Mr Bhalla, Your Data Doesn’t Tell the Whole Story of Farm Crisis

I have been a big fan of Surjit Bhalla’s writings. But has he presented the full picture this time? I am afraid not.

My first reaction after reading Mr Surjit Bhalla’s column “No proof required: Just why are farmers rioting?” in The Indian Express was: What the hell! Why have the corporates with significant rural exposure been talking about farm distress? And what are the planners and veteran economists basing their assessments on?

If the farmers are getting good price for what they produce, what are they complaining for?

Here is what Mr Bhalla writes:

We read a lot about collapsing food prices and the lowering of farmer incomes as identifiable causes of riots (and suicides). How have food prices performed over the last three years? The table documents the course of prices of six food items. Two dominant conclusions are, (i) producer prices (whether minimum support prices of the government of India or wholesale prices) have risen by about 5 to 10 per cent over the last year; (ii) at the same time, consumer prices of selected and volatile food items (fruits, vegetables and pulses) have stayed broadly constant over the last three years.

There Is Something Called Farm Harvest Price, Mr Bhalla

Mr Bhalla, who is a very outspoken commentator, is well known for using powerful data to back equally powerful statements. Like many others, I have been a big fan of his writings. But has he presented the full picture this time? I am afraid not.

He bases his argument on two sets of prices – minimum support price (MSP) and wholesale prices – to argue that farmers have been receiving good price for what they produce. How can he ignore that there is a third category also – the Farm Harvest Price (FHP) – which is considered to be a better indicator of what farmers actually get?

Just sample what a Commission for Agricultural Costs & Prices (CACP) report says about variation in farm harvest price and MSP. The 2017-18 CACP report on rabi crops says:

FHPs of wheat in Bihar and UP are lower than MSPs. This is essentially due to weak procurement system in these states which reinforces the need for improvement in the same. FHPs of gram have been lower than MSPs in Karnataka, Maharashtra, and Rajasthan in 2013-14 and in MP and Maharashtra in 2014-15 which necessitates timely intervention to ensure MSP to the farmers.

Please note that the trend of FPHs lower than MSPs is not confined to states with poor procurement infrastructure like Bihar and UP, but is prevalent in states like Madhya Pradesh, Maharashtra, Karnataka and Rajasthan too. So the simple point is that higher MSP is no guarantee that the benefits reach the farmers.

Awareness About MSP is Abysmally Low

Let us look at yet another passage from the 2017-18 CACP report on kharif crops to see the effectiveness of MSP as a price stabilisation measure. The report says:

As per NSSO data for 2012-13, all farmers, who reported sale of paddy during July-December 2012, only 13.5 percent households sold it to procurement agencies and in case of wheat (January-June, 2013), 16.2 percent households sold to procurement agencies. Together they account for only 14.9 percent of total households in the country. Chart 2.10 shows that most farmers are not even aware of the existence of MSPs.

While the awareness level is reasonably high for paddy and wheat, it is at abysmally low level for items like pulses, soya and oil seeds. The point is very simple – using MSP as a benchmark to check whether farmers are getting their due is misleading, to say the least.

Mr Bhalla writes that the economic argument does not hold while analysing the recent farmers’ protests for the simple reason that “producer prices have risen by about 5 to 10 percent over the last year.”

Being a veteran economist, he should know more than anyone else (certainly more than me) that what matters is the growth in real income, not nominal income. To arrive at the real income, one needs to take into account the rise in input costs and inflation.

Data Doesn’t Always Provide the Full Picture

Let us take the example of wheat. He says that MSP of wheat has gone up 6.5 percent in the last one year.

According to CACP report, input costs of wheat are estimated to have gone up by 1.52 percent in the same period. If you take into account the rate of inflation, the real gain for farmers would have been marginal if they had sold their produce at MSP.

I rest my case here and conclude by using a sentence from Yoginder K Alagh’s recent article from the BloombergQuint: “While data is one thing, you can see the shifting terms of trade on the ground.”

May I add here that Mr Alagh has been one of most authoritative voices on farm issues in the country.