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of the widely acclaimed Doughnut Economics: seven ways to think like a 21st century economist, often says that an outdated economic model of 20^th century cannot be expected to address the social and ecological problems of this century, it is high time neoliberal economists start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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Invisible Emergency

Three weeks after the kharif harvesting season began farmers were unable to get the right price for their produce. Out of the 14 kharifseason crops that were being marketed, a newspaper reported (Oct 26, 2019) that the mandi prices of at least nine of these crops had been ruling much below the minimum support price (MSP) that was announced by the government. Market prices for moong, urad, tur, niger, bajra, jowar, ragi, cotton, soybean and sunflower were about 8 to 37 per cent below the MSP. In addition, market prices of cotton too were short by an average of Rs 500 a quintal (from the MSP) while farmers had a better price realisation only in case of paddy and maize wherein a more assured procurement system operates.   

Well, isn’t that reason to celebrate? If food prices remain low, the household budget remains intact. The nation rejoices when food inflation remains in check. Never bothering to know what happens to millions of farmers who produce that cheaper food.

Let’s look a little further. The price drop in kharif 2019 was no exception. For the past two years, farmers had reportedly sold pulses, oilseeds and coarse cereals at prices that were 20 to 30 per cent lower than the MSP. Across the country, irate farmers had protested at many a places demanding purchase of the crop harvest they had brought to the mandis. Even in case of wheat and rice, the two crops that are largely procured, farmers were unable to get the procurement price except at places where a robust procurement system exists. Primarily for this reason, truck-loads of paddy and wheat are illegally transported all the way from Bihar and Uttar Pradesh to Punjab and Haryana where a vast and efficient procurement network exists. But with the World Trade Organisation (WTO) breathing down its neck, and with autonomous liberalisation in progress, India is under tremendous pressure to dismantle the food procurement and distribution network.

Suddenly, for no apparent provocation, in the midst of the paddy procurement season, the Karnal district administration in Haryana imposed a ceiling on paddy purchase beyond its quota of 13.5 lakh tonnes for the season. While no explanation    available, the government it seems is all set to withdraw from its stated commitment to buy every grain of wheat and paddy that is brought to the mandi. In Punjab too, the Chief Minister has reportedly told a meeting of arhtiyas that he would not be able to make a commitment that the procurement operations next year operates as smoothly as it used to all these years, pointing to a cut in public stock holding limits in future. Perhaps this is the beginning of an end of public procurement, a system that was so assiduously built over the years pulling the country literally out of the ‘ship-to-mouth’ trap, when food aid from across the continents would go directly to feed the hungry population.   

With granaries overflowing now, cutting down on procurement seems to be the policy approach to reduce unmanageable food surplus. But what will happen to millions of farmers, who toil hard to produce bumper harvests, only to find no buyers for their produce? Will the nation evolve a system of adequately compensating the farmers while keeping prices low?

Farmer throwing tomato, potato and onions on the streets is a recurring phenomenon. Add to it the denial of rightful price for most agricultural commodities, and that too year after year, the reasons for the continuing agrarian distress becomes all too apparent. In fact, I have always maintained that when a farmer undertakes crop cultivation what he does not realise that he is actually cultivating losses. This is appropriately illustrated in an analysis in the Down to Earth magazine (Feb 16-28, 2019) that clearly showed that against a production cost of Rs 32,644 per hectare for wheat, a farmer is able to get only Rs 7,639 leaving a huge shortfall of Rs 25,005 per hectare. In the case of paddy, the loss is Rs 36,410 per hectare; for maize, the gap is Rs 33,688 and for arhar the loss works out at Rs 26,480 per hectare.

Take another case. In response to an RTI application, the Department of Agriculture, Haryana, had replied saying that against the estimated cost of production of wheat at Rs 2074 per quintal for the 2018-19 marketing season, the procurement price was Rs 1,840 per quintal, which means a loss of Rs 234 per quintal. Similarly, for cotton the procurement price was Rs 5,450 per quintal against an average cost of production of Rs 6,280 per quintal, showing a loss of Rs 830 per quintal. With procurement prices deliberately kept low, agriculture becomes a loss making enterprise, and sooner or later farmers are left with little choice but to quit or continue to slog under distress all through life. For the Commission for Agricultural Costs and Prices (CACP) – which works out the MSP for 23 crops – the mandate is not only to provide an assured price to farmers but to maintain a balance with international prices thereby ensuring that the procurement price it fixes does not fuel inflation. The higher the food inflation, the higher will be the pressure on industries to provide higher wages to workers. The higher the wages for industrial workers, the more is the possibility of economic reforms going awry.

Farmers alone therefore are left to bear the burden of keeping food inflation low. They are silently bearing the cost of subsidising the consumers.

The cost of keeping food inflation low has been unprecedented. A brute illustration of the staggering cost farmers had to pay to keep food prices under check comes out very clearly from an OECD-ICRIER study, which computes that between 2000-01 and 2016-17 – a period of 17 years --  farmers suffered a cumulative loss of Rs 45-lakh crore on being denied the rightful price for their produce. It estimated the loss per year for farmers at Rs 2.65-lakh crore based on a negative Producer Support Estimate (PSE) Index of (-) 14.4 per cent. PSE tells us what percentage of farm revenue came from policy support. In case of India, farmers suffered because of trade restrictions, low prices and huge gaps in marketing policies, including shortfall in assured procurement. But an interesting point here is that the loss to farmers actually works out to be the gain for consumers. Perhaps that’s the reason why the shocking estimates of massive losses suffered by farmers didn’t draw any outrage from the middle class.

While the government gets a pat on the back for keeping food inflation under control, it is difficult to even visualise the trauma and suffering a farming family has to undergo after being denied the rightful price for their produce; the hardship families have to suffer when farmers dump tomato or potato or garlic onto the streets out of sheer frustration arising from a price crash in the markets. The denial of rightful income increases their dependence on farm credit as a result of which household indebtedness has multiplied over the years. The increasing debt burden is the primary reason for the spate of farm suicides the country is witnessing, and which (the data) the government has been withholding after 2016. According to the National Crime Record Bureau (NCRB) as many as 3,18, 528 farmers had committed suicide between 1995 and 2015, a stark reminder of the severity of the crisis.

When prices slump, the small farmers are first to bear the consequences, often fatal, but forcing them to abandon agriculture and migrate to the cities looking for menial jobs. On the other hand, increasing migration from rural to urban areas is seen as a sign of economic growth. In fact, the policy emphasis has remained on moving people out of agriculture into the cities which are in need of dehari mazdoor (cheap labour). The continuous slide in real farm incomes therefore has only helped create conditions that forces farmers to abandon agriculture and migrate. According to Niti Aayog, the growth in real farm incomes in the 5 year period between 2011-12 and 2015-16 has been less than half a percent every year, 0.44 per cent to be exact. In such a dismal scenario, what do we expect farmers to do except to quit farming and migrate?  

As rural distress deepened, several studies have brought out the grim realities that continue to hit farm and non-farm workforce in rural India. When farming is in deep economic crisis, it will definitely cast a shadow on the workforce it is generally dependent on. With Gross Value Addition (GVA) in agriculture dropping to its lowest in 14 years, a  report by Centre for Monitoring Economy (CMIE) showed that in the past one year, 2018-19, almost 1.1 crore people lost their jobs. “An estimated 91-lakh job were lost in rural India, while the loss in urban India was 18 lakh jobs. Rural India accounts for two-thirds of India’s population but it accounted for 84 per cent of the job losses,” the report said. Earlier, a leaked Periodic Labour Force Survey 2017-18 report of the National Sample Survey Office (NSSO) had shown that 3.4 crore casual labourers in rural areas, of which 3-crore were farm workers, had lost job between 2011-12 and 2017-18. This represented a 40 per cent drop in casual farm workforce.

The demise of agriculture therefore is clearly embedded in the economic design. Keeping food prices low has been the bane of agriculture. Besides low prices, the continuing bias against agriculture is evident from the low public sector investments. As per the Reserve Bank of India, public sector investment in agriculture hovered around 0.3 to 0.4 per cent of the GDP between 2011-12 and 2016-17. Such low public sector investment pulled private sector investments down in the process, reaching a low (in combined investments) of 2.2 per cent of the GDP in 2016-17. With low investments and low output prices it is futile to accept a miracle to happen in agriculture. It is therefore quite obvious that the decimation of agriculture over the years is the outcome of an unwritten policy of keeping agriculture deliberately impoverished. It suffers not as much from low productivity (as is often believed) as from deliberately kept low farm incomes.

The immediate challenge is to bring more money into the hands of the farming community, which will create more demand, and in the process reignite the country’s economy. Moreover, if agriculture becomes economically viable and environmentally sustainable, it can take away much of the pressure the country faces in creating additional employment. Agriculture being the largest employer, it alone has the ability to reboot the economy. Especially at a time when the bottom 60 per cent population holds only 4.8 per cent of the national wealth, and a significant proportion of this comprise farmers and farm workers, a refurbished agriculture needs to look beyond the outdated textbook prescription of reducing the population in agriculture, and instead focus on revitalising agriculture. This is the surest way to Sabka Saath, Sabka Vikas.

Since a beginning has already been made with the launch of a scheme to provide direct income support to farmers, a tectonic shift in economic thinking moving from ‘price policy’ to ‘income policy’, one measure could be to double the allocation under PM-Kisan programme. At present, an amount of Rs 6,000 per month is being provided to landowning farmers, in three equal installments. Effectively this comes to a paltry support of Rs 500 per month, and needs to be raised to make a real difference. I am hoping that sooner than later, the direct income support will be enhanced to Rs 5,000 a month. This will supplement income support measures that have been launched in several states, beginning with the innovative Ryathu  Bandhu scheme in Telengana.

This has to be followed up by setting up a more elaborate mechanism to ensure a minimum monthly assured income of Rs 18,000 per month per farming family. The idea is not to issue a cheque every month but to evolve a mechanism to provide farmers with an assured monthly income based on crop productivity and geographical location of the farm. Among several other steps to bring in structural reforms that agriculture is crying for, agriculture needs to come up with an index for ease of doing farming. If 7,000 steps, big and small, can be created for the industry under the ease of doing business norms, I see no reason why agriculture should not receive the same benefit in governance and implementation issues.    

At a time when the average farmer in the United States receives a direct income support of $ 60,586 (Rs 42 lakh); $ 10,149 in Japan; and $6 ,762 in European Union; what the Indian farmer gets is too meagre. A farmer needs to be adequately compensated for the loss he/she incurs in providing cheap food. Let’s be clear, a farmer cannot be penalised anymore for growing food. The nation must stand with the farmers in this crisis and find a suitable template to provide them with a real income (and an annual increment) that is at par with other sections of the society. #

Source: State of Environment 2020. 

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