Why not a price tag for farm produce?

No where in the world, do farmers get to sell their produce at a pre-determined price. 

Pic courtesy- FoodPrint. 

A couple of days back a small video clip of an irate Nashik farmer pulling outcrates of tomatoes from his vehicle and throwing it on the street went viral. A number of other reports showed truckloads of tomatoes being emptied in the streets at some places in Maharashtra. 

It is not the first time that such distressing reports have appeared. It is tomato now, it was potato earlier and even the pricey onion has been dumped. Every now and then such agonising reports from different parts of the country have appeared in the media. Only the location, the commodity and the face of the farmer changes. And every time, as far as I remember, these reports have been dismissed with a flip of the hand by economists and the educated elite calling it simply a play of the supply demand mechanism. 

That makes me wonder. Every time an industrial product – be it a car, motorcycle or an FMCG product like soap, shampoo and toothpaste to name a few – enters the market, it comes with a price tag. While economists tell us that free markets, based on the supply demand equilibrium, will lead to price discovery, the fact is that prices are in reality already fixed for all industrial products before they are brought into the market. Take, for instance, the automobile sector. Each new brand that is launched comes with a price tag. Or consider for that matter, medicines that every household require. The maximum retail price (MRP) is always mentioned. Whatever remains unsold is taken back by the supplier. 

When it comes to agriculture, none of the commodities ever come with a pre-fixed price tag. Whether it is tomato, mango or chillies or for that matter any other farm product, and in the absence of a price tag, farmers are left with little option but to face the vagaries of the markets. Unless the production for a particular crop falls, there is hardly a probability for the farmers to get a higher price. Since only 6 per cent farmers get the benefit of an assured Minimum Support Price (MSP) as the high-powered Shanta Kumar Committee had earlier worked out, imagine the plight of the remaining 94 per cent farmers who have been at the mercy of free markets all these years. No wonder, as the Economic Survey 2016 acknowledges, the average annual income of a farm family in 17 States of India, which means roughly half the country, is only a paltry Rs 20,000. 

Aware that farmer has no mechanism to provide a price tag for his produce; markets often end up in ruthless exploitation like what the Nashik farmer had to face when market prices crashed, and was left with no option but to throw his produce. Even in America, where free market operates for decades in agriculture, farmers have paid the price. Studies show when a consumer buys food products, the average realisation of a farmer from every dollar worth of food sold is hardly 8 per cent. With such low incomes, American farmers too are faced with a severe agrarian distress, with farmers saddled with a bankruptcy of $ 425 billion in 2020. 

This doesn’t happen with industrial products for the simple reason that it’s not markets that determines the consumer price. To illustrate, Maruti has decided to raise prices of its vehicles for the third time this year. A hike of 1.4 per cent in January, followed by another increase of 1.6 per cent in April, and in September Maruti is contemplating another increase by 3-4 per cent. The company’s argument is that the price rise is unavoidable because of the continuous rise in input prices. While most urban elite will back this argument saying the company has to cover-up for the additional costs, the fact remains that the correction in vehicle price has been done before the product enters the market. This is not a privilege that a farmer can exercise. He has to live content with whatever the market offers. 

Take for instance, the drop in apple prices for the farmers this year. In Himachal Pradesh, where Adani Agri-fresh happens to be a monopoly buyer, it has reduced the purchase price of premium quality apples by Rs 16 a kg this year. Against Rs 88 per kg offered last year, the company is giving a price of Rs 72 per kg. While the farm input prices have certainly gone up, and inflation too has remained high, there seems to be no economic justification for a reduction in apple prices. But because apples don’t come with a pre-determined price tag, like for the industry, lakhs of apple growers will silently bear the losses. In the absence of a price tag for farm produce, we are actually penalising farmers to grow food. 

In other words, markets treat agriculture and industry separately. This dichotomy in market operations however remains unacknowledged. To bring in equilibrium in the way markets operate, allowing it to treat agriculture and industry in uniformity, crop prices too need come with a pre-determined price tag. This will certainly lead to disruptions of the food value chains, which is invariably built on keeping farm prices low. This must change. It is therefore high time economists and policy makers realise that when the protesting farmers demand MSP to be made a legal right, meaning no trading to be allowed below the assured price that is announced every year for 23 crops, they are actually asking for a price tag for the farm produce.  

Making MSP a legal right for farmers is the reform India is waiting for. More money in the hands of farmers, by way of a guaranteed price, will lead to creation of a huge rural demand that will fast forward the wheels of economic development. #

Source: It's time to make MSP a legal right for farmers. Bizz Buzz, Sept 2, 2021. https://www.bizzbuzz.news/opinion/its-time-to-make-msp-a-legal-right-for-farmers-1000777

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Learn from Spain: Make trading below cost of production illegal

Protests by Spanish farmers

Pic courtesy -- trans.info

Shaun Diver is a sheep farm manager in Ireland. He has 240 sheep on his farm. Last month, he sold 455 kg of sheep’s wool at a price of Euro 67. Tagging the receipt, he tweeted angrily: “It costs Euro 560 to shear these 240 sheep. This is wrong, seriously wrong. ”  

This reminds me of a farmer from Maharashtra’s Ahmednagar district who in Dec 2018 sold 2,657 Kg of onions at a price of Re 1 per kg. After adjusting the transportation cost, labour charges and market fees incurred, Shreyas Abhale was left with only Rs 6 to take back home. To register his protest at the brutality of the markets that farmers are faced with, he had sent a money order of Rs 6 to the Chief Minister. But nothing changed. 

These are not just two exceptional cases. World over, farmers are actually struggling to make both ends meet, barely able to sustain their livelihoods. Victim of unfair prices, market manipulation, farmers continue to suffer ruthless exploitation at the hands of food supply chains. Even the US National Farmers Union acknowledges: “Over the past several decades, policymakers have weakened price supports for American farmers, resulting in a never-ending cycle of overproduction and low prices that has pushed tens of thousands of small- and mid-sized farms out of business.” 

That’s the reason why 20 big players according to the Organisation for Economic Cooperation and Development (OECD) as per media reports have provided farmers with a direct income support of $475 billion per year between 2015 and 2017 so as to meet the price shortfall farmers suffered. A clear indicator that supply demand criteria of determining the right price for farmers produce had left farmers high and dry. 

No wonder, for decades farmer protests in most countries had remained focused on the need to provide a guaranteed price. But only recently, coming after months of protests by Spanish farmers, Spain has emerged as the harbinger of a global initiative – moving towards a new normal – by bringing in a law that prohibits sale of food below the cost of production. This is exactly what the farmers everywhere wanted. The historic initiative – to penalise retailers and wholesalers for the sale of food that results in losses for the farmers – will not only reset the food supply chain template but strengthen small scale agriculture. 

The reverberations will certainly be felt across the continents. Already France and Germany have introduced laws to stem the flaws in the food supply chain practices but these were considered to be not strong enough. In France, for instance, a 2018 Ordinance to amend an existing law to prohibit reselling below the actual price, allowing a 10 per cent increase in retail food prices did not see a rise in farmer’s income as expected.

To prevent what it calls ‘destruction of value in the food supply chain,’ Spain has gone ahead and taken a lead by legalising what farmers had always been fighting for -- guaranteeing a price that covers the cost of production -- a definite decision that political leadership across the globe had shied away from. So far the effort has been to protect consumers (and the industry) at the cost of farmers.  In other words, it is farmers who have been subsidising the consumers and corporate all these years.

Bringing in amendments to improve the functioning of the existing 2013 food supply chain law, Spain had made suitable amendments (under the new ‘Royal Decree-Law 5/2020’), which became effective Feb 27, 2020. The objective is to ensure “that the price agreed between the primary agricultural, livestock, fishery or forestry producer or a group thereof and its primary purchaser covers the effective cost of production.” On the need to work out the ‘effective cost of production’, Spanish lawmakers can perhaps learn from the Indian experience.

Nevertheless, for those violating the provisions, in other words selling below the cost of production, stringent penalties have been enshrined ranging from Euro 3,000 to 100,000 that can increase to Euro 1 million in severe cases. France had earlier announced a punitive fine of Euro 75,000.    

To the question that ensuring cost of production to farmers would force the supply chains to pass the additional cost to consumers, Marita Wiggerthale, senior policy advisor with Oxfam Germany, said that as the implementation has begun recently there are no analyses of the impact on consumer prices. Earlier, at the time of introducing the new law, Luis Planas, the Minister of Agriculture, Fisheries and Food had told media that if everyone ‘takes responsibility for food chain’ the retail prices will not surge. His French counterpart, Didier Guillaume, too had earlier appealed to supermarkets to stop the practice of extracting 30 to 40 per cent margin on food products.

Spain’s new law will also have greater implication for India, especially at a time when protesting farmers have been seeking repeal of the central laws and demanding minimum support price (MSP) to be made a legal right for farmers, ensuring that no trading takes below this price. What it effectively means is ensuring a minimum assured price that covers the cost of production plus profit for all the 23 crops (not only for wheat and paddy) for which MSP is announced. And like in Spain, making MSP a legal instrument does not mean the state has to procure the entire produce. It only raises the price band for farmers, making it obligatory for private trade to ensure fair price delivery to farmers.

Experience shows unless farm incomes are connected with realistic food prices, it is futile to expect farming turning into a profitable venture. The claim that increased private investments will bring enhanced incomes to farmers hasn’t worked either. Nor has unregulated markets ensured a higher farm price. Like in Spain, to penalise any trading below MSP will go a long way in making farming overcome agrarian distress and become an economically viable proposition. Spain’s new law therefore holds promise.#     

It's changed for Spanish farmers. The Tribune. Mar 3, 2021. https://www.tribuneindia.com/news/comment/its-changed-for-spains-farmers-219714 

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A new battery of middlemen in agriculture

Pic courtesy: Indian Express

There is excitement in the air. Soon after the three ordinances were announced in what the Agriculture Minister Narendra Singh Tomar termed as a “historic day for agriculture” a section of the mainline media was filled with a sense of elation. Now farmers can finally breathe, screamed a headline. Hailing the long-pending agrarian reforms, another newspaper blared out that the freedom to farmer to sell to anyone, anywhere, has finally freed them from the clutches of mandis. 

There is a sense of jubilation over the Central Government’s decision to finally bite the bullet, free farmers from the grasp of middlemen, who as most of the city bred believe have willy-nilly been short changing the farmers. The dhoti-kurtaclad trader, not very literate, but a very smart player in his day-to-day dealings, has often been portrayed as a side villain in Bollywood films. Not only films, even the textbooks have painted him as a villain of the growth story. This is the image that has stayed with us. It remains embedded in our thinking. 

Call him Arhtiya, Sahukar or a middleman; he is often dressed up in a dhoti-kurta or a kurta-pyajama. He also at times doubles up as a moneylender. Although the Webster dictionary describes middleman as a dealer between the producer and the consumer, the average perception is in the negative, painting him more like an evil character. This is far from true. Perhaps a closer to an objective definition has been offered by an Agritech consultant and blogger Venky Ramachandran: “Middlemen offer hyper-local infrastructure to farmers to help them avail timely credit and inputs based on their contextual relationship-driven understanding of farmers’ cropping cycles.”In fact, the relationship goes much beyond providing credit and inputs but also extends to procuring the marketable surplus, and often comes as a much needed respite at times of family emergencies. 

Nevertheless, while the educated despise the traditionally dressed middleman, they have no such qualms about a middleman who comes dressed in a tie and suit. What has the dress sense to do with the liking and disliking for the role a middleman plays is something for the psychologists to find out, but perhaps showing contempt for the local arhtiya comes in handy to replace the existing breed. Many glib talkers, highly educated, who write or call to seek advice on how they intend to bridge the gap between a farmer and consumer by squeezing out the middleman never return back when told what they plan to do is nothing different.   

To illustrate, a Start-Up using digital technology to market agri-inputs is for all practical purposes a middleman. The fact that they use technology and often have app based technological solutions, but in the end they may be a little different from a retailer, but are primarily trying to sell agri-inputs to farmers at a commission. Most of those who use the weather-based advisory to market specific pesticides and fertilisers to meet the timely needs are no different. In any case, whatever algorithms the Start-Ups may be using, and this can be true for big retailers or small enterprises, in the end the effort is to reduce the margins and increase profits. 

Then there is this category of Start-Ups whose claim to fame is to serve as an intermediary in the “farm to fork” supply chains. Most of them work in the vegetable and horticulture supply chains, with direct delivery of fresh fruits and vegetables to consumers. At best these intermediaries can be called as the new battery of middlemen, replacing the humble street vendor and the neighbourhood retail vegetable shopwala. Only time will tell how much benefit farmers receive by way of higher prices that Farmer Producer Organisations (FPOs) promise, and whether they will be able to ensure Minimum Support Price (MSP) to farmers. We know of two FPOs in Maharashtra, which purchased gram from farmers at MSP, and have run into losses.   

While there is no denying that the objective behind setting up Start-Ups and FPOs is laudable, claiming to bring in new technology in agriculture, the challenge remains on how to provide a higher price. Take the case of moong. The MSP for moong for the 2020-21 marketing season is Rs 7,196 per quintal. The average market price in Madhya Pradesh markets have hovered around Rs 4,000 to Rs 4,500 per quintal. Any price above Rs 4,500 will be called a higher price. But will the new battery of middlemen be able to ensure that moong farmers are paid as per the MSP? If not, then why blame the arhtiyasitting in the mandi.   

The excitement over the freedom to sell to anyone, anywhere, also seems to be over hyped. If MSP is coming in the way of a better price discovery, the 70^th Round of National Sample Survey Office (NSSO) had shown that between July 2012 and June 2013, majority of crop harvests, except for sugarcane, was sold to local private trader and a small proportion to the government agency/cooperative. For instance, 79 per cent of moong in the rabi 2013 marketing season was sold to private traders, 18 per cent in the mandi, and only 3 per cent to government agency. Similarly for paddy, 64 per cent was sold to private traders, and only 17 per cent in the mandi, and 6 per cent to government agency. Did the private trade generally offer them higher price? No. 

If bulk of marketing was happening with private trade and that too outside the mandi, as the NSSO report shows, it means the freedom to sell to anyone, anywhere, already existed. In any case, as I have repeatedly said, only 6 per cent farmers get the benefit of MSP, the remaining 94 per cent remain dependent on markets. The question therefore is not whether a farmer sells to the arhtiya or to the new battery of middlemen, that’s not true freedom. The biggest ticket reforms would be when farmers get the freedom to sell to anyone, anywhere, at a price not below MSP. #

Ensure farmers get paid for produce as per MSP. The Tribune. July 31, 2020  https://www.tribuneindia.com/news/comment/ensure-farmers-get-paid-for-produce-as-per-msp-120152?fbclid=IwAR3gDfA6ilDNbEQ9M7QG8PQ71oHt-UvQCKGYD7TL1sZqUUWdGthRAf1fXNY

 

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