Dear Modi Govt, Marketing Reforms Are For Later. Farmers Need Cash

One area that needs urgent cash relief, and that remains untouched, is farmers who are facing crashing farm prices.

Image used for representational purposes.

(Illustration: Arnica Kala/ The Quint)

In five instalments, Finance Minister Nirmala Sitharaman gave us details of the ‘fiscal stimulus’ and reforms that are part of the twenty lakh crore package announced by the prime minister.

Sitharaman’s third instalment dealt with agriculture and included landmark reforms such as: (a) diluting the Essential Commodities Act to exempt farm products; (b) bypassing the stranglehold of the Agriculture Produce Marketing Committee (APMC) so that farmers are free to sell to any buyer, and finally (c ) ushering in a new national law on marketing of agri products, which can attract private investment in agri-infrastructure, and also provide more competition to APMCs.

‘Misleading Optics’ of Economic Stimulus Package For Agriculture

All this is in the spirit of genuine deregulation which agriculture badly needs. The effect of these announcements will, however, be visible only in the medium to long term, when they are implemented in toto, and there is true deregulation in both letter and spirit. 
As for immediate need for food and farm relief, there was some in the form of free food grains and an additional coverage of 8 crore beneficiaries under the PDS, and a rise in allocation for the rural jobs scheme (MNREGS).

But such are the misleading optics, that out of a total package announced for agriculture of Rs 1,63,300 crore, the actual outgo from the government’s treasury this year will be merely Rs 6,000 crore. 

Why can’t the government do more?

• Such are the misleading optics, that out of a total package announced for agriculture of Rs 1,63,300 crore, the actual outgo from the government’s treasury this year will be merely Rs 6,000 crore.
• One area that needs urgent cash relief, and that remained untouched, was farmers who are facing crashing farm prices.
• The FM did not address the inadequacy of the centrally governed Minimum Support Price (MSP) regime which is one of the main instruments to protect farmers’ incomes.
• Can we not use direct benefit transfer, at least for farmers who are left out of MSP?
• In the last few weeks, several states have allowed direct marketing and sale and purchase of agricultural produce outside mandis.
• Will the government now bail out farmers, just as it proactively protected urban consumers last year from the onion price spike?

Farmers Facing Crashing Farm Prices Need Urgent Cash Relief

One area that needs urgent cash relief, and that remained untouched, was farmers who are facing crashing farm prices. In particular, the FM did not address the inadequacy of the centrally governed Minimum Support Price (MSP) regime which is one of the main instruments to protect farmers’ incomes.

The common view is that agriculture is a bright spot during this pandemic and lockdown.

Since the supply of food items has been relatively uninterrupted, it creates an impression that all is well on the farm front. That is quite misleading as the following data shows.

The lockdown almost coincided with the harvesting of rabi crops. In Punjab, Haryana and Western Uttar Pradesh, it is mostly wheat, since there is little diversification. But in Maharashtra, Madhya Pradesh, and Gujarat, in addition to wheat, there are also pulses like gram, masoor and moong which are also grown in the rabi season. The harvesting in these states is in the latter part of March and early April.

In general, the procurement process and hence, the success of MSP, only benefits paddy and wheat.

In the past five years however, pulses procurement has been quite successful, although India is a major net importer of pulses. All other crops remain orphans as far as MSP protection goes.

If MSP Is Not Working, Then Other Means Are Needed to Support Farmers Amid COVID

Even for wheat, the procurement process is not successful uniformly across all states. The data for this year is:

1. Punjab: 12 million tonnes
2. Haryana: 6.4 million tonnes
3. Madhya Pradesh: 7.8 million tonnes
4. Uttar Pradesh: only 1.4 million tonnes

Last year, UP’s procurement was 3.7 million tonnes and Bihar was just 3,000 tonnes. While Punjab manages to procure 100 percent of the produce, in Bihar, not even 5 percent goes through the same process. Much of Bihar’s produce is sold outside in the free market, and that too, below the MSP.

The good news on rabi ends here. The MSP assurance works only in the case of wheat, and that too for farmers in Punjab and Haryana. For the rest it is very low income despite a bumper crop.

Take gram for instance, which is the largest pulses rabi crop. It’s expected to be a bumper crop with a production of 11.22 million tonnes. Harvesting of gram in AP, Telangana, and Karnataka starts in March, but in MP and Rajasthan, it is done in March and arrivals continue till June.

The MSP of gram was raised from Rs 4620 to Rs 4875 per quintal. But prevailing mandi prices, even in MP, the largest market, are nearly thousand rupees less. The MSP-based procurement of pulses by NAFED has not quite taken off in MP. That’s because it is already sitting on a stock of 1.2m tonnes from last year. If it procures 2m tonnes more, then will prices not remain bearish? Private traders are wary and unwilling to offer higher prices to farmers.

This illustrates the main problem. If MSP is not working, then we need other ways to supplement farmer income in this pandemic season.

20 Out Of 22 Crops Under MSP Aren’t Fetching Minimum Assured Price

Can we not use direct benefit transfer, at least for farmers who are left out of MSP?

Take the example of maize, another bumper rabi crop. Thanks to hybrid maize, India now produces 8.22 out of 28.09 million tonnes of the annual output in rabi season alone. MSP of maize is Rs 1760 per quinta, but market prices at the largest maize trading centre at Gulabbagh in Purnea district, Bihar, are at around Rs 1100-1200.

There’s no APMC in Bihar, and traders offer very low prices. Demand for maize has also crashed due to the fall in demand from the poultry sector (for which it is feedstock), and from starch manufacturing.

Take the case of mustard, which is selling in Rajasthan at ten percent below the MSP of Rs 4425 per quintal.

The fact is that, 20 out of 22 crops under MSP are not fetching the minimum assured price, and there is nothing the central government can do about it – at least in the short run.

Onion, too, is mostly a rabi crop with 65 percent of annual production. Last year’s high prices caused onion acreage to go up by 40 percent, leading to a bumper crop now. Rabi onion can be stored, but news suggests that prices are just about 6 rupees a kilo.

In the Long Run, New Central Law for Agricultural Marketing Will Help Farmers

Will the government now bail out farmers, just as it proactively protected urban consumers last year from the onion price spike? The pandemic means that demand has fallen, especially from hotels, restaurants and catering.

The same is the fate of farmers growing fruits and vegetables. They have been among the worst sufferers of the lockdown.

Several reports in the media have documented instances of farmers destroying their own crops of grapes, cabbage and flowers. Even though milk is not traded in APMCs, milk processors are paying the producers about 25 percent lower price than last year.

In the last few weeks, several states have allowed direct marketing and sale and purchase of agricultural produce outside mandis.

During the lockdown, on 2 April 2020, the central government announced the integration of e-NAM with warehouses registered with Warehousing Development and Regulatory Authority, and advised the state governments to declare warehouses as ‘sub-market yards’ for the spot trade of agricultural produce.

It seems that only AP, Telangana, and UP have done so.

In the long run, the enactment of a new central law for agricultural marketing, as announced by the FM, will surely prove beneficial for farmers. But it would be unrealistic to expect that in the next two or three years, the buyers will line up at villages to purchase their produce directly from farmers.

Without this demand push and price discovery, the farmer is at the mercy of falling prices in a bumper crop season.

Way Forward: Direct Financial Aid to Farmers

Maharashtra had deregulated fruits and vegetables from APMC regulation in 2016. In 2014, Delhi had allowed the sale of fruits and vegetables outside areas of APMC. The quantum of sale outside APMCs in Delhi and Maharashtra is not known, and is possibly insignificant. The story of Bihar, which dismantled APMC back in 2006, is well-known.

The above examples of gram, mustard, onion, fruits, vegetables, poultry and milk show that the government cannot deliver a fair price to all the agri-producers across India.

The only way is to expand direct financial assistance to farmers, especially those who do not benefit from MSP. As long as procurement is restricted de facto to wheat and paddy alone, farmers growing all other crops and producers of milk and poultry are very vulnerable. They are more deserving of enhanced direct assistance under PM-Kisan. We have to find a way to differentiate between different classes of beneficiaries under PM-Kisan. You cannot equate the rich wheat farmer of Punjab or sugarcane farmer of Maharashtra with the distressed farmer of cotton. The latter deserves higher income support.

Urgent Need to Create Fiscal Outgo for Direct Benefit Transfer to Farmers Outside the Net of MSP

The urgent need is to increase fiscal outgo for direct benefit transfer (DBT) to all farmers who have fallen outside the net of MSP this season. We estimate that this outgo will cost around 0.5 percent of the GDP. Let the states also follow this principle.

Indeed, as of this writing, Karnataka has taken a lead in providing cash assistance over and above the non-functioning MSP to its maize farmers. Let this approach be replicated across the country.

(Siraj Hussain is Visiting Senior Fellow ICRIER. He retired as Union Agriculture Secretary. He tweets @sirajnoida. Ajit Ranade is Chief Economist, Aditya Birla Group. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)