and soybean meal.

The Indian government has always maintained a firm stance that it will not accept any agreement that may have a negative impact on the livelihoods of small farmers. In his Independence Day speech on August 15th, Modi firmly stated, "India's farmers, herders, and fishermen are our top concerns. I have always stood by their side, firmly opposed any unfavorable policies, and protected their rights and livelihoods... India will never compromise on the interests of farmers." The Nikkei Asian Review said that Indian farmers hope the Prime Minister can fulfill his promise.

The Economic Times of India described the US India trade war as a 'game between our country's farmers and your country's farmers'. The newspaper stated that both sides' farmers are groups with strong political influence.

Qian Feng stated that the votes from rural areas and the support of farmers have always been crucial for the political stability of the Modi government, especially in winning the ruling position for the Bharatiya Janata Party in three consecutive elections. Therefore, in trade negotiations, the Modi government must consider the interests of farmers in order to gain their sustained political support. In addition, agriculture is an important component of the Indian economy, and improper handling of farmers' issues can affect related industries upstream and downstream, hindering overall economic development. Therefore, in order to maintain social stability, ensure healthy economic development, and consolidate its own governance foundation, the issue of farmers has become a core point that the Modi government will not easily back down in the India US trade negotiations.

On the US side, for the sake of domestic votes, the Trump administration has demanded that India open its domestic agricultural market, including lifting restrictions on various major crops and implementing low tariffs to help American farmers who are the backbone of Republican voters. The Indian media is concerned that there seems to be little room for compromise between the United States and India on this issue. The difficulty in reaching consensus between the two sides in this field constitutes the core crux of the deadlock in the US India trade negotiations.