The reforms Indian agriculture needs

Pic courtesy: rediff.com 

Farmer protests show no signs of ending. For almost ten months now farmers have been protesting at the New Delhi borders. While the protesting farmers are not giving up on their basic demand calling for the repeal of the three central laws, the Centre remains adamant saying that it is willing to accept amendments to the three laws but complete withdrawal is out of question. 

As the stalemate continues, a question that is being repeatedly asked is if the three laws are not acceptable for farmers, then what kind of agricultural reforms would be required. After all, even before these laws were introduced Indian agriculture was (and is still) passing through a terrible crisis. Just withdrawing the laws would mean returning to a status quo which in any case is not going to help the farming community struggling to somehow survive.   

That Indian agriculture is passing through an appalling crisis was never in doubt. But the latest report of the Situational Assessment Survey 2018-19 which looked into agricultural households and incomes in rural India only comes as an acknowledgement of the worst fears. This comprehensive study, based on an extensive survey, clearly shows that the income of an agricultural household from crop cultivation alone has been on a steady decline. In fact, an average farm household in 2018-19 earned more from wages than from crop cultivation.  

This survey report should in fact tell us why farmers are braving weather extremes to stay put at New Delhi borders. After all, as I have always maintained, the compound anger the protesting farmers carry is the result of continuous neglect and apathy they have lived with. Agriculture has been deliberately kept impoverished to keep economic reforms viable. That’s how the economic design was cast. In other words, the entire burden of keeping food prices low has been borne by farmers, which means in real terms, farmers alone have been subsidising the country. 

These are the same farmers’ whose hard work and labour results in a record harvest year after year, allowing the government to pat itself on the back, taking credit for a record production. In 2018-19, farmers produced 187.75 million tonnes of milk, 174.63 million tonnes of paddy and 102.19 million tonnes of wheat. In addition, farmers produced 320.47 million tonnes of horticultural crops, including fruits, vegetables, spices and plantation crops. But despite the bountiful harvests, farmers have remained at the bottom of the economic ladder. To keep food inflation low, and to hasten migration to the cities which are need of cheap labour, agriculture has been very conveniently sacrificed. 

For macro-economists, agricultural growth helps raise the quarterly as well as the annual GDP figures. So much so that even during the lockdown, when economy contracted, agriculture remained the only saviour registering a positive growth throughout. Agriculture, in other words, had lived up to its reputation of being the mainstay of the economy. But that is where the appreciation and acknowledgement ends. Mainline economists and policy makers have remained not even remotely concerned of the continuing plight of the farming community.   

Despite all the subsidies and programmes that are announced from time to time, which gives a false impression of agriculture being hugely supported, the latest Producer Subsidy Equivalent estimates prepared by the Organisation for Economic Cooperation and Development (OECD) shows that in reality India had negatively taxed its farmers in the past two decades. 

This brings me back to the question as to what kind of reforms does agriculture need. After all, agriculture continues to be in the throes of a serious crisis and has been crying for attention. The immediate need is to pull farmers out of the poverty trap by making farming a viable proposition. This is possible only if policy makers are willing to take some bold steps to realise the Prime Minister’s vision of Sabka Saath Sabka Vikas.

Since this question is asked again and again, and even at the cost of sounding repetitive let me reiterate that the three pillars of reforms that Indian agriculture desperately need are:  

1) Make Minimum Support Price (MSP) a legal right for farmers. Just like Spain brought in a law in Feb 2020 to make trading below the cost of production illegal for agricultural, horticultural, livestock and animal husbandry, it is high time India too brings in a legal provision making trading below the MSP to be illegal, and prescribe suitable penalties for defaulters. At present, while MSP is announced for 23 crops every year, effectively it is implemented for only two crops – wheat and paddy. This provision has to be extended for all the crops for which prices are announced. It does not however mean that the entire farm produce has to be procured. It only means setting a benchmark price below which farm gate prices for farmers are not allowed to fall. This has to be accompanied by a direct income support programme for marginal farmers with less than 1 hectare landholding. 

2) Expand the network of APMC regulated mandis. At present, we have approximately 7,000 APMC mandis. Although a lot of discrepancies have emerged in the way APMCs are managed, the need is to make corrections and not to throw away the baby with the bathwater. In fact, to minimise distress sale and ruthless exploitation by trade, markets need to come closer to the farm. India therefore needs 42,000 mandis if a market has to be provided within 5 km radius. Private sector should be invited to set up mandis to operate under the same APMC marketing norms. This will inculcate healthy competition. 

3) Replicate the Amul dairy cooperative model for fruits, vegetables, pulses and oilseeds to begin with. Instead of inviting corporate into agriculture, strengthen the cooperatives. This will need appropriate public sector investments, and structural changes in agricultural marketing set up. And let’s not forget. When consumers buy milk from dairy cooperatives, nearly 70 to 80 per cent is the share of farmer in the end consumer price. In America, where free markets operate in agriculture, only 8 per cent is farmers share in the end consumer price. What we need is perfecting a system that provides 70-80 per cent of the end consumer price to farmers. #

Source: Making farming viable key to pull farmers out of debt trap. BizzBuzz. Sept 17, 2021. https://epaper.bizzbuzz.news/Home/MShareArticle?OrgId=17924a99c3e 

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Farmers are being penalized to grow food

With an income of Rs 27 (US $ 0.37) per day, an average Indian farmer fares worse than a labourer. 

Pic courtesy: downtoearth.org.in 

A few years after the World Trade Organisation (WTO) came into existence in 1995, I was invited by The Ecologist, London, to write an essay comparing the Indian farmer with a European farmer. The idea being to see how the Indian farmer, considering the relatively low cost of production in India, had gained economically after the opening up of international trade. 

This was the general impression that mainline economists had created to justify the need to join the trade agreement, despite the growing farmers’ opposition, with one of them going to the extent of terming the immense opportunities that WTO Agreement on Agriculture will provide for farmers as a ‘big bang’ opening. With agricultural exports expected to boom, farm incomes were slated to increase thereby transforming the face of Indian agriculture. With no such evidence available, and not finding any merit in the correlation, I actually ended up comparing an Indian farmer with a European cow. 

Almost 26 years after the WTO was launched, the latest report of the National Statistical Organisation (NSO) on agricultural households and incomes in rural India, released last week, paints a rather gloomy picture. This Situation Assessment Survey (SAS) was conducted in 2018-19. While the survey report hasn’t drawn any correlation between a farmer and a cow, what it has clearly brought out is no less frightening -- an average Indian farmer fares much worse than a labourer. If 75 years after Independence, farmers are earning more from wages than from crop cultivation, it only shows that the overarching economic design of keeping farm incomes deliberately low so as to accelerate rural to urban migration, because cities need cheap labour, is on track. 

In 2012-13, when the last SAS was conducted, an agricultural household earned 48 per cent of the income from crop cultivation; which declined to 38 per cent under the 2018-19 survey. During the same period, share of farm income from wages alone rose from 32 per cent to 40 per cent. Increasingly, wages have begun to form a larger chunk of an average agricultural household income, a trend that will hopefully continue in the years to come. Calculated on the basis of ‘paid out expenses’ the total monthly income has been computed at Rs 10, 218 for an agricultural household. Compared to Rs 6,426 per month in 2012-13, and adjusted for inflation, it represents a nominal increase of 16 per cent. Using the ‘paid out expenses and imputed expenses’ approach, average income per agricultural household has been shown as Rs 8,337 in 2018-19. For this, the imputed expenses mean the input coming from home, unpaid labour, own machinery, own seed etc.   

Nevertheless, as far as crop cultivation is concerned, an average agricultural household earned Rs 3,798 in 2018-19. In real terms, when adjusted for inflation, the earnings from cultivation declined by 8.9 per cent between 2012-13 and 2018-19. Further, broken on a per day basis, a newspaper has in an interesting analysis, worked out the income from crop cultivation at Rs 27 per day. Even a MANREGA worker earns more. It only establishes what I have been saying for long – farmers are in reality being penalised to grow food. And in any case, income from cultivation is certainly less than the earnings from an average lactating cow on a per day basis, given the farm gate price of approximately Rs 30 per litre. 

Obviously, the lesser the farm income, the more is the effort to draw credit, sometimes from multiple sources. The average farm debt increased to Rs 74,100 in 2018-19 from Rs 47,000 in 2012-13. About half of the agricultural households, 50.2 per cent to be exact, carried outstanding loans. Strangely, Mizoram sees a whopping increase of 709 per cent in outstanding farm loans, followed by Assam and Tripura in the Northeast.  

More recently, Parliament was informed that by the end of March 2021, outstanding farm loans totalled Rs 16.8-lakh crore, with Tamil Nadu topping the chart. 

Considering that nearly 77 per cent of the agricultural households are self-employed, what is worrying is that 70.8 per cent of the landholdings are less than 1 hectare. Only 9.9 per cent of the landholdings are between one to two hectares. An agricultural household has been defined as a household receiving more than Rs 4,000 as value of produce from agriculture and allied activities with at least one member engaged primarily in farm activities in a year. 

With only 0.2 per cent of the rural households having more than 10 hectares of land, it belies the narrative being drummed up accusing the farm protests to be the work of big farmers.  

Big or small, the denial of rightful income to farmers’ goes well with the policy thrust being exercised by successive governments over the past few decades to push people out of agriculture. Following the World Bank/IMF emphasis on shifting population from rural areas, also resonating with the dominant economic thinking that increasing urbanisation pace will lead to faster economic growth, keeping agriculture deliberately impoverished creates conditions for farmers to abandon farming and move out. I will not be surprised if the findings of the SAS 2018-19 are used by mainline economists to call for policy changes to hasten the process of urban migration. 

This has to be reversed. While India’s foodgrain production has hit a record 308.65 million tonnes in 2020-21, with production increasing year after year, farm incomes certainly have been on a downward spiral. Take a look at the Producer Subsidy Estimate prepared by the Organisation for Economic Cooperation and Development (OECD) for the 20 year period, from 2000-02 to 2018-20. It tells us that India along with Vietnam and Argentina, are the three countries that are negatively taxing their farmers. In terms of percentage of gross farm receipts, India is taxing its farmers approximately to the tune of minus five percent. 

Farmers are aware that the central laws the government is promising will further exacerbate the agrarian crisis. What they are asking for is a rethinking in farm income policies, whereby farming, without non-farm wages to supplement farm income, becomes an economically-viable enterprise on its own. #

Source: All pain, no gain for farmers. The Tribune. Sept 15, 2021 https://www.tribuneindia.com/news/comment/all-pain-no-gain-for-farmers-311197

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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

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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

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Farmers are a victim of inefficient markets

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. #

Lack of mandis, funds may blunt PM-ASHAA. The Tribune. Sept 18, 2018.

https://www.tribuneindia.com/news/comment/lack-of-mandis-funds-may-blunt-pm-aasha/654517.html 

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