Abstract
Tenancy has been increasing in the post-reform period, in which pure tenancy has significant share. The pure tenants lack ownership rights over the land, which restricts access to agricultural inputs from the formal sources. This leads to the emergence of personalised informal arrangements with moneylenders and other input dealers. Using village-level data, we attempt to understand how input and output markets interact in informal arrangements. If so, what is their impact on the output and rental rates in a village economy? This study shows that the cultivators go for interlinked exchanges ranging from zero to three, and a significant share of them have more than two interlinkages in the input market. It is also evident that the more the number of linkages, the more the output produced and rent paid. This self-exploitative arrangement has the potential to become a vicious cycle in the future.
Introduction
The economic structure is determined by the difference between the ownership rights and the user rights that have socio-economic importance in a rural economy. Tenancy, an arrangement that grants user rights to cultivators but not the ownership rights, is the result of unequal distribution of resources (Jodha, 1981). Tenancy has a significant role to play in the rural economy owing to its resource-adjusting mechanism that arises due to its imperfect factor markets (Skoufias, 1995). In the post-reform period, tenancy has been rising significantly. The National Sample Survey Office (NSSO) unit-level data shows that the tenancy revived between 2002 –2003 and 2012–2013, during which period the agriculture sector also witnessed a revival (Murali & Vijay, 2017). Though the trend holds true for most of the major Indian states, it is more prominent in the high-irrigated states like Andhra Pradesh, Bihar, Punjab and Tamil Nadu. The irrigation and mechanisation have significant positive association with tenancy (Subrahmanyam, 2000).
From the demand side, there are two kinds of households that enter tenancy. One, there is the owner–cultivator, who likes to expand operations by leasing-in land for scale advantage. Two, there are the landless or near-landless labour households, who generally engage in the labour market to enter cultivation through the lease market. These households would be defined as pure tenants. Interestingly, their share in tenancy has increased across all the states. At the all-India level, between 1991 and 2013, the share of area cultivated by these households increased from around 12–30 per cent (Murali & Vijay, 2017). Given this trend, the organisation of agriculture production may also have witnessed some change. For tenant households in particular, procurement of necessary inputs proves to be a major constraint due to lack of ownership rights over the land. Generally, the land works as collateral to access inputs like credit from formal sources. Otherwise, the tenants have to depend on the informal sources like commission agents, input dealers and moneylenders, which may lead to the emergence of an extractive nature of arrangement in the rural economy.
Undivided Andhra Pradesh was one of the largest states in the country and fourth-largest economy in terms of net state domestic product in the year 2014–2015 (Economic Survey: 2014–2015). Agriculture sector contributed around 19 per cent of gross state domestic product (GSDP). If we divide the entire state into three broad regions, the coastal region was the one that largely benefitted from most of the state policies, apart from enjoying the irrigation facilities for long (Reddy, 2006; Reddy, 2012). The state witnessed a significant change in terms of land leasing households and area in the last one decade. The share of leased-in households went up from 13.2 to 25.2 per cent and the area from 9.24 to 2.66 per cent between 2002–2003 and 2012–2013 (Murali & Vijay, 2017). More importantly, the state had the highest share of pure tenants, which increased significantly in the recent past. This was also a state with high indebtedness of about 82 per cent, and of this, 73 per cent was from the informal credit agencies (Rao & Suri, 2006; Reddy, 2007). The village survey carried out by Ramachandran and others in Andhra Pradesh reveals that the indebtedness was rampant in the state, and around 80 per cent of the agriculture households had debts, with marginal and small farmers forming a major part of it (Ramachandran et al., 2010).
In the production process, both cultivators and tenants need access to inputs. But do cultivating households, who have a larger scale of operation and well-defined property rights, have more prevalence over non-interlinked deals compared to the landless labour households who lease in land? If one considers three sets of households and three inputs, one set of households access inputs independently in each market, the second set of households access one or two inputs from the agent, while the third set has three inputs provided by the agent. This article has two objectives. One, to analyse if the tenant and non-tenant households are different in terms of interlinkages. Two, as one moves from zero interlinkage to three interlinkages, would the rental amount and the output produced change? This analysis has been done using the primary data from two villages in the coastal district of Andhra Pradesh. We have merged two villages’ data for the analysis as they are similar in agrarian structure. A census survey was conducted in these villages and collected data for the agricultural year 2014. These canal-irrigated villages were selected as coastal region had high extent of tenancy. The study of these villages presents some of the micro-level trends witnessed in terms of institutional arrangements in the rural economy. The structure of the article is as follows. Section ‘A Brief Description of West Godavari District and the Study Villages’ provides basic information about the district and the study villages, while section ‘Agrarian Structure of the Study Villages’ discusses their agrarian structure. The nature of contracts and a class-wise analysis of productivity comparison and the rent paid is presented in section ‘Interaction of Farm Households in the Input and Output Markets’, whereas section ‘Interlinkages of Factor Markets in Village Economies’ presents some evidence of the importance of commission agents in input markets and how it is interlinked with the output markets. This is followed by conclusion in section ‘Comparison of Output and Rent Among Tenant and Non-tenant Cultivating Households’.
A Brief Description of West Godavari District and the Study Villages
The West Godavari district in Andhra Pradesh, with Eluru as its headquarters, is one of the coastal districts in the state. The three rivers, Godavari, Yerrakaluva and Tammileru, flow through the district, and the river Godavari divides the East and West Godavari districts. The district has around 4 million population, and around 80 per cent of them live in the rural areas. Two irrigated villages have been surveyed here: Kothapalli in Ganapavaram Mandal and Mentepudi in Veeravasaram Mandal. Both the villages are predominantly agriculture-based economies. The cultivable land is extremely fertile and is covered entirely under canal irrigation. The cropping pattern is similar, given the fact that paddy is a major crop that is cultivated in the region.
A peculiar characteristic of these villages is that the land operated is much higher than owned (see Table 1). An obvious inference here is that the landowners do not stay in the villages, and those who operate land do not own land. Under-reporting of the land owned and/or over-reporting of the land operated by the resident households could be one of the reasons for this wide disparity between the land owned and land operated. The other reason could be the increasing presence of the non-resident households that own land in the village. The non-resident households, in other words, are absentee landlords staying in some other country or city but owning land in the villages. With the help of agricultural capital, they are able to move to cities in search of better job opportunities. However, the land owned in rural areas seems to be a source of rental income for them. Cultural values and land appreciation could be other reasons for not selling rural land. Increasing these households implies that either tenancy should be high or the land should be kept fallow. In the study villages, nearly 90 per cent of the land operated is leased-in. The difference between land owned and operated hints at the key role played by the non-resident households in the land-lease market, and this article attempts to examine the changes it led to in organising agriculture production.
Basic Information on Two Study Villages.
Cropping Pattern and the Nature of Contractual Arrangements in the Two Study Villages
The study villages are fully irrigated through canal irrigation, and the total area operated is around 950 acres (see Table 1). Rice is a predominant crop cultivated in the region, influenced by the implementation of green revolution. The area under rice cultivation is around 829.9 acres, which is 87.3 per cent of the total operated area. As mentioned earlier, the share of leased-in land in the villages is remarkably high—around 89 per cent. Naturally, the share of leased-in land under rice cultivation is high too in comparison to the owned area. Given the predominance of the leased-in land in the study villages, there are contractual agreements between the tenants and the land owners, which are largely oral in nature and do not include the enforcement institutions in case of any dispute between the two parties. The rent on the leased-in land is decided by both the parties during the time of the agreement. The mode of rent payment is in kind, where bags of rice are paid as rent to the landowners. The rent is either paid directly to the landowners or the intermediaries, who act as the representatives of the landowners. They also play a key role in finding suitable tenants for the landowners.
Agrarian Structure of the Study Villages
One method to understand the structure of the village economy is to classify the households into farm and non-farm households to understand the importance of diversification of occupation in the rural households. All the surveyed households in the two villages have been combined and classified into six categories (see Table 2) based on their primary occupation. The first group of households does not operate any land but participates in production activities by selling labour, who are classified as agricultural labourers. Around 25 per cent of the total households are agricultural labourers. On the other hand, those who operate land and participate in the production activities by both demanding and supplying labour, or exclusively anyone, are called cultivators. These households amount to around 75 per cent of the total households. These two groups play an important role in the village economy as they actively participate in almost all the agricultural activities, and they broadly form the farm sector, which is around 67 per cent.
Classification of Farm Households Based on Land Owned in the Two Surveyed Villages.
The households under the non-farm sector are those who do not own or operate land or even participate in any agricultural activity. They largely lease-out the owned land, and their major source of income is from the non-agriculture enterprises. The share of non-farm households is 16 per cent. Similarly, there is another section in the village called the dependent households, who also might own land but do not operate it or participate in any agricultural activity. They just lease-out the land and live on the rent or remittances and pensions from the government. Further, we found around 12 incomplete schedules where the household members were hesitant to give complete information. A small share of about 7.9 per cent of the households are international migrants, where at least one of the family members has migrated to other countries (mostly to the UAE and Kuwait) for employment. Most of these migrating households are from socially marginalised mala (SC) community, who were earlier agricultural labourers in the village.
For better analysis, we need further classification of the farm households as they are heterogeneous in nature. Two accepted ways of classifying these households are based on the land owned (land-size classification) and labour use criteria (labour-based classification). Here, we attempt to reclassify households based on land operation into three groups (see Table 3). The first are pure cultivators, who own land as well as operate it but do not lease-in the land. The second are mixed tenants, who own land and also lease-in the same. The third is pure tenant households. These are the households that do not own land but operate land, so they lease-in the same. Classifying these households is imperative, given the large extent of land under tenancy in the village and owing to the implicit opinion that any form of contract would have some implications on the performance of the households. The land-based criterion uses the land owned or operated as a basis but does not bring in the contractual forms of organisation within agriculture, whereas the labour-based criterion uses the contractual forms of organisation but is not explicit. For example, a poor peasant is a labour-supplying household, but its contractual form in input and output markets depends on whether it has the leased-in land or a small piece of owned land. To capture this contractual form and to bring it to the centre stage in analysing the households, we have classified them into three classes.
A Class-wise Distribution of Cultivating Households Based on Share of Leased-in and Operated Area.
The data from the surveyed villages shows that tenancy plays a prominent role in the organisation of production, which has been led by the pure tenants. Around 58 per cent of the operating households in these villages are pure tenants, and almost the same percentage of the area has been leased-in by them. About half of the operating land in these villages is operated by the pure tenants, and therefore, they are key in organising the agricultural production. Another important group of households is mixed tenants, who are as large as 36 per cent and operate around 47 per cent of the land. The pure and mixed tenants are the major components in the villages’ production system, where pure cultivators are almost insignificant. Given the importance of tenants in a village economy, we need to study the procurement of inputs for the production process, where they do not have ownership rights for collateral purposes. This would also change the dynamics of the output market as the channels to factor market become more informal in nature. The following section provides some insights on this from the village economy.
Interaction of Farm Households in the Input and Output Markets
Tenancy
In tenancy relations, the rent, which is a price-like variable, can be conceptualised in two broad ways. One, following Ricardo’s tradition, the returns to factors of production such as labour, land and capital are wages, rent and interest respectively. One can see the relation between these returns in the process of public policy intervention and/or the process of growth of capitalism. In the second formulation, rent arises in contractual forms where a landowner leases out land to a potential cultivator called the tenant. Here, rent is seen as a price-like variable, and one can attempt to explain the reasons for the variability of rent in different contracts. This can be achieved by comparing the returns of owner-operated and tenant-holding in the context of potential investment. If the two units use the same input combinations, the net returns for owner-operated households would be greater than the tenants, so the former has a greater potential to invest. Given this, higher the rent for tenant households implies lower their potential to invest. Table 4 presents some data on the rent paid in the villages. The total rent paid in an agricultural season is around 25 bags per acre. An interesting aspect is that the pure tenants pay one bag more as rent than the mixed cultivators. If the average output produced per acre is around 60 bags, paying 26 bags as rent is extractive in nature. More than 40 per cent of the produce per acre is paid as rent to the landowners.
The Distribution of Rental Rates Across Classes in Two Study Villages.
A study conducted by Murthy and Misra (2012) also showed a similar trend where the rent in the coastal regions of Andhra Pradesh was considerably high. The share of rent in the total cost of production was around 35–40 per cent. Another village study conducted in Mori village of East Godavari district by Reddy and Murthy (1978) revealed that pure tenants paid rent as high as 62 per cent of the total output produced, whereas the mixed tenants paid around 58 per cent of the total output as rent. It would be interesting to study why the pure tenants pay more rent than the mixed cultivators. Some of the studies (Bharadwaj & Das, 1975) suggest that the landowners are interested in leasing out their land to the landless households with more family members as it works to their advantage on two levels. One, family labour is beneficial as they do not have to hire casual labour from outside. Two, the burden of a family and poor living conditions make the tenants work more efficiently. This could also be one of the reasons for them to agree for more rent. Swain (1999), in her study on agricultural tenancy in Odisha, points out that the threat of eviction is also used as an instrument against the tenants to make them accept the demands of the landowners.
Agriculture Inputs
The study villages predominantly cultivate paddy, and with the implementation of green revolution technology, they adopted high-yielding varieties of seeds. This has led to them being completely dependent on seed-producing companies for seed supply. Consequently, commission agents have become crucial in providing seeds to the cultivators, who neither have direct access nor the credit to buy seeds themselves. The cultivating households in the surveyed villages generally depend on the commission agents to access one or more inputs to organise the agricultural production. However, the tenant households are more dependent on them as they lack access to formal sources.
An important characteristic of the high-yielding varieties of seeds is that they are highly responsive to fertilisers. Fertiliser is an important input in the production process. Given this, the intensity of the use of fertilisers and pesticides increases too. In the surveyed villages, around 50 per cent of the cultivators are dependent on the commission agents and landowners for the supply of fertilizers (see Table 5). Another important component of the agricultural production process is machinery. The large-scale cultivation of paddy requires machinery, particularly at the time of harvesting. However, the two study villages are largely dominated by the poor and the middle-class peasants, who may not ask for more machinery for the production purposes. In these villages, most of the required machinery for production is arranged by the cultivators themselves. Only around 14 per cent of the cultivators are dependent on the commission agents and landowners for machinery. Accordingly, the commission agents largely dominate the seeds and fertiliser market in providing inputs to the cultivators in the two study villages.
The Share of Cultivating Households Depending on Various Sources for the Supply of Agriculture Inputs in Surveyed Villages.
Sources of Credit
Credit supply is another input that is crucial in the agricultural production process. A large section of the marginal and small cultivators in India do not have access to formal credit supply. This has led to their dependency on the informal sources like the landowners, traders and the moneylenders. The land-owning marginal and small cultivators can approach the formal credit agencies like the banks and cooperatives for credit, but not the tenants as they face collateral issues. Therefore, the pure tenants completely depend on the landowners, commission agents or any other informal sources for their credit supply.
Given the large extent of land under tenancy in the study villages, the commission agents and other informal credit agencies play a significant role in providing credit to the cultivators. During the survey, we classified the credit sources into nine categories. However, for the convenience of our analysis, these sources are reclassified into four broad groups in Table 6. The formal and informal credit agencies are classified into two groups each, including relatives, friends and the ‘others’ sources. In the formal credit agency category, all the banking agencies are clubbed into one called the banks. The self-help groups (SHG) remain the same. In the informal credit category, the landowners, traders and moneylenders are grouped into one category called the moneylenders. Relatives, friends and the ‘others’ include all the other sources. In the surveyed villages, only 23 per cent of total cultivating households borrowed from the formal credit sources such as banks (see Table 6). A significant share of cultivators also depend on the SHG for credit. Around 29 per cent of the total cultivators depend on moneylenders, while 8 per cent rely on the other sources. Around 37 per cent of the cultivators being dependent on the informal credit sources shows the importance of the role of moneylenders like commission agents in a village economy.
The Distribution of Share of Cultivators Taking Loans from Various Credit Sources in Surveyed Villages.
Interlinkages of Factor Markets in Village Economies
The markets are highly fragmented, where different players have different levels of access to other markets (Bardhan, 1980). In a poor agrarian economy, the markets are not complete, and the exchanges do not run purely on market relationships. The input and output exchanges in the study villages are not impersonal ones between the cultivators and the commission agents. These are personalised exchanges where the borrower maintains some kind of relationship, based on trust, with the commission agents to purchase inputs. This relationship is crucial from the point of view of the cultivator, as most of the basic inputs are borrowed on credit and are paid in kind or cash after the harvest. This personalised relationship is much more serious and important for the landless cultivators than for the other cultivators.
It is a plain fact that the cultivators largely borrow inputs in the beginning of the season. It is highly unlikely that anyone would supply agricultural inputs to cultivators, particularly the tenants, without any collateral. The question here is, how do tenants pay for the purchased inputs? As they do not own any land, they either pay back after the output is sold or pledge the output itself as a collateral for all the inputs purchased. The crop output being a collateral for the inputs purchased is quite a common practice in the study villages. The payment for the purchased inputs could be made in two ways. One, the cultivator pays in kind (in terms of bags) to the input supplier. Two, the output would be sold to the same input dealer, who is also an output dealer. The cultivator gets the remaining money after the amount equivalent to the inputs purchased is deducted.
The personalised exchanges between the cultivators and the commission agents have different layers, where the supply of each input could be from different commission agents or from a single agent. Traditionally, the moneylenders do not involve themselves in the supply of other inputs like fertilisers and seeds, whereas the trading communities do take active part. Similarly, the supply of machinery is a different set-up altogether. Historically, in the pre-green revolution period, the machines like tractors were owned by large farmers, who used to rent them out to marginal and small farmers. Later, in the last stage of green revolution, these farmers also began buying tractors with the government financial assistance (Singh, 2015). However, the dependency on larger machines like threshers remained the same. Increasing tenancy led to a decrease in any kind of investment in mechanisation as tenants lack the ownership rights. By default, the dependency on other agents increased for the supply of these inputs. We observed a similar scenario in the study villages. Most of the cultivating households have personalised exchanges with the commission agents to procure the necessary agricultural inputs.
These personalised exchanges between cultivating households and commission agents have led to one or more input linkages. We attempt to understand how these linkages affect rent and output among tenant and non-tenant-cultivating households. In Table 7, we present the data for all the cultivating households by classifying them into two groups based on their operation, that is, tenants and non-tenants. We also classify these households based on the number of linkages they have in input markets. The number of linkages ranges from zero to three, with three being the most number of linkages the households would have, while zero linkages imply independent input markets. Among the tenant households, around 80 per cent of them have at least one link and operate 80 per cent of the land in the villages. Meanwhile, there are cultivating households who do not have any kind of input linkages, and their share is around 21 per cent, operating around 19 per cent of the total operating area. Around 35 per cent of the tenant households have only one input link in the market, and in most of these cases, the one common and important input is credit. Given that the state heavily depends on the informal sources for credit access, it was evident in our study that tenants have to make a lot of effort to access this. There are a few non-tenant cultivators, comprising around 29 per cent, who have one linkage in the market that is only for credit, and they also operate around 35 per cent of the operated land. Among these households, the procurement of other inputs is relatively easy, and they manage it themselves. Further, another 33 per cent of the tenant households maintain two linkages and operate around 30 per cent of the operated area.
The Distribution of Share of Operating Households and Land Operated by Them Based on Number of Interlinkages in the Study Villages.
After credit, the most important input for these cultivators is fertilisers. Historically, this region was part of the implementation of green revolution, owing to which even now, the use of fertilisers is high. Given the lack of access to subsidised fertilisers for tenant households, it is necessary for them to maintain personalised linkages with the sources for the same. Another set of tenant households has three linkages where they depend on the sources for seeds or machinery apart from credit and fertilisers. The share of these households is around 15 per cent, and they operate 12 per cent of the operated area in the study villages. Together, around 47 per cent of the tenant households borrow two or more inputs and operate around 41 per cent of the land in these villages. This analysis has been diagrammatically presented in Figure 1. In a situation where the cultivator borrows all the important inputs from the commission agents, and if the output acts as collateral, that would be an exploitation. In these villages, we found that pledging the output for the purchase of inputs was a common practice.
The Graphical Representation of Share of Tenant and Non-tenant Households and Land Operated by Them Based on Number of Interlinkages in the Study Villages.
Comparison of Output and Rent Among Tenant and Non-tenant Cultivating Households
Productivity can be increased either by intensifying the use of existing inputs or by adopting a new technology. In the Indian context, some of the field studies show that irrigation and fertility of the farm play an important role in determining productivity. An empirical study in Gujarat by Newell et al. (1997) argues that productivity is a regional phenomenon, and fertile small farms have higher productivity than the large, less-fertile land. Chand et al. (2011) argue that the small-holding cultivators make a better use of technology and other inputs, and that the argument of non-viability of small farms does not hold true in the Asian context. They further argue that though the smallholders are more productive, they are unable to earn enough income for their livelihood. There could be several reasons for this, which also hinder private investment in agriculture. One of the major reasons for smallholders to put more effort into farming could be for mere survival (Chattopadhyay & Rudra, 1976). Meeting daily needs and rent payment, in case of tenants, become an important factor in intensively employing family labour on the farm. On the other hand, large landowners do not cultivate as intensively as smallholders as they are engaged in other non-farm activities like moneylending, which would fetch them more income than cultivation (Rao, 1966).
Given that the share of area under tenancy has been increasing at the all-India level, and a significant share of landless and small-holding households is entering the land lease market, the rental market has become active in rural India. In our study, we found that the nature of contracts between the landowners and tenants was informal, and the terms and conditions on rent payment were predefined. The popular practice among all the households here was rent in kind. There was no practice of cash renting in these villages. One of the reasons provided to us was that most of the output they produce was for self-sustenance, and the rest would not be large enough to sell in the open market. Another important component in output is that the tenants also have to pay for the inputs they purchase from the commission agents, which is again tied to the output. Even for landowners who live in towns and cities, it makes sense to get the rent paid in kind as that would take care of the supply of cereals for day-to-day consumption. We present some of the evidence from the two villages on productivity and rental rates for the households, which are classified on the basis of the number of linkages they have with the input markets. We attempt to analyse if there is any difference in the productivity or the rent paid by tenants and non-tenants (see Table 8).
The Distribution of Average Output Produced and Rent Paid by the Tenants and Non-tenants Based on the Number of Inputs Borrowed from Commission Agents.
The average output produced by the tenants is 60.7 bags a year per acre, and the average rent paid by them is 25.3 bags. The tenant cultivators, who have the most input linkages, that is, borrowing more than two inputs, produce the highest average output per acre, which is 66.8 bags. The average output produced by these tenants is higher than those who have only one or no input linkages. The average output produced by the tenants with the most links is higher than their counterparts. This leaves us to explore the basic incentive structure that drives these tenants to be the most efficient ones. Before making any comments on it, let us look at the rent paid by them. Interestingly, the tenants who have two or more input linkages are the ones who also pay more rent to the landowners. The tenants who have all three linkages pay around 25.8 bags per acre, and those who have two pay much higher, that is, 26.2 bags per acre. This analysis has been diagrammatically presented in Figure 2. What does it imply? Those who pay more produce more. As the tenants have to pay higher rent imposed on them by the landowners, they are forced to produce more. This is a survival strategy for all the tenant households. If a tenant needs the continued supply of land over a period of time, they have to pay more and consequently produce more. This would bring in the extra casual labour, which is largely the family labour from the tenant households.
Conclusion
The evolving economic structure has witnessed the emergence of institutional arrangements like tenancy and moneylenders, where the share of pure tenant households has immense significance within tenancy. An important feature of the increasing tenancy is the lack of collateral, such as land, to access some of the important inputs for production. In the process, the state is withdrawing from the role of facilitator, whereas market institutions are stepping up to fill that gap. The role of informal market mechanisms like commission agents increases in delivering the necessary inputs to cultivating households. The lack of collateral for the tenant households creates more constraints in the nature of exchanges. These exchanges become more personalised in nature and lead to interlinked deals in the rural markets. This study, which presents some empirical evidence from two villages on this type of interlinkages, shows that the households with more interlinkages produce more output. One of the possible explanations for this could be that these households self-exploit themselves to pay for the market inputs from informal arrangements. There is a possibility that this cycle gets reproduced over time, and the poor asset-less tenants get caught in this vicious circle from which they see no way out. In this context of emerging informal institutional arrangements leading to personalised input interlinkages, there is a need to re-think our public policies so as to make agriculture more viable for the cultivators.
Footnotes
Acknowledgements
The authors would like to thank the National Institute of Rural Development & Panchayati Raj for giving access to primary data. They also thank Hamsa for making this manuscript better by editing and rewriting.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.
