India Economy

Farm sector needs more attention from policymakers

Rajalakshmi Nirmal | Updated on January 12, 2018 Published on June 25, 2017

Rather than have policies to control prices, the Centre should let market forces operate

You reap what you sow? Not really. Farmers across the country are caught in a piquant situation. While poor monsoons are known to bring bad tidings, oddly, a good spell of rains has only compounded their worries. The reason: a free fall in prices thanks to a bumper crop this year.

But there have been years in the past when output has been bountiful but we didn’t see an agrarian crisis of this magnitude hitting almost all farm produce and States. That’s because the disaster unfolding is a manifestation of denial of policy attention for the farm sector, for a very long time.

Even over the last five years, farm incomes have barely grown. The age-old system of MSP has been reduced to nothing but a lip service of a price guarantee to farmers, with procurement massively falling short of the requirement.

Rather than bringing in ad hoc policies, with poor implementation, to control prices, the Centre should let the market supply-demand forces operate and decide the right price for a farmer’s produce. It can help farmers by making market access easier, breaking all trade cartels and letting them connect with consumers directly.

Blame it on monsoon?

In the period between 2004-05 and 2011-12, helped by higher output and prices, farm incomes did grow handsomely.

But since 2011-12, things have taken a turn for the worse. Sample this: While per farmer income recorded an annual growth of 7.46 per cent in real terms (₹26,146 to ₹43,258) in the period between 2004-5 and 2011-12, it dropped to a measly 0.44 per cent in the period between 2011-12 and 2015-16 (₹43,258 to ₹44,027). The growth in gross value added in agriculture was a low 1.6 per cent between 2011-12 and 2015-16.

Poor monsoons have, to a large extent, played a role in falling farm incomes. While 2011-12 was a normal monsoon year, 2012-13 was a below normal monsoon one and 2014-15 and 2015-16 were years of deficient monsoon.

But monsoon alone cannot be blamed for all ills, for farmers fared poorly in 2016-17 too, which was a good monsoon year.

True, a bumper produce has driven prices lower. But that’s not the only reason. In 2013-14, another good year for farm produce, prices did not fall as much.

What has added to farmers’ woes this time around is the utter mismanagement of policies.

After pushing farmers to grow more pulses and increasing the MSP (minimum support price), the Centre planned to procure only 2 million tonnes of pulses.

When the Centre fixed the procurement target for pulses at 2 million tonnes, the estimate of output in pulses for the year from the Ministry of Agriculture was 20 million tonnes, up from about 16.5 million tonnes in the previous year.

Is it not foolish to think prices will hold above MSP when your procurement is going to be only 10 per cent of the output?

What worsened the situation was that the actual output in pulses came at 22 million tonnes, up 33 per cent over the previous year, and shook farm gate prices. For reasons unclear, the Centre was also letting imports continue and the market had about 6 million tonnes of pulses coming from outside the country too.

Now, the question is, why didn’t the FCI pitch in and procure more pulses? The FCI is a government procurement agency. It can procure only as much the government wants it to.

Unlike rice or wheat, the shelf life of pulses is not long. So, the FCI has to be careful about procuring only what it can dispose in the local market.

If it procures more from the market and is not able to liquidate it in open market sale scheme (OMSS) or in export markets, it will incur loss.

As highlighted by the High Level Committee that was set up in August 2014 to suggest ways to improve efficiency of the FCI, things may change if more autonomy is given to the corporation.

The Committee also suggested that in States including Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab, procurement has to be left to the State agencies as they are more efficient and have better infrastructure.

The FCI’s focus should be on States where there are more small and marginal farmers and where there is more distress sale, like Eastern Uttar Pradesh, Bihar, West Bengal and Assam, among others.

Make market access easier

It is clear that farmers’ income can’t be protected by MSP.

Farmers will be better off if the government lets them face the market forces. However, the boundary that is in existence now — where a farmer is not allowed to sell his produce outside his APMC — has to be demolished. It should push States to adopt the model APMC Act soon and implement eNAM, the electronic national Agriculture Market, across mandis.

The idea is to link markets across States with the help of eNAM and let traders from different parts of the country bid for the produce. As the market expands and more bids come in, the farmer will get a better price as it will break the local trade cartels.

This was the vision when Prime Minister Modi launched the initiative. But more than a year since its launch, the scheme has failed to deliver as States seem to show reluctance. Though 400 odd markets (of the 2,477 APMCs) have technically moved under eNAM since the launch in April 2016, in most of the mandis there is still no grading and assaying facilities and no electronic bidding.

The NCDEX, which operates many markets in Karnataka under a similar system of electronic trading, has proven that it increases returns for a farmer.

ReMS, a joint venture between Karnataka Government and NCDEX Spot Exchange, has been running its online platform in Karnataka across many mandis.

The platform has been in operation since 2014-15 and there is clearly an increase in price received by farmers. The average increase for 10 commodities whose price was tracked showed a 38 per cent increase in nominal terms and 13 per cent in real terms between 2013-14 and 2015-16.

Get farmers together

Farming should be done as a business. Like an entrepreneur will look at his order book, before running the machines in his factory, the farmer should also look at his market before he decides on the crop to sow or look at the monsoon forecast and decide whether to go for, say, rice or millets. This can be achieved if State governments help form FPOs (farmer producer organisations)

Though farmer producer companies got a legal status long back in India, only about 750 of them were registered till 2016. Nabard and SFAC have been funding FPOs but the progress has been slow.

There is little debate on the advantage of an FPO.

As a group, they are better placed to bargain on prices of inputs. Some of the successful FPOs today sell the produce of their member farmers directly to institutional buyers (hotel chains, super markets, food processing companies) or to traders through the futures platform of commodity exchanges and make higher returns.

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