For over 40 years now tomato prices have remained frozen -- Pic from web
Consider this. For nearly 40 years now, the average price Indian farmers are getting for tomato in 2018 is not much different from what they were getting in 1978. Adjusted for inflation, the price of tomato remains almost the same, perhaps a little less. Reports of angry farmers dumping tomato onto the streets for failure to get a price that covers even the cost of cultivation have donned the media space for the past two consecutive years. As far as I can recall, reports of farmers feeding tomato to cattle or throwing it on the streets used to appear frequently in the newspaper even way back in the early 1980s.
In the absence of a truly national market, with restrictions on movement and open participation of traders, one can certainly say that an efficient market for agricultural commodities is still not a reality in India. Even if only 6 per cent farmers get the benefit of Minimum Support Price (MSP), which means the remaining 94 per cent are dependent on markets, the low prices of farm commodities are not a reflection of market efficiency. In that case let’s look at farm prices in the US, which is still the world’s most advanced (and one of the largest in terms of market prices) economy in the world. US markets are competitive, bigger players operate with relative ease, and where futures trading dominate thereby allowing for what is called as price discovery.
Writing on his blog, an American farmer, Mike Callicrate, says that the price at which his father sold corn some 44 years back, on Dec 2, 1974, was $3.58 per bushel (equal to 25.40kg). In January 2018, he sold corn at $ 3.56, down two cents from what he earned 44 years ago. In a tweet, another Canadian farmer, Philip Shaw, who farms in Ontario province, quotes the corn price on September 12, 2018 at $3.52 per bushel, which means another fall of 4 cents from what was traded in January this year. In the words of Mike: “The farmer who planted his first field of corn in 1974 can expect the same prices for his corn as he retires.”
If markets were so efficient, I don’t see any reason for the completely distorting price signals. If for 44 years, the markets fail to discover the real corn price that a farmer needs to get, it is quite obvious that the markets are far from efficient. After all, as the American farmer said, all the while the prices of seed, land, equipment, fertilizer, and fuel have grown exponentially but the output price remains the same. Nothing can be more painful.
Dr Robert Johannson, Chief Economist of the US Department of Agriculture (USDA), while addressing the 2018 Agricultural Economic and Outlook Foreign Trade Forum in Mar 2018 stated explicitly: “Real farm prices, when indexed for inflation, have fallen sharply since 1960.”Yes, you heard it right. This is happening in America. No wonder, to meet the market’s inability to pay the farmer the rightful price, the US provides an average of $ 50,000 per year as subsidy support to every farmer.
In India, a recent OECD study has conclusively stated that farm prices remained frozen for the past two decades. Farmers have been deliberately paid 15 per cent less all these years to keep food inflation under control. In the absence of any corresponding subsidy or direct farm income support, Indian farmers have been very conveniently left in the lurch. Hit by rising input prices, declining public investments in agriculture, and the increasing price volatility, farmers are the victims of an inefficient market. Yet, the dominant economic thinking is that the best way to address agrarian distress is to further liberate the markets, which will provide the right price signals. What is however not being acknowledged is that even in the US markets have failed to prop up agriculture.
As the kharif harvest season begins, prices of moong, urad, groundnut, bajra and jowar are already ruling much below the MSP. Take the case of moong. Against the procurement price of Rs 6,975 per quintal, the prevailing prices in the past week in Madhya Pradesh mandis hover between Rs 3,900 to Rs 4,400 per quintal. In Maharashtra, the best price offered is Rs 4,900 per quintal. In case of urad, against the MSP of Rs 5,600 per quintal, what the farmers have been able realise in Maharashtra mandis is anything between Rs 3,900 to Rs 4,200 per quintal. This is the beginning of the season and I wonder what will be the prices when the arrivals peak. But going by the past two years experience, when prices of pulses fell by 20 to 40 per cent in mandis across the country, there is hardly any expectation of prices going up this year.
At a time when markets have failed miserably to pull out farmers from perpetual indebtedness, the launch of Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) has to be seen as an acknowledgement of the fact that farmers need a guaranteed income. The thinking behind assuring farm incomes alone is a significant step forward in bridging the great income divide that prevails in agriculture vis a vis other sectors of the economy. As part of the PM-AASHA initiative, the government will in reality push three schemes, including the continuation of the existing price support scheme, and expanding the price deficiency payments scheme as tried out in Madhya Pradesh. The third scheme, and which needs critical evaluation, is to allow on a pilot basis private players in procurement operations, to begin with in oilseeds.
After announcing a higher MSP, even if it is much below what farmer unions have been demanding, the promise to buy 25 per cent of the entire marketable surplus can only be implemented successfully if an adequate market infrastructure is laid out. Against the requirement of 42,000 APMC mandisat 5 km radius, India only has about 7,600 mandis. While the mandi network has to be expanded, what is also needed is an appropriate financial back up to meet the price support. The budgetary provision of Rs 15,053-crore that has been set aside for the next two years is far too low. If India Inc can be provided with an economic stimulus package of Rs 1,86,000-crore in 2008, and which has still not been withdrawn, I see no reason why a similar package by way of procurement prices cannot be announced for agriculture to begin with. #