Aren't mainline economists lazy?

Will markets give him the right price? 

If making Minimum Support Price (MSP) a legal right for farmers “will spell disaster in the markets, and private players will hesitate to enter into the market,” the fundamental question that protesting farmers are asking – how will the central agricultural laws then bring farmers a higher income – remains unanswered. No one is telling where in the world have markets alone succeeded in providing farmers with higher income. Nor are mainline economists daring to point out the flaws in the market reform strategy that has relentlessly pushed small farmers out of agriculture.         

Although most mainline economists, barring some honourable exceptions, and corporate activists had always treated Minimum Support price (MSP) as a barrier in price realisation for farmers and have been advocating for doing away with the monopolistic control of Agricultural Produce Market Committees (APMCs) so as to provide farmers with greater choices to market their produce, the economic rationale being suggested for dismantling a time-tested regulated marketing system falls short of any sound reasoning. To say that catering to only cereal production is ‘lazy farming’ and an outcome of ‘parochial thinking’ (as a State Bank of India research paper states) is rather unfair and speaks volumes of the inability of dominant economics to think out of the box. If Punjab farmers were indeed ‘lazy’ there is no way the State could achieve record yields of cereal crops – 51.73 quintals per hectare for wheat and 61.49 quintals per hectare for paddy – which are amongst the highest in the world.

Instead of acknowledging their stellar role, to call cereal growing farmers as ‘lazy’ actually stems from a myopic and insular thinking. As economist, Kate Raworth, author of the widely acclaimed Doughnut Economics: seven ways to think like a 21st century economist, often says that an outdated economic model of 20^th century cannot be expected to address the social and ecological problems of this century, it is high time neoliberal economists start looking beyond what is prescribed in textbooks to think and act differently. In other words, it is not farmers who are lazy but instead there exists a dominant class of ‘lazy economists’ – some economists who find it convenient to simply go by ideological prescriptions without even realising that an extraordinary crisis inflicting agriculture requires extraordinary solutions that may be beyond the reach of the invisible hand of the markets.

Even in America, free markets in agriculture are actually thriving on massive federal agricultural subsidy support. According to a non-profit -- Environment Working Group (EWG) -- the US gave $ 425 billion in farm subsidies support under various heads, including crop insurance, disaster management and conservation programmes, since 1995. And yet, despite these monumental subsidies, American farmers are indebted to the tune of another $ 425 billion. This clearly shows that even the visible hand of government subsidies has failed to make markets work efficiently for farmers.

Globally, Producer Support Estimate (PSE) broadly provides a comparable estimate of budgetary as well as various forms of subsidy support to farmers. Developed by the Organisation for Economic Cooperation and Development (OECD) the PSE provides an assessment of the share of gross farm receipts at the farm gate. Accordingly, while Indian farmers receive a negative support (or in other words are actually being taxed) by roughly minus 5.7 per cent, farmers in Norway, Switzerland, Korea, Japan, China, US, EU, Canada, Brazil, Mexico, Indonesia, Philippines, Turkey, Russia, Israel, Costa Rica and Colombia are in receipt of huge subsidy support. Norway tops the chart with a phenomenally high subsidy support of (+) 60 per cent. If this index provides an idea of the extent to which agriculture is supported in the rich countries, how can mainline economists refuse to see that markets need massive subsidies to remain afloat?    

Returning to India, amidst the raging farm legislation row, and despite loud claims being made that markets are more important for farmers than MSP, reports say most crops are actually selling at prices that are on an average 20 to 30 per cent below the MSP announced. Using the government’s own data, an interesting analysis by The Hindu showed that between Sept 14 and Oct 14, nearly 68 per cent of the market transactions for 10 select crops in 600 wholesale markets were at prices lower than MSP. In case of bajra, maize and soybean, in more than 95 per cent transactions the modal price was much below the MSP. Modal price is the average of the transactions that takes place during the day for a specific crop.

This is not the first time that modal price have remained below the MSP. Year after year, the story remains the same. More often than not, the modal price (despite its high sounding name) turns out to be no better than a distress price that markets dictate. With procurement largely remaining confined to wheat and paddy, where farmers get the benefit of an assured MSP, for most other crops farmers are left at the mercy of markets. If the markets were so efficient there is no reason why truckloads of paddy were to be transported all the way from Bihar, where APMC Act was set aside in 2006, to be sold in Punjab for several years now. This year too, as per media reports more than a million tonne of common grade of paddy have been brought from Bihar (and also Uttar Pradesh) at a price between Rs 1,000-1,100 and sold in Punjab at an MSP of Rs 1,868 per quintal. If MSP is the highest price paddy farmers can get, shouldn’t mainline economists acknowledge the importance and need for providing farmers with an assured price?    

This clearly shows that Bihar’s 2006 experiment in ushering free markets – without first framing appropriate policies, incorporating different approaches and strategies, to address the real needs -- failed to prop up agriculture. It’s a classic case of a lost decade and a half during which time millions of economically viable livelihoods were lost. It is also a classic example of how 'lazy economists' failed to seize the opportunity to make a real difference. If only Bihar had learnt from Punjab, and laid out an extensive network for public procurement, the resulting socio-economic transformation would have been phenomenal. #

The lazy economist way. The Tribune. Nov 5, 2020. https://www.tribuneindia.com/news/comment/the-lazy-economist-way-166069?fbclid=IwAR0KzlwVOFOqQkGQi5D9dNqW15nZCrAkyZ30YdiKE5BBgm8vRBoXRTuvqDs

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Post Independence, markets have failed Indian farmers

 

Reiterating what a former US Agriculture Secretary Earl Butz (at the time of Richard Nixon) had once given a call: “Get big or get out,” Sonny Perdue, US President Donald Trump’s Agriculture Secretary too recently said: “In America, the big get bigger and the small go out. I don’t think in America, (as) for any small business, we have a guaranteed income or guaranteed profitability. “ 

Wherever agriculture is being opened to markets, the big capital has successfully managed to push out the majority farming population and concentrated its control over food. That’s how the markets behave, with its own set of logic and ethics. As the big get bigger, the small farms struggle to survive. In America, after decades of market reforms in agriculture, only 1.5 per cent of its population has somehow managed to survive on the farm. Despite providing for $ 867 billion support under the Farm Bill 2018 over the next 10 years for agriculture, nutrition and conservation programmes, rising suicide rate, worrying trends of depression in rural areas, declining milk and farm commodity prices, and the mounting bankruptcy in farming – estimated at $ 425 billion -- will make it tough for the family farms to survive the transition.

With the suicide rate being 45 per cent higher in rural areas as compared to urban America, low prices and mounting debt has pushed much of the rural population into the grips of stress and depression. What happened in America is no exception. It has in fact become an international agricultural design, with agribusiness gaining strongholds over the food value chains across the globe, in reality their competitive strength depending on the huge subsidies received. In Europe, farming too is in a severe crisis despite an annual subsidy support of $ 100 billion, of which nearly 50 per cent goes as direct income support. Low prices and mounting debt has gradually pushed small farmers out of business. In UK alone, 3,000 dairy farms have closed down in the past four years. In France, a study had shown that nearly 500 farmers commit suicide on an average in a year. 

Compare this with India, where 3.64-lakh farmers have officially committed suicide in the past 25 years as per the National Crime Record Bureau statistics. Despite 94 per cent farmers being dependent on markets all these years (as per the Shanta Kumar committee report), Indian agriculture is still in the throes of a terrible agrarian distress. Interestingly, an NSSO report in 2014-15 had shown that nearly 54 to 84 per cent farmers (depending on crops) in the kharif marketing season had sold their produce outside the mandis to private traders. In other words, farmers had the freedom to sell anywhere. They were not in the clutches of the mandis. The question therefore that needs to be asked is if markets were so efficient, why farmers should be increasingly abandoning agriculture and migrating to the cities. If markets were so benevolent, there is no reason why agriculture shouldn’t have been the engine of economic growth. I am not sure whether the markets have now undergone a heart transplant given the exuberance being shown, promising higher price discovery for farmers.  

But this is how markets operate. It pushes people away from agriculture primarily to provide cheap workforce for the industry. The big get bigger in the process and the small go out. For India, the Washington-based International Food Policy Research Institute (IFPRI) has a similar proposition – ‘move up or move out’. For several decades, mainline economists in India had been arguing on similar lines. Numerous committees and reports had pointed to the need to move towards market-friendly agriculture. Minimum Support Price (MSP) was blamed to be the culprit, coming in the way of real price discovery. In one form or the other, the emphasis had been on dismantling the vast network of Agriculture Produce Market Committee (APMC) regulated mandis in Punjab and Haryana.   

To strengthen the argument, even the Commission for Agricultural Costs and Prices (CACP) had come out with a table ranking States in terms of market-friendliness. Bihar was among the states that topped the chart, and Punjab was at the bottom. 

Punjab is at the bottom of the chart because 87 per cent of wheat and rice (as per CACP) is procured by the Food Corporation of India (FCI) or by public sector agencies on its behalf at a guaranteed MSP. In Bihar, less than 1 per cent of the wheat harvest is procured. If this is market-friendliness, economists need to explain what is so good about it. In Punjab and Haryana, comprising the food bowl, farmers receive Rs 80,000-crore a year by way of price support. As far as I can remember, barring a few instances farmers have not received a price higher than the MSP in open markets. Market prices have always remained lower than the MSP announced for wheat and paddy, the two crops that are being procured. Similarly for the 23 crops for which MSP is announced every year, open market prices have generally been lower. That’s the reason why agriculture continues to be in a serious crisis.   

The real price discovery for farmers is by MSP only. The need therefore is to make MSP a legal right of for farmers and ensure that no trading takes places below the MSP, not only for wheat and paddy but for all the 23 crops for which MSP is announced. 

Although the government says MSP and APMC markets will remain intact under the new marketing reforms being ushered in, farmers fear that APMC mandis will gradually become redundant. With APMC markets heading towards a collapse, the new sets of reforms are aimed at encouraging corporatisation of agriculture, with big business moving in agriculture, storage and marketing. As the experience of US/Europe shows, when unregulated markets become dominant, small farmers are the first to be pushed out of agriculture. Given that 86 per cent farmers have less than five acres of land holdings, the message is clear: get big or get out. #

*Ensure no trading takes below MSP. The Tribune. Sept 24, 2020 https://www.tribuneindia.com/news/haryana/ensure-no-trading-takes-place-below-msp-145671#:~:text=In%20Punjab%20and%20Haryana%2C%20comprising,by%20way%20of%20price%20support.&text=The%20need%20therefore%20is%20to,for%20which%20MSP%20is%20announced.

READ MORE - Post Independence, markets have failed Indian farmers

In US, the big is getting bigger and small farmers are on way out -- My interview

At a time when farmers are up in arms against three contentious agriculture bills passed in Parliament advocating an open market system, agriculture expert and commentator Devinder Sharma talks to Sanjeev Verma on how open agriculture markets have failed to provide relief to farmers even in US and European countries.

What is your opinion about three contentious bills passed in Parliament despite protests from farmers?

These bills have now been passed in Parliament and would soon become law. Considering that farmers have been protesting on the streets for over a month now, it is high time we sit and talk to them and find out what their concerns are, what changes we need to incorporate in the legislation, what kind of safety nets are to be provided and how to regulate private investments and capital flowing into agriculture.

After the bills were passed in Parliament, I saw a lot of excitement among the agri-business companies and mainline economists. They are all saying that farmers are being misled, and in reality they would stand to benefit and get a higher price. My question to them is that if you are willing to pay farmers a higher price than MSP, why can’t you stand with farmers and urge the government to accept their demand of bringing in a fourth bill to make MSP a legal right for farmers? In any case you are saying farmers will get a higher price so why can’t you assure them that in future no trading will take place below MSP?

This means we should ensure that MSP becomes a legal right for farmers. That will be the real freedom for a farmer, when he knows that whether he is selling in Punjab or in Bengaluru, whether inside or outside the mandi, he would at least get the MSP for his produce.

When the industry is promising higher prices that means the industry is willing to procure at a price above MSP. So the entire burden of higher price will not be passed on to the government, the private sector will be a major partner.

Can you throw some light on systems in place in the US, European Union (EU) and Australia, and how farmers there get strong government support and subsidies.

In the US and Europe, open markets in agriculture have been operative for six to seven decades. If open markets were so benevolent, the US or European farmers would not have been in the grip of a severe crisis. In the US, farmers are at present faced with a bankruptcy of $425 billion. This is at a time when the suicide rate in rural areas is 45% higher than in urban areas. This is also at a time when the US farmers receive an average of $60,000 annual subsidy. Whereas, farmers in India get nearly $200 annual subsidies.

The US has big retail like Walmart which has no stock limits. The US has not only ‘one country, one market’, it has in fact ‘one world, one market’ operative. They also have contract farming and commodity trading. The biggest commodity exchange is in Chicago. Despite all this, if the US farmers are passing through severe crises, it is a clear indication that market reforms in agriculture have not helped them. Even the chief economist of the US department of agriculture has said that since the 1960s farm incomes have been on a steep decline.

When 

Ronald Reagan

 was the US President, the then agriculture secretary Earl Butz had made a famous statement ‘get big or get out’. That is what exactly the markets in agriculture look forward to. The result has been that small farmers in the US have been pushed out. Today, the number of farmers has come down to around 1.5% of the population.

US President Donald Trump’s agriculture secretary too has reiterated the same, saying in America the big gets bigger and the small goes out. The same thing happened in Canada and in the EU. If we look at Europe, agriculture is receiving a support of $100 billion every year under the common agriculture policy programme. Of this, 50% goes as direct income support to farmers and yet farmers are in crises there. The stress and depression farmers are undergoing there is an indication that they are faced with declining financial stability on small farms.

What difference do you see in small and marginal landholdings in India as compared to large corporate-owned landholdings in the US or Europe?

In the US, the average landholding is more than 400 acres (160 hectares) and in Australia, it is more than 4,000 hectares. In India, the average land holding size is 1.1 hectare and 86% farmers have landholdings of less than 5 acres (2 hectares). If the open market model of agriculture has not worked for bigger landholdings in America, Canada, Europe and Australia, I don’t understand how it will work for small landholdings in India. Instead of blindly aping the open agriculture market model from there, the challenge here should be how to evolve our own model of agricultural marketing which conforms to the peculiar conditions of Indian agriculture - primarily helping small farmers.

Though the Centre declares MSP on 23 crops, it only procures paddy and wheat. When most of the other crops are sold much below the MSP, how can higher prices be provided to farmers?

Shanta Kumar

 (former Union minister) committee report had said that only 6% farmers in India get the benefit of MSP, which means the remaining 94% are dependent on the markets. If the markets were so efficient, I see no reason why Indian agriculture should be passing through such a terrible crisis. The same markets which did not perform for all these years are suddenly now being seen as saviors of farmers.

With only 6% farmers getting the MSP, the challenge now is to expand the MSP regime throughout the country. We have close to 7,000 

Agricultural Produce Market Committee

 (APMC) mandis across the country. The need is to set up 42,000 such mandis if we have to provide a mandi at a radius of 5 km. Since the government announces MSP for 23 crops, of which only wheat and rice is procured, and with some procurement of cotton and pulses, most of the remaining crops get a lower market price. I am looking forward to a time when we are able to take the MSP regime from the present 6% to benefit at least another 60% farmers. This will help realise the vision of Sabka Saath Sabka Vikas.

As the US and other European markets have a high focus on quality of agricultural produce, where does India stand?

There is no denying that the focus of US agriculture has been on improving the quality, and that is why there has been a rise of major agri-business corporations. They have also focused on building the food value chain. Whenever agri-business companies have stepped in, they have brought in technology to check quality norms. But let us not forget, in the US, because of the takeover of the dairy sector by big corporations since the 1970s, 93% of small dairy farms have been closed down. These dairy farms were also having sophisticated technology. They closed down because the prices crashed and the big business increased milk production.

How do you see the increase in MSP for wheat and paddy since 1970?

In 1970, the MSP for wheat was Rs 76 per quintal. In 2015, after 45 years, it was Rs 1,450 per quintal. This means an increase of 19 times. If you compare this with income parity norms of other sections of the society, basic pay and dearness allowance (other emoluments not added) of government employees have increased by 120 to 150 times during these 45 years. In the case of university and college professors, this has increased by 150 to 170 times and of school teachers by 280 to 320 times in the same period. So what do you expect the farmer to do?

A study done by Organisation for Economic Cooperation and Development in collaboration with the Delhi-based think tank Indian Council for Research on International Economic Relations had shown that between 2000 and 2016-17, Indian farmers lost Rs 45 lakh crore. Can we imagine how much farmers are suffering? Imagine if this loss was encountered by corporates, the entire nation would have woken up to the crises India is facing. But this particular subject is not at all discussed in the media.

The economic survey 2016 tells us that the average income of a farming family in 17 states of India, which means roughly half the country, is Rs 20,000 a year. This means a farmer’s family is surviving on nearly Rs 1,666 per month.

But there are also flaws in the APMC mandi system.

Some flaws have evolved over a period. There is cartelisation and mafia. So, why not reform the APMCs? We need to remove the political influence in mandis and ensure mandis operate in a professional manner. We need to see that there is competition within the APMC mandi.

Bihar did away with the APMC Act in 2006 and it is said that the decision made farmers’ condition worse. But why did not farmers in Bihar protest like farmers in Punjab and Haryana?

If bulk of the delivery in APMC mandis is in Punjab and Haryana, they are the ones who know where the shoe pinches. In Punjab 87% of wheat and paddy is procured. In Haryana, it may be around 80%. But in Uttar Pradesh, only 7% procurement takes place, in Rajasthan it is 4% and in Bihar it was hardly 1%. So, when they do not have any idea what procurement is all about, how do you expect them to stand up and protest?

What do you say about the Essential Commodities Bill passed in Parliament in which commodities like onion, potatoes, cereals, pulses and edible oil have been removed from the list of essential commodities and one cannot know how much stock a person is holding?

This means that we have actually legalised hoarding under the garb of saying that farmers would actually benefit. When there is asymmetry in power, how do you expect a big player to negotiate with a small player? Secondly, when there would be hoarding at this scale, the big storage companies would be calling shots and deciding what the prices would be. #

Source: If Open Markets were so benevolent, farmers in US and Europe wouldn't be in severe crisis. The Times of India. Chandigarh. Sept 26, 2020. 

https://m.timesofindia.com/city/chandigarh/if-open-markets-were-so-benevolent-farmers-in-us-or-europe-would-not-be-in-severe-crises/amp_articleshow/78328364.cms

READ MORE - In US, the big is getting bigger and small farmers are on way out -- My interview

Make MSP a legal right for farmers -- My interview

Pic courtesy: Gorakhpur NewsLine

This is the English version of an interview I gave to the web portal hindi.newsclick.in The link of the Hindi interview is at the end. Please scroll. 

According to you what exactly is the biggest problem confronting Indian agriculture? 

Ans: For several decades now I have seen how agriculture has been deliberately kept impoverished to keep economic reforms viable. To ensure that food inflation remains under control as well as to ensure that the industry gets its raw material at a cheaper price, farm prices have been kept low. When a farmers undertakes crop cultivation what he does not realise is that he is actually going to cultivate losses. As a result of this, he is left with no option but to draw more credit, and thereby live under debt for all times to come. That is why I have always said that the answer to the severe agrarian crisis does not lie in the crop field, but in economics.  

To illustrate, let me share a study that we did some years back. In 1970, the Minimum Support Price (MSP) for wheat was Rs 76 per quintal. At that time, the salary of school teachers was as low as Rs 90 per month. In the next 45 years, in 2015, the MSP for wheat increased to Rs 1,450 per quintal which was a jump of 19 times in a period of 45 years. In the same period, the salary of government employees (only considering the basic pay and DA) increased by 120 to 150 times. The salary of College/University professors/lecturers increased by 150 to 170 times; and the salary of school teachers increased by 280 to 320 times. This tells us very clearly that if farm incomes had increased in the same proportion as other sections of the society, agriculture wouldn’t have faced the kind of crisis that exists today.

Q:  If farmer’s income had increased in the same ratio as that of employees and professors don’t you think food would have become too expensive? How would an average household manage its monthly food bill with such high food prices?

Well, it is clear that farmers are paying the real cost of keeping food prices low. In other words, to ensure that food inflation does not increase, are we not penalising farmers by deliberately paying them a low price? Have we ever thought that a farmer too has a family;  he has to educate his children; meet their health expenses and so on. He also needs a respectable income to sustain a decent livelihood. According to the Economic Survey 2016 the average income of farming families in 17 States of India, which is roughly half the country, stands at Rs 20,000 a year. This comes to less than Rs 1,700 per month. You can’t even rear a cow in Rs 1,700 in month. Have we ever thought how do these families survive? 

By denying farmers their rightful income, we have pushed farmers in a debt trap. It is time we pull them out of indebtedness, and give them a breather in the shape of a monthly income package that they deserve but have been denied. After all, a farmer too needs an assured income every month and it becomes our duty as consumers to ensure that we also stand with the family that struggles so hard to put food on our table.

Q:  You said a farmer too needs an assured income. How is that possible?

Several years back, some 10 to 12 years ago, when I first said that farmers need direct income support there was a strong opposition from economists. They couldn’t understand why I was asking for a direct income support for farmers. My argument was that since farmers have been denied their rightful income all these years it is important to compensate them for the losses incurred. Farm incomes have remained frozen or in the negative for more than two decades now and it is time to correct the income imbalance that has prevailed. Take for instance a study conducted by OECD (Organisation for Economic Cooperation and Development) which comprises the world’s richest trading block. This study in collaboration with New Delhi-based organisation ICRIER has found out that Indian farmers have lost Rs 45-lakh crore between the years 2000 to 2016-17. This was an extraordinary crisis afflicting agriculture but huge crisis being faced by farmers never became a national issue. There was a need for an economic stimulus package for farmers like the industry is given very often but no one talked about.

This tells us how severe is the economic crisis that farmers face. This often happens because of the price fluctuations farmers face. Every now and then we hear of reports of farmers throwing tomato, potato and onions on the streets. There are reports of farmers not getting the right price in the mandis. Price of almost all agricultural commodities continue to prevail low as compared to the Minimum Support Price. To illustrate, maize farmers in Shivani district in Madhya Pradesh have been sitting on a Makka Satyagrah demanding their maize crop to be procured at MSP. But what they are able to sell at is hardly between Rs 950 to Rs 1100 per quintal against the MSP of Rs 1,850 per quintal. These farmers have calculated the loss farmers in the district suffered to the tune of Rs 600-crore. Similarly, a farmer leader from Wardha in Vidharba has calculated the loss cotton farmers across the country have suffered at Rs 26,000-crore this year on account of being denied the rightful price.

It is therefore important to provide farmers with an assured monthly income. This can be by way of an assured MSP price or by adding direct income support or by bringing in some other measures. My suggestion has been to set up a Commission for Farmers Income & Welfare which should ensure that each farmer is able to get an income of Rs 18,000 per month, which equals the basic salary of the lowest level Government employee.  I don’t mean the Government should issue a cheque of Rs 18,000 per month to every farmer. But it has to work out a mechanism to ensure that’s the amount what every farmer should earn in a month.  

How does the Govt believe that amending Essential Commodity Act and bringing in amendments for contract farming will promote agriculture? 

Yes, the Government has brought in three Ordinances. These Ordinances pertain to agricultural marketing, price assurance and contract farming and removing the stock limits under the Essential Commodity Act. The idea that any farmer can sell to anyone, and anywhere, sounds very good but will it help farmers get a better price? Similarly, allowing farmers to sell anywhere in the country by removing all the inter-state barriers specially when 86 per cent farmers have less than 2 hectares land holding, and are unable to sell even within a district seems too optimistic. And finally, encouraging contract farming and hoping price contracts will give farmers a better price too needs to be first evaluated.

It is however good that the government has not diluted the APMC mandi system nor has it said anything about changing the MSP norms.

It was in 2006 when there was a similar kind of excitement. Bihar had gone in for agricultural market reforms and had thrown away the APMC Act. This was hailed as a major reform which was expected to turn Bihar into the future food bowl of the country. Economists had expressed the optimism that with APMC not coming in the way anymore, private investments will flow in, technologically advanced mandis will be set up by the private sector and farmers will get a better price discovery, which means they will get a higher price compared to the MSP the government announces. It has been 14 years since the APMC mandis were removed from Bihar. But all the claims have fallen flat, and nothing like the excitement that was projected at that time, has happened.

In the absence of any provate mandis that economists had talked about, it is some private traders who operate now. Farmers are realising low prices as a result of which every harvest we find unscrupulous traders transporting truck loads of wheat and paddy all the way to be sold in Punjab and Haryana where they at least get an assured MSP.  If only in these 14 years, Bihar had instead laid out a vast network of APMC mandis like in Punjab, its agriculture would have been in a much better condition. There would have been less out migration from rural areas in Bihar if only agriculture had been strengthened.  

According to NABARD 2015 study, the average farm income in Bihar remains low at Rs 7,175 per month. Compare this with the average in Punjab, which stands at Rs 23,133 per household. Much of it is because of a higher price realisation from the MSP system. It is therefore a missed opportunity for which Bihar continues to pay a heavy price.

But it is being said that these reforms will provide farmers with freedom to sell and thereby increase farm incomes ..  

It is important to first understand how have these markets reforms or the freedom to sell has operated in America from where we are borrowing the agricultural marketing provisions. According to the Chief Economist of US Department of Agriculture (USDA) real farm incomes in America, if adjusted for inflation, have been on a steep decline since 1960s. Since there is no APMC market nor an MSP farmers have the right to sell anywhere and to anyone. But over the years American farmers are faced with a severe economic crisis. What had saved farming all these years was the economic support through massive subsidies. If agricultural markets were so efficient I see no reason why In 2018 OECD countries should have provided agricultural subsidies to the tune of $ 246 billion. Further, despite contract farming, commodity trading and the dominance of multi-brand retail, the American Farm Bureau Federation in 2019 said that 91 per cent US farmers are bankrupt and 87 per cent farmers say they are left with no other alternative but to abandon farming.

While India is trying to hook agriculture to contract farming and commodity futures, I wonder why in the US with the biggest commodity stock exchanges, farmers should be carrying a debt of $ 425 billion. If commodity trading hasn’t worked for US farmers and for European farmers where 50% of $ 110 billion agricultural subsidies come in the form of direct income support how it will be a panacea for Indian farmers has not been explained.

So what in your thinking should be the agricultural reform that Indian farmers should be looking at?

What Indian farmers need is a commitment from the government or the industry that they will get an assured price after every harvest. This is only possible if we were to strengthen the agricultural marketing infrastructure. There are at present less than 7,000 regulated APMC markets in India. What India needs is vast network of 42,000 markets if a mandi has to be provided in 5 kilometres radius. The opportunity therefore is huge, all it requires is the ability to take up the challenge and chart a promising direction by first investing in essential infrastructure like mandis, cold chains, storage, grading, transportation etc.

Now comes the issue of price discovery. If markets were so efficient, there is no reason why farmers should be committing suicide in such a large number. After all, as per the Shanta Kumar Committee only 6 per cent farmers in India get MSP. The remaining 94 per cent farmers are dependent on free markets. If markets were so efficient in India also, there is no reason why so many farmers should have committed suicide. Their economic conditions should have improved over the years.

It is therefore time to strengthen the APMC network, and ensure that MSP becomes a legal right in the sense that no trading should be allowed below MSP. I am not against setting up private markets nor am I against competition. Pvt mandis can be set up in Bihar or in eastern UP or where there is a need for a mandi. That will provide a better competition with APMC mandis. But since it is being said that selling to anyone, and anywhere will ensure better prices to farmers, which means a price higher than MSP, I am sure the private sector will not object if MSP is made a legal right for farmers. After all, the private players are already claiming farmers will get a higher price so why not make MSP mandatory in trading for all the 23 crops for which it is announced every year. This of course should be followed by setting up a Commission for Farmers Income and Welfare.

This will not only transform Indian agriculture to meet the vision of Sabka Saath Sabka Vikas but in the process will also become a global model, the world too needs. #

'हमने अन्न उपभोक्ताओं पर ध्यान दिया है अन्न उत्पादकों पर नहीं'. NewsClick. June 25, 2020.

https://hindi.newsclick.in/We-have-focused-on-food-consumers-and-not-on-food-producers?fbclid=IwAR25eFd_ZJqgkZllLdMDu1yMvlYpw6WZC7orKTCuB8GlCbCbv2rKNeV8-x8

READ MORE - Make MSP a legal right for farmers -- My interview

Best reforms would be if the APMC mandi network is expanded

Pic courtesy: Indian Express

The year was 2006. There was excitement in the air. Throwing out the Agricultural Produce Market Committee (APMC) Act, Bihar had undertaken futuristic agricultural market reforms. With no mandis coming in the way, sarkarieconomists and policy makers were exuberant at the immense possibilities of providing more income into the hands of the farming community thereby turning Bihar into a land of prosperity.

In the absence of regulated mandis, economists had predicted a lot of private investments to flow in thereby helping in the setting up of modern private market yards and purchase centres. Since there would be no APMC mandis there would also be no Minimum Support Price (MSP), which means private players would be able to give farmers a higher price. That is what was said at that time.  

Fourteen years later, Bihar still leads the pack of States that form the BIMARU States. There is hardly a year when unscrupulous traders have not transported truck loads of wheat and paddy to be sold in Punjab and Haryana mandis. The reason why traders found it economical to transport wheat and paddy all the way from Bihar was primarily because the prices private trade offered back home was much less. Against a procurement price of wheat at Rs 1,925 per quintal this year, wheat farmers in Bihar were not getting more than Rs 1,500 to 1,600. No wonder, while Punjab and Haryana farmers have gained from the delivery of MSP year after year, farmers in Bihar continued to suffer. The argument that Bihar farmers could sell to anyone, anywhere within the State failed to pull them out of poverty.

There are two ways of looking at this. First, in the absence of an assured MSP being given to farmers year after year, the average income of a rural household in Bihar remains low at Rs 7,175 per month. Compare this with the average in Punjab, which according to a study by NABARD stands at Rs 23,133 per household. Much of it is because of a higher price realisation from the MSP system. This year alone for the wheat harvesting season, Punjab farmers received a total of Rs 26,000-crore by way of wheat MSP. This has bolstered the rural economy of Punjab. Secondly, a majority of the lakhs of migrant workers who underwent the trauma of walking home or cycling home, or travelled by buses and trains to return home, comprised workers from Bihar. Imagine if instead of dismantling APMC mandis Bihar had in turn laid a strong network of mandisand village roads like in Punjab, perhaps the number of migrants from Bihar would have been far less. If agriculture was profitable in Bihar I see no reason why rural population from Bihar would have migrated in such a big proportion.

The Bihar experiment with agricultural market reforms has failed. If the APMC mandis are gradually dismantled in Punjab, and government subsequently withdraws from procuring wheat and paddy at MSP, will Punjab farmers also become like Bihar farmers? Although Agriculture Minister, Narender Singh Tomar, has clearly said that the series of reforms being introduced through the three Ordinances will not touch MSP and APMC mandis, senior Cabinet Minister Nitin Gadkari has said that MSP is higher than domestic market prices as well as international prices, and the government will need to find a viable solution. This is exactly what the CII and FICCI have been demanding for several years now.

Even though the Minister for Agriculture has said that the government does not intend to dilute the provisions of MSP, the fact that the despite the claims government has in reality come up with ‘One Country, Two Markets’ system whereby traders and private players buying outside the APMC market yards will not have to pay any tax whereas those trading inside the premises will pay 3 per cent manditax and 3 per cent towards rural development fund (total of 6 per cent in Punjab) actually is discriminatory against the APMC network. As the Chamber of Association of Maharashtra and Trade (CMIAT) has said that in the absence of a level-playing field, the APMC mandiswill gradually become redundant over a period of time. This is something that Punjab and Haryana, with a robust APMC mandinetwork, have to be worried about.

Further, let us not forget that a few months back citing the recommendation of the Commission for Agricultural Costs and Prices (CACP) the Prime Minister Office had written to the Punjab government asking why should the open-ended procurement of wheat and rice not be discontinued, which means the government is keen to reduce procurement thereby also reducing the outgo on MSP. The Chief Economic Advisor had recently called for restricting food procurement for only 20 per cent population as compared to providing rations for 67 per cent population under the National Food Security Act. Reducing procurement automatically means reducing the payment of MSP to farmers.

Over the past few decades, Punjab has built a strong network of APMC mandis. With roughly 1,840 mandis, sub yards and purchase centres spread across the state, along with 70,000 kms of village roads, the vast agricultural marketing infrastructure is certainly neighbour’s envy. Instead of opening these mandis to private competition, the challenge should be to set up private market yards in Bihar, Uttar Pradesh and other deficit areas. In 2019, only 3,000 tonnes was procured in Bihar, and in Uttar Pradesh only 7 per cent procurement is undertaken. In Punjab, 128-lakh tonnes of wheat have been procured this season.

In any case, Shanta Kumar Committee tells us that only 6 per cent farmers across the country get the benefit of MSP. In other words, 94 per cent farmers are dependent on the markets. If markets were so efficient, I see no reason why agriculture distress should be so huge. If markets were so efficient farmers wouldn’t have been demanding a higher MSP and also seek more crops to be included under the MSP regime. Considering that India has only about 7,000 APMC mandis, the best reforms would be if the APMC mandinetwork is expanded to 42,000 mandiswith the aim to provide a marketing platform in every 5 kms radius. At the same time, trading should be mandatory on the MSP announced. Even in eNAM mandis MSP should become the modal price. This is the reform that the country’s farmers need.  # 

READ MORE - Best reforms would be if the APMC mandi network is expanded

Markets have failed US/EU farmers

Writing in the Conservative American, Austin Frerick, a director at the Open Markets Institute, had said: “In the 1980s, 37 cents out of every dollar went back to farmer. Today, farmers take home less than 15 cents on every dollar.” Pointing to the increasing concentration of economic power in the hands of a few multinational corporations over the decades to be primarily responsible for the declining farm incomes, he called for fixing the broken food system.

Last week, another article in Financial Times asked: “Is our food system broken?” In fact, a Google search for broken food systems comes up with hundreds of articles, reports and studies, clearly pointing to the desperate need to redesign global agriculture, with the primary focus on adopting sustainable farm practices and the desperate need to make agriculture economically viable. Another search for farm distress and among the top articles to pop-up is from the Time magazine: “’They’re trying to wipe us off the map’. Small American farmers are nearing extinction,” screams the headline. The more you read on farm distress the more you realise how in the name of free markets and the freedom to sell anywhere, to anyone is pushing small farmers off the land.  

That makes me wonder. If after five decades or more of liberalisation of agricultural markets, with no stock limits for big retailers, and commodity futures markets giving an indication of the price at the time of planting, Al Davis, a former Nebraska senator and cattle farmer is left to say: “Farm and ranch families are facing a great extinction. If we lose the rural lifestyle, we have really lost a big part of what made this country great,” isn’t the exuberance being exhibited over the planned liberalising of agriculture markets in India overtly misplaced? After all, if leaving farm prices to markets is the winning formula, isn’t it first time to explain why American and European agriculture is in a severe state of distress.

Ever since the days of Uruguay Round negotiations, and subsequently after the WTO was formed in 1995, monumental agricultural subsidies being paid by the developed countries have remained a contentious issue. Former Commerce Minister Kamal Nath, who represented India at a number of WTO Ministerial conferences, had often said “you cannot expect Indian farmers to compete with the US treasury,” referring to the massive subsidies being doled out in America. Later, Arun Jaitley as Commerce Minister too had echoed the same sentiments at the time of the Cancun Ministerial. Even now, developing countries are asking for re-opening the hotly debated issue of farm subsidies.

This brings me to the essential question. If agriculture markets are so efficient, how come it failed to prop up US/EU agriculture? The US Department of Agriculture has itself acknowledged that the real farm incomes have been on the decline since the 1960s. And that too, despite such heavy subsidy support provided year after year. This is primarily because 80 per cent of these subsidies go to agribusiness companies, and the remaining 20 per cent are cornered by big farmers, as many studies have shown. An UNCTAD-India study in 2007 had shown that if the green box subsidies (protecting domestic support in agriculture) in the developed countries were to be withdrawn, agricultural exports from US, EU and Canada would drop by about 40 per cent.

Even 25 years after the WTO came into existence; OECD countries are still providing a huge producer support for agriculture, touching $ 246 billion in 2018. Of which, in EU-28 countries, the producer support totals $ 110 billion a year, roughly 50 per cent of it being in the form of direct income support. These subsidies are expected to further increase in the post-Covid period.

Repairing the broken food system therefore would urgently require restructuring the agricultural markets. Whether in America, Europe or India, where despite the scale, agrarian distress has been worsening over the years, the proposed agricultural reforms have to be tailored to the need to first make farming an economically viable, and profitable venture thereby restoring the pride in farming. Leaving farmers at the mercy of the markets hasn’t worked in developed countries. Nor has commodity futures trading been of much help. To illustrate, let’s look at the $ 103 billion chocolate industry, where the prices for cocoa beans is largely determined by commodity futures. While Africa alone produces about 75 per cent of the cocoa in the world, what percolates down to farmers is relatively insignificant. With hardly 2 per cent revenues coming to cocoa farmers, millions are living in acute poverty.

For several years, dairy farmers in UK had been protesting at supermarkets demanding to be paid a fair price that protects them against the volatility in prices. The bigger the retailer the more is the tendency to dictate prices. In the quest for higher profits, and at the same time ensuring competitive prices to consumers, big retail has often been known to squeeze on farmer’s margins. If big retailers like Sainsbury and Tesco, with the ability to maintain huge stocks, were providing a higher price to farmers, there is no reason why half of all the UK farms would end up being in business only by supplementing income from non-farm activities.

Providing a fair and assured price to farmers therefore is turning out to be the biggest challenge. All that has been tried, and tested in the developed countries has failed to show any promise. In fact, it has only pushed developed as well as developing country farmers into a severe crisis. Enabling farmers to sell anywhere, to anyone to get a better price is no reason for excitement, unless farmers can be assured of a better price. Instead of pushing what the agri-business industry needs as marketing reforms, let us develop a system that actually helps farmers become economically viable and in true sense atmanirbhar. Developing a food system based on local production, local procurement and local distribution is what India needs.

This is only possible by strengthening the existing networks of regulated APMC markets, and building a robust system of trading where the Minimum Support Price (MSP) becomes the model price. #

The broken food system. The Tribune. May 29, 2020

https://www.tribuneindia.com/news/comment/the-broken-food-system-91249?fbclid=IwAR3iLqaJuEjVBZ7Mj8BT8hT3HCebV4w41-KNDf_vyxaHepID2wEqgewRq2c

READ MORE - Markets have failed US/EU farmers