Minimum Support Prices for Agricultural Produce

Jan, 21, 2019

[op-ed snap] Taxed through trade policies, farmers need stable income policy

Note4students

Mains Paper 3: Economic Development| Agriculture| Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the recent efforts by government to raise farmer’s income.

Mains level: The news-card analyses how the farmers in India are implicitly taxed through restrictive marketing and trade policies, in a brief manner.


Context

  • Many experts have observed that the farmers in India are implicitly taxed through restrictive marketing and trade policies. They, however, need a stable income policy.

Higher minimum support prices (MSPs) not a solution

  • The attempt to woo farmers by announcing higher minimum support prices (MSPs) based on 50 per cent margin over paid out costs plus imputed value of family labour (cost A2+FL) has fallen flat as market prices of most of those commodities remain 20 to 30 per cent below MSPs.
  • Procurement by government agencies has been limited, as they already have overflowing stocks that they cannot offload without incurring massive losses.
  • The meagre budgetary provisions under the PM’s AASHA scheme to lift market prices have, therefore, failed to erase farmers’ gloom.
  • In any case, the MSP policy cannot reach more than 20 per cent of peasantry even with augmented procurement of pulses and oilseeds, and, therefore, cannot be a solution to farmers’ distress.

Loan waiver not a viable decision either

  • The loan waiver, which the Congress president is promising, will also not benefit more than 30 per cent of the peasantry, who have access to institutional credit.
  • Already, the bill from loan waivers announced by some state governments is touching about Rs 1.8 trillion (lakh crore).
  • The policy of zero-interest on loans too is riddled with loopholes, leading to massive diversion of funds out of agriculture.

State governments innovating new ways

  • Many state governments are trying to innovate with new ways of reaching the largest number of farmers.
  • Telangana’s Rythu Bandhu scheme, which gives Rs 4,000/acre to land-owning farmers for two seasons in a year, is costing the state exchequer roughly Rs 12,000 crore per annum.
  • It appears to have reached more than 90 per cent farmers, and yielded political dividends.
  • However, many experts have criticised it saying that it is pro-big farmers and neglects tenants.
  • The KALIA (Krushak Assistance for Livelihood and Income Augmentation) scheme of Odisha attempts to respond to this criticism and accordingly promises to include not only land-owning farmers (up to 5 acres) but also tenants and agri-labourers.
  • While land-owning small and marginal farmers, 30.17 lakh in number, accounting for 92 per cent of farming households in Odisha, will get Rs 5,000/family for five seasons, the tenants and agri-labourers (estimated to be 10 lakh in number) who have no land records will get one-time payment of Rs 12,500/family, and vulnerable families (another 10 lakh) will get one-time payment of Rs 10,000/family.
  • With some support for life insurance and interest-free loans up to Rs 50,000, the scheme is likely to cost about Rs 10,180 crore over three years.
  • There is the major challenge of identifying who is a tenant and who is an agri-labourer, as tenancy is not legally allowed in Odisha. So, no legal records exist.

Implications

  • It is important to track and evaluate the performance of these two schemes (Rythu Bandhu and KALIA) as they have not only important budgetary implications but are also a pointer towards a new policy innovation.
  • West Bengal and Jharkhand are also moving in this direction, and media reports suggest that Centre too is contemplating a variant of a similar scheme.
  • If it does so, it would indicate a tectonic shift in policy from promising higher MSPs or loan waivers to direct income/investment support to farmers.
  • This shift will be better for the country as it is more predictable and less market distorting.

Concerns raised over such schemes

  • Macroeconomists and investors are worried about how much such schemes will cost.
  • Will it be fiscally sustainable and what impact will it have on investments in due course.
  • Is India not becoming a welfare state even before generating enough wealth?
  • The experts however view that these efforts are not “doles” but atonement for not reforming agriculture sector, especially its marketing and trade policies, which remain highly distorted, restrictive and pro-consumer, often at the cost of farmers.

Indian farmers have been “implicitly taxed” through restrictive marketing and trade policies

  • One of the key findings of a mega ICRIER-OECD study on agricultural policies in India (2018) is that the producer support estimate (PSE) for India was minus (-) 14 per cent of gross farm receipts, on an average for the years 2000-01 to 2016-17.
  • This implies that Indian farmers have been “implicitly taxed” through restrictive marketing and trade policies that have an in-built consumer bias of controlling agri-prices.
  • If one calculates the sum involved in this “implicit taxation”, it amounts to Rs 2.65 trillion (lakh crore) per annum, at 2017-18 prices, for 2000-01 to 2016-17.
  • Cumulatively for 17 years, this comes to roughly Rs 45 trillion at 2017-18 prices.
  • No country in the world has taxed its farmers so heavily during this period.
  • This is nothing short of plundering of farmers’ incomes.

 Conclusion

  • Until India reforms its agri-marketing laws and frees agri-markets, it is time to atone through a structured and stable income policy for farmers for at least the next five years.
Jan, 17, 2019

[op-ed snap] Policy must tackle not just dissatisfaction of large farmers, but distress of most vulnerable

Note4students

Mains Paper 3: Economy | Transport and marketing of agricultural produce and issues and related constraints

From UPSC perspective, the following things are important:

Prelims level: Basics knowledge of Farmer’s distress.

Mains level: The news-card analyses the prevailing issue of farmer distress, in a brief manner.


Context

  • Recently, the two main policy interventions repeatedly discussed to tackle farmer distress — loan waivers and minimum support prices (MSP) — treat all farmers (large/small, male/female) alike.
  • But farmers are heterogeneous. They differ especially by income, land owned and gender.

Farmer dissatisfaction is not the same as farmer distress.

  • Better-off farmers are dissatisfied but politically vocal.
  • Poor farmers are distressed and many kill themselves in silence.
  • It is the truly distressed the government need to reach, but their policies only address the dissatisfied.

How Government’s policy measures fails to address distress of small & marginal farmers

  1. Loan waivers
  • Today, most economists agree that waivers are a bad idea. They deplete state finances, undermine bank culture, and barely reach 20-25 per cent farmers who have access to institutional credit, but not the marginal farmers or labourers who depend on moneylenders, or get no credit at all.
  • Having a bank debt is not, in itself, a sign of distress.
  • Farming, like other businesses, needs loans, and access to formal credit signifies credit worthiness.
  • It is the marginal and small farmers who depend mainly on private lenders, and whose loans don’t get waived, who are in distress.
  1. Raising MSPs
  • Raising MSPs will help surplus producing farmers, but not net buyers of farm produce — marginal farmers, farm labourers and urban consumers.
  • A 2015 IIM-A report on Marketed and Marketable Surplus found that marginal farmers (up to one hectare land) contributed only 5 per cent of marketed surplus rice and 4 per cent of wheat, even in the major rice and wheat surplus states.
  • And they sold only 39 per cent and 25 per cent of their marketed rice and wheat to government agencies, compared with the 70 per cent and 90 per cent sold by large farmers.
  • Further, the Shanta Kumar Committee reports that only 6 per cent of farmers gained from selling these crops to any procurement agency.
  1. Policy of direct transfers to farmers
  • The policy of direct transfers to farmers also ignores the inequality between farmers.
  • Telangana gave Rs 9,900/ha/season to all landowning farmers. Hence, the very large landowners gained — not only from owning large tracts, but in both seasons, since with irrigation they can cultivate in both kharif and rabi seasons; while pure-tenants and labourers got nothing.
  • Nor did women farmers get anything, few of whom own land.
  • Odisha recently announced that it will pay both farmers and labourers, but like Telangana, it will pay per household and not per person.
  • Both states thus ignore women’s claims, and also the substantial evidence that it is income in a mother’s hands that greatly improves child nutrition and education, rather than income only in the father’s hands.
  • Neither state has recognised intra-household inequalities, or paid heed to the large proportion of women farmers who are either principal cultivators or de-facto responsible for farms with male out-migration.

 

How to address small & marginal  Farmers distress ?

A multi-pronged strategy of income support, government investment, and institutional innovations, and not a one-size-fits-all approach is need of the hour.

  • Direct transfer for small farmers: To overcome immediate distress, direct transfers are preferable to loan waivers, but transfers should be limited to smallholders (those owning 2 ha or less), pure-tenants and agricultural labourers. The funds should go to women in the family for best results.
  • Investment in Agriculture: To reduce the long-term distress of poor farmers, agricultural investment in priority areas is imperative such as irrigation, water conservation, and storage for surplus produce.
  • Even 70 years after Independence, only 44 per cent of our irrigable area is irrigated. This must increase, but not via groundwater mining, which is unsustainable.
  • Water use efficiency by farmers is also essential: Low-cost techniques of drip irrigation could be one method.
  • Land and labour pooling: Some 70 per cent of farmers cultivate one hectare or less, in scattered plots which is non-viable. In a recent study, it was found that as farm size in India increases from very small to eight ha, profits/ha rise substantially. Therefore, we must encourage land and labour pooling.
  • Institutional reform has long been a blind spot in India’s farm policy. Groups help increase farm size, brought scale economies, saved on hired labour, improved credit access and enhanced bargaining power in input and output markets. Groups can also reduce farmer isolation and the likelihood of suicides.
  • Dietary changes require more focus on non-food-grains for food security, including vegetables which are more profitable and inland fisheries, a key source of protein.

Way Forward

  • Both to overcome farmer distress and farmer dissatisfaction, creating jobs for farmers’ children in their vicinity, not in cities, is essential, through ancillary industries, food processing, SMEs, and so on.
  • This would provide much needed supplementary income for farmers in distress. Doubling farmers’ incomes does not need doubling farm incomes.
  • It needs increasing their incomes from both farm and non-farm sources.
Jan, 07, 2019

[op-ed snap] An Answer To Rural Distress

Note4students

Mains Paper 3: Agriculture | Transport & marketing of agricultural produce & issues & related constraints

From UPSC perspective, the following things are important:

Prelims level: APMC Act, Basics of MSP, Agriculture Schemes.

Mains level: The newscard discusses issues, related to the Rural distress and ways to resolve it, in a brief manner.


Context

  • There’s nothing new about rural distress. Nor is it surprising. The issue is as much political as it is economic.
  • A systemic crisis in farming goes back to probably the entire post-reform period.
  • Rural India’s deepening distress unfolds against the canvas of policy-driven inequality over the past two decades.

What’s the problem?

  1. The monsoon behaviour has been very erratic and farmers have been facing the problems of severe drought for the past few years.
  2. Fortunately, there is a bumper crop [unusually large crop growth and harvest] this year, but farmers are not satisfied with the procurement price.
  3. They are, therefore, unable to repay loans they have taken, both from institutional sources and private moneylenders.
  4. And without doing so, they will not be eligible for fresh credit for the Rabi [winter] crop. This is one of the reasons why they have been demanding a loan waiver. 

Why the crisis?

  • The main reason for farm crises is the rising pressure of population on farming and land assets.
  • Government data show the average farm size in India is small, at 15 hectare, and since 1970-71, there has been a steady declining trend in land holdings.
  • The small and marginal land holdings (less than 2 hectares) account for 72% of land holdings, and this predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale.
  • Since small and marginal farmers have little marketable surplus, they are left with low bargaining power and no say over prices.
  • Risk because of pests, diseases, shortage of inputs like seeds and irrigation, which could result in low productivity and declining yield; the lower remunerative price; the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers.
  • Also, the predominance of informal sources of credit, mainly through moneylenders, and lack of capital for short term and long term loans have resulted in the absence of stable incomes and profits.
  • Farmers face price uncertainties due to fluctuations in demand and supplyowing to bumper or poor crop production and speculation and hoarding by traders.
  • The costs of farm inputshave increased faster than farm produce prices
  • The absence of a robust market for buying and selling forward-looking contracts
  • Uncertain policies and regulations such as those of the Agricultural Produce Market Committee, besides low irrigation coverage, drought, flooding and unseasonal rains, are some other factors that hit farmers hard.

ANALYSIS OF GOVT. INTERVENTIONS

Three significant solutions have been doing the rounds:

  1. Higher minimum support prices (MSPs)-
  • The irony of a MSP policy is that it pertains to a limited number of farmers.
  • As per NSSO 2012-13, less than 10 per cent of the country’s farmers sold their produce at MSPs — the percentage though is a little higher for sugarcane, wheat and rice farmers.
  • If one accounted for the increased procurement of pulses and oilseeds during 2016-17 and 2017-18, this percentage is still not likely to exceed 20 percent.
  • Moreover, MSP operations mostly benefit large farmers who have marketable surplus; these operations exclude much of country’s marginal farmers who produce little surplus.
  • Besides, the large inefficiencies and market distortions caused by a MSP-regime make it an unfavourable choice.
  1. Loan waivers-
  • As per NABARD’s Financial Inclusion Survey (NAFIS), between July 2015-June 2016, 43.5 per cent of all agri-households took loans. Of these, 69.7 per cent took institutional loans — 60.5 per cent took only institutional loans and 9.2 per cent took both institutional and non-institutional loans.
  • This means that about 30.3 per cent (69.7 per cent multiplied with 43.5 per cent) of Indian agri-households took loans from institutions.
  • A loan-waiver is thus likely to benefit only this 30 per cent — even a subset of it, if conditions are imposed on loan waiver schemes.
  • The remaining 70 per cent of Indian farmers, who do not access institutional credit, will not benefit from this scheme.
  • Such high rates of exclusion must be the single-most important failure of our banking system with regard to financial inclusion.
  1. Direct income/investment support-
  • The third option, pioneered by the Telangana government is income/investment support through the Rythu Bandhu Scheme (RBS). Telangana started RBS in May 2018, whereby it gave Rs 4,000 per acre to every farmer.
  • This transfer is made twice a year, coinciding with the two cropping seasons. By directly giving cash, the government aims to support the input purchases of farmers.
  • An RBS-style income transfer is likely to cost about Rs 2 trillion (with some improvisation to include tenants, and restrictions to the actual cropped area).
  • A price-deficiency based payment or actual procurement under MSP operations, if done at a large-scale, is going to cost about Rs 1 to 1.5 trillion (depending on whether market prices are 20 per cent or 30 per cent below MSP).
  • Such operations, of course, are likely to be prone to large-scale corruption.

Policy solutions ahead

  • A government panel aiming to double farmers’ income by 2022 has come up with a 13-volume report, but its final set of policy recommendations is still pending with the Agriculture Ministry.
  • It is expected to focus on ways to ensure sustainability of production, monetisation of farmers’ produce, re-strengthening of extension services and recognising agriculture as an enterprise and enabling it to operate as such by addressing structural weaknesses.
  • This week, the Cabinet approved an agriculture export policy, lifting restrictions on organic and processed food, which it hopes will double farm exports by 2022 and widen the market for domestic produce.
  • Farmers groups are urging political parties to support two private member Bills introduced in the last session of Parliament for guaranteed implementation of MSP and a comprehensive loan waiver and debt reduction scheme.
  • However, they have also come out with a wider charter of demands, which deals with input costs, social security, farm workers employment, land rights, irrigation, agro-ecology, crop insurance and contract farming.

Way Forward

  • The time is ripe for action; one hopes the government acknowledges the reality of farm distress and tries to resolve it on priority.
Dec, 24, 2018

[op-ed snap] From plate to plough: If you want to help farmers

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From the UPSC perspective, the following things are important:

Prelims level: Rythu Bandhu scheme

Mains level: Need of an income support policy for agriculture


Context

Farm loan waivers by state governments

  1. The talk of the season on the farm front seems to be loan waivers
  2. Farmer leaders are asking for it and those looking for power are ready to oblige
  3. Newly elected chief ministers of Madhya Pradesh, Chhattisgarh and Rajasthan have all announced loan waivers within their promised time of 10 days
  4. It may cost the state exchequers more than Rs 50,000 crore
  5. A pan-India loan waiver is likely to cost anywhere between Rs 4 and 5 lakh crore, including states that have waived farm loans since 2017

Atonement exercise

  1. It can be called as atonement for not reforming agriculture and following restrictive trade and marketing policies which, as per the OECD-ICRIER report, inflicted an implicit tax on farmers to the tune of 14 per cent of their gross farm receipts over a period of 2000-01 to 2016-17
  2. The loan waiver is only a temporary relief, that too tilted towards larger farmers
  3. It may be noted that institutional credit comprises about 64 per cent of total credit taken by all farmers, the remaining 36 per cent coming from non-institutional sources
  4. The marginal farmers with holdings of less than one hectare, who constitute 68.5 per cent of the peasantry, actually take more than half of their loans from non-institutional sources at interest rates that range from 24-36 per cent, and sometimes even higher

Income support is a better alternative

  1. The alternative is to think of a structured and stable income/investment support policy for farmers
  2. An improvised version of Telangana’s Rythu Bandhu scheme could serve as a starting point
  3. Under this scheme, the government can give Rs 10,000/ha as investment support to cultivators
  4. Payments under this scheme could be inversely related to the holding size, making it more pro-small holders
  5. Farms can be geo-tagged to ensure that only those farmers get benefits who are cultivating the land
  6. Land records will have to be upgraded to include tenants
  7. Government records still show only 10 per cent of tenancy in the country while ground realities are very different
  8. In any case, if this scheme is implemented in over 20 crore hectares of gross cropped area of the country, it will cost about Rs 2 lakh crore per annum, which could be equally distributed between the Centre and the states
  9. The Centre should also include fertiliser subsidy into this and encourage states to transfer their power subsidy through this platform based on per hectare basis
  10. Such a policy can reach the largest number of farmers, be more equitable, the least market distorting, and predictable

Way forward

  1. Striking the right balance between consumers and farmers is the need of the hour
  2. Loan waivers are poll bait. What is needed is a structured and stable income support policy
Dec, 05, 2018

[op-ed snap] A new deal for the farmer

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From the UPSC perspective, the following things are important:

Prelims level: Kisan Credit Card, Pradhan Mantri Krishi Sinchayee Yojana (PMKSY), Mudra Scheme

Mains level: The idea of a basic pay for farmers and its plausibility


Context

Farm distress and farmer suicides

  1. The neglect of Indian agriculture by the successive governments has been the cause of untold suffering of the Indian farmer
  2. According to Census 2011, 54.6 per cent of India’s workforce was engaged in agriculture
  3. However, the sector contributes less than 17 per cent of the GDP
  4. The policies of successive governments have failed to correct this imbalance
  5. This has led to large-scale farmers suicides and spawned unprecedented agrarian unrest in many parts of the country

Urgent interventions required

  • Farmers must receive expert advice by trained officials at their doorstep at the beginning of every crop season
  1. These recommendations should be related to issues like which crops to sow, technology, market prices, soil fertility, irrigation
  2. Agricultural extension services are almost non-existent today
  • Trade bans on agricultural exports must be removed
  1. Such restrictive policies keep domestic prices low, harming farmers’ interests
  2. Farmers should have free access to global markets, as it will help augment incomes
  3. Restrictions, if any, should be imposed only in emergencies
  4. As for domestic trade, all restrictions on inter-district and inter-state movement should be removed
  • Every farmer family must have a Kisan Credit Card (KCC)
  1. According to the NABARD, the cumulative number of KCCs issued since inception till March 31, 2015, is 14.64 crore of which operative/live KCCs are 7.41-crore
  2. Counter-posing this against the 13.83 crore operational land holdings (Agricultural Census 2010-11) shows that a large number of farmers are yet to be covered under the KCC scheme
  • Rainwater harvesting should be incorporated in irrigation projects, owing to its magnificent untapped potential
  1. According to the Standing Committee on Rural Development, only 10 per cent of the projects taken up under the watershed development component of the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) have been completed so far
  2. The establishment of micro, small and medium irrigation projects like tube wells and check dams, instead of big irrigation projects should be encouraged and financed entirely by the Centre
  • A “paani panchayat” should be established for every scheme, which will act as a specialised registered body responsible for the execution of irrigation projects
  1. The panchayat will be responsible for the maintenance of water channels and collecting user charges from the beneficiaries
  2. This will help in the augmentation of self-financing water management mechanism
  3. It could also act as cross-panchayat body wherever applicable, for example, in cases where more than one beneficiary panchayat exists under a particular irrigation project
  • Minimum basic pay to farmers
  1. Every small and marginal farmer and every agricultural labourer above the age of 60 should receive a monthly pension of Rs 5,000
  2. All small and marginal farmer households, including tenant and sub-tenant farmers, should receive a basic income of Rs 6,000 per acre per crop season. This will work out to Rs 12,000 per household per annum
  3. Farmers holding land in excess of 5 acres of irrigated land, who produce disposable surplus and take advantage of the minimum support price may not be included in the scheme. For unirrigated holdings, the limit could be 10 acres
  4. The total financial burden of this scheme, likely to be Rs 1.84 lakh crore, could be distributed in the ratio of 70:30 between the Centre and the states
  5. The financial burden on the Centre will thus be Rs 1.29 lakh crore, less than 1 per cent of the country’s GDP
  6. The total expenditure budget of the Government of India in 2018-19 is Rs 24.42 lakh crore
  7. It is therefore not difficult to find this money within the resources available to it with better expenditure management
  8. However, even if this adds to the fiscal deficit it will be a worthwhile step because it will make the farmers happy and increase their productivity
  • Food processing
  1. There should be a separate category of entrepreneurs under the Mudra Yojana who will set up processing and storage plants for agricultural units
  2. With a low rate of interests on loans ranging from 3.5 per cent to 6 per cent, small and medium enterprises for storage and processing can aid the development of infrastructure for the agriculture sector

Way forward

  1. A Basic Income Scheme for the farmer will not tax the government’s resources
  2. But it could stem the tide of distress in the countryside
Nov, 14, 2018

Deny MSP to stubble burners: NGT

Note4students

Mains Paper 3: Environment | Conservation, environmental pollution and degradation, environmental impact assessment

From UPSC perspective, the following things are important:

Prelims level: Particulars of the NGT

Mains level: Immediate measures to improve air quality in the concerned northern states.


News

Disincentives for Polluters

  1. Stating that State governments had failed to curb stubble burning, the National Green Tribunal (NGT) on summoned the Chief Secretaries of Delhi, Punjab, Haryana and Uttar Pradesh.
  2. During the hearing, it was suggested to the Bench that incentives could be provided to those who are not burning the stubble and disincentives for those who continue the practice.
  3. The fact remains that the problem of stubble burning has not been fully tackled and the adverse impacts on the air quality and consequent impacts on the citizen’s health and lives are undisputed said NGT.

A Lasting Solution

  1. The problem is required to be resolved by taking all such measures as are possible in the interest of public health and environment protection.
  2. NGT made it clear that the existing MSP Scheme must be interpreted to enable the concerned States to wholly or partly deny the benefit for those who continue to burn the crop residue.
  3. NGT has specified very short time on account of the urgency of the situation with regard to deteriorating air quality prevailing in NCT Delhi and adjoining areas.

Back2Basics

National Green Tribunal

  1. National Green Tribunal Act, 2010 (NGT) is an Act of the Parliament of India which enables creation of a special tribunal to handle the expeditious disposal of the cases pertaining to environmental issues
  2. It draws inspiration from the India’s constitutional provision of Article 21, which assures the citizens of India the right to a healthy environment
  3. The National Green Tribunal has been established on 18.10.2010 under the National Green Tribunal Act 2010 for effective and expeditious disposal of cases relating to environmental protection and conservation of forests and other natural resources.
  4. It  includes enforcement of any legal right relating to environment and giving relief and compensation for damages to persons and property and for matters connected therewith or incidental thereto.
  5. The NGT has not been vested with powers to hear any matter relating to the Wildlife (Protection) Act, 1972, the Indian Forest Act, 1927 and various laws enacted by States relating to forests, tree preservation etc.

For further reading, please navigate to the page:

How is the National Green Tribunal (NGT) different from the regular judiciary? Critically analyse the performance of the NGT with respect to its mandate.(250W/15M)

Oct, 27, 2018

Govt. procurement scheme fails to ensure MSP for farmers

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: PM – AASHA and its components

Mains level: Various support schemes for farmers and their effectiveness


News

New scheme couldn’t make it

  1. The PM-AASHA procurement scheme, announced with great fanfare last month as a means to ensure that farmers actually receive minimum support prices for their crops.
  2. However it will not make any difference to farmers in the current season.
  3. In the mandis, cereals, pulses and oilseeds are now selling well below MSP, in some cases barely above production costs.

Present market prices

  1. Using data from the government’s Agmarknet website tracking prices at all major mandis across the country, it was found that prices for moong, tur and urad dal were barely above the cost of production as calculated by paid out costs and the imputed cost of family labour.
  2. All major protected commodies, including those three pulses, oilseeds such as groundnut and soyabean, and cereals such as bajra, jowar and maize are currently selling below MSP.

PM-AASHA couldn’t deliver this season

  1. The Cabinet cleared the Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) or PM’s Farmers Income Protection Drive in September.
  2. The umbrella policy clubbed together an existing government procurement scheme with newly introduced options — meant for oilseeds only — of additional procurement by private traders or a cash payment scheme.
  3. Six weeks later, senior Agriculture Ministry officials admit that the scheme will make no difference to the plight of farmers on the ground this season, and will not improve their chances of getting MSP for their crops.

Lack of infrastructure

  1. Only Madhya Pradesh has opted for the cash payment component as it already had been implementing a cash payment using State funds.
  2. The only difference is they can now use Central funds up to 25%, but that will not change anything for the farmer.
  3. No other state has readied the IT infrastructure needed to implement it.

Supplement this newscard with:

[pib] Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA)

Oct, 05, 2018

[op-ed snap] The price is wrong

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA)

Mains level: Recent increase in MSP by the government and its effect on farm sector


Context

Debate around farm income

  1. The farmer and his income is an important theme of discussion these days
  2. The government has increased the MSP of Kharif crops substantially for this season, which has come as a shot in the arm for the farmers
  3. Viewed arithmetically, the income of a farmer is a function of three things — the cost of cultivation, production and sale proceeds of the produce

How to achieve these factors?

  • Cost of cultivation
  1. The cost of cultivation can be influenced by the farmer in a limited manner
  2. Farmers can reduce the consumption of inputs per unit of land by using a better package of practices
  3. But, the rising cost of inputs like seeds, phosphatic and potassic fertilisers, pesticides, etc is not in the hands of farmers and thus necessitates subsidies
  • Increasing production
  1. By using high-yielding variety seeds, mechanisation, fertilisers, irrigation facilities, micro-nutrients and the correct package of practices, it is possible to increase productivity and production
  2. With some concentrated effort and use of technology, it should be possible to enhance the yields quickly in low production areas
  • Getting the right price for the produce
  1. This is the most critical issue for farmers today
  2. The challenge for the farmers is that when production goes up, the price tends to fall
  3. This results in zero or very little net gain for the farmers

Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA)

  1. It is an important step towards securing remunerative price (read MSP) for the farmers
  2. This provides for three methods of procurement: (i) Price Support Scheme (PSS), (ii) Price Deficiency Payment Scheme (PDPS), and (iii) Private Procurement and Stockist Scheme (PPSS)
  3. PDPS and PPSS have been allowed only for the procurement of oilseeds whereas, for all other MSP crops, PSS will be the main instrument
  4. A quantity restriction of 25 per cent of the total production of a state has been put for obtaining central assistance under all the three schemes
  5. Any quantity procured beyond this limit will have to be funded by the state’s own resources

Evaluating the methods under PM-AASHA

  1. PDPS has been tried by Madhya Pradesh during the last year and the feedback has been mixed
  2. PPSS is a new concept with a whiff of freshness but it needs to be seen how it plays out on the ground

Steps that can be taken

  • The mechanism under PSS needs to be strengthened
  1. Currently, the procurement takes place through state government agencies on behalf of NAFED, which itself is a weak organisation
  2. Farmers are not able to get the sale proceeds in time and so prefer to sell their produce at a lower rate in the open market
  3. The states and Centre will have to come together and put a robust system in place in order to provide the real benefit of the MSP increase to the farmers
  •  The inclusion of pulses and millets in the PDS
  1. It will result in the quick disposal of accumulated stocks
  2. This will also lead to health gains for the population and monetary gains for the farmers
  • Efforts to add value to the agricultural produce at the village level
  1. Even if primary processing like cleaning, sorting and grading of produce can be done at the farm-gate level, this will increase returns
  • Storage and negotiable warehouse receipt facility for farmers will have to be expanded
  1. By doing this, farmers will not be forced to undertake distress sales
  • Incentives for exports of surplus produce
  1. It will expand the market for farmers
  • A strategy to ensure appropriate acreage for crops
  1. It will ensure that the production is dictated by the market demand
  2. Most farmers tend to go by the herd mentality and whichever crop gives good returns this year sees a jump in the acreage the very next year
  3. This leads to overproduction and the price tends to crash leading to distress in the farming community

Way Forward

  1. Farm sector needs governmental intervention by providing an enabling policy environment, a robust institutional framework and a vibrant regulatory regime
  2. The government must provide policy, institutional framework for procurement
Oct, 03, 2018

[op-ed snap] From Plate to Plough: Get smarter on the farm

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Need for a shift in India’s agricultural policy and moving towards less subsidies


Context

Need for change in agri policy

  1. India needs a good blend of investments and subsidies in its agriculture policy
  2. There is not a severe constraint on resources to invest in rural areas, be it roads, water (irrigation), sanitation, and even housing
  3. Including agri-research and development (R&D) and quality education in this list of rural investments would ensure handsome payoffs — reducing poverty and propelling agri-growth at a much faster pace than has been the case so far

India’s policy so far

  1. Most countries support agriculture to ensure food security and/or enhance farmers’ income, so does India
  2. The main policy instruments to support farmers in India include subsidised fertilisers, power, agri-credit and crop insurance on the input side, and minimum support prices for major crops on the output front
  3. A recent study, conducted jointly by the OECD and ICRIER, estimated that India’s trade and marketing policies have inflicted a huge negative price burden upon the country’s farmers
  4. The Producer Support Estimate (PSE) for India works out to be minus (-) 14 per cent of the gross farm receipts for the period 2000-01 to 2016-17
  5. This is primarily because of restrictive export policies (minimum export prices, export bans or export duties) and domestic marketing policies (due to the Essential Commodities Act, APMC, etc)

Return on investments low

  1. Public capital formation in agriculture has been declining from 3.9 per cent of agri-GDP in 1980-81 to 2.2 per cent in 2014-15
  2. Input subsidies on fertilisers, water, power, crop insurance and agri-credit have risen from 2.8 per cent to 8 per cent of the agricultural GDP during the same period
  3. The rapid increase in input subsidies has squeezed public investments in agriculture
  4. Therefore, India has not got the biggest bang for its buck being spent in the agriculture space
  5. The results show that expenditure incurred on Agri-R&E (Research and Education), roads or education are five to 10 times more powerful in alleviating poverty or increasing agri-GDP than a similar expenditure made on input subsidies

Impact of excessive subsidies

  1. Excessive input subsidies have caused large-scale inefficiencies in the agriculture system
  2. For example, fertiliser subsidies, especially on urea, have led to the imbalanced use of soil nutrients
  3. The subsidy on irrigation water has resulted in an inefficient use of scarce water
  4. Highly subsidised power has led to over-exploitation of groundwater
  5. Subsidy on the interest rates on crop loans has diverted substantial amounts of agri-credit to non-agricultural use

Policy suggestions

  • Investment in public irrigation is very expensive, as it involves long lags, and the gap between the potential created and potential utilised has increased over time
  1. To give higher returns, this leaky system must be fixed, it should be made more transparent and the gap between potential created and utilised bridged
  • The present system of delivering subsidies through the pricing policy needs to be shifted to an income policy, which could be well-targeted, and leakages minimised— on the lines of JAM trinity
  1. Many OECD countries, as well as emerging countries such as China, are moving in that direction
  2. Indian farms can also benefit from this move where input subsidies at least are given as DBT on a per hectare (ha) basis
  • Investments need to be prioritised towards agricultural research and development, roads and education
  1. At the global level, the private sector is leading in agri-R&D
  2. If India needs to access that technology, it needs to develop a proper IPR regime, which is in the interest of farmers as well as investors

Way Forward

  1. India needs to make moves to give its farmers access to the best technologies in the world
  2. This, in turn, can augment their productivity and incomes and give the nation long-term food security
Sep, 03, 2018

[op-ed snap] From Plate to Plough: Maharashtra vs Market

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: MSP calculation formulae

Mains level: Maharashtra’s decision of making MSP compulsory and what it might lead to


Context

MSP increase and states response

  1. The Centre’s announcement fixing MSPs at 50 per cent above costs (A2+FL) is viewed as a game-changer in wooing back the farming community
  2. Several states have buffered the MSP increases with bonuses
  3. Madhya Pradesh went a step ahead in the last Kharif when it tried price deficiency payments (Bhavantar Bhugtan Yojana), where it compensated farmers of selected crops for the difference between the realised price and MSP
  4. The scheme fizzled out because traders colluded, farmers suffered plummeting prices and despite concerted efforts, the state government could not compensate beyond one-fourth of the total production

Maharashtra’s decision to make MSP compulsory

  1. In a controversial move, the Government of Maharashtra (GoM) has made buying at MSP mandatory in the state for traders
  2. In case the order is not observed, the licence of the trader will be cancelled, a fine of Rs 50,000 imposed and he must serve a jail term of one year

What can be implications of this decision?

  • In the first scenario, let us assume that traders fall in line and buy everything at MSP or above
  1. What if supply exceeds demand for some Kharif products, which is likely to be the case for most pulses, oilseeds and coarse cereals?
  2. Market prices will tend to fall, possibly below MSPs
  3. If the high MSPs are translated into higher retail prices by not allowing any inward flow from neighbouring states, this would amount to creating a republic of its own with elevated price structures
  4. In that case, the GoM may face the wrath of consumers who would be paying much higher prices than consumers in neighbouring states
  • In scenario two, a private trader buys at MSP, unloads the produce at prevailing market prices that are below MSPs and incurs heavy losses
  1. No rational businessman would do that unless the government promises to compensate losses, akin to the BBY of Madhya Pradesh
  • In the third scenario, Maharashtra’s neighbouring states like Karnataka, Madhya Pradesh and Gujarat are selling the same crops at prices below MSP
  1. Maharashtra’s traders may move to the adjoining states and buy at market prices
  2. In that case, the GoM becomes the buyer-of-last-resort, resulting in a de facto takeover of the wholesale trade

What is actually required?

  1. The best way to deliver a better deal to farmers is to “get the markets right”
  2. Treat farmers as businessmen and facilitate a conducive environment for them to flourish
  3. Reform archaic laws like the Essential Commodities Act (ECA) 1955 and APMC Act
  4. Invite the private sector to build storage, assaying, grading, packing facilities at the back-end with farmer-producer-organisations (FPOs)
  5. Create competition for APMCs by facilitating private mandis
  6. Freeze the commission of the commission agents. As for the market fee, possibly cap it at 2 per cent of the value of agri-produce being transacted for all commodities across the country
  7. Big agri-processors and organised retailers, including e-commerce players, should be invited to buy directly from FPOs without paying any market fee
  8. The Negotiable warehouse receipt system (NWRS) needs to be stepped up, as does futures’ trading
  9. Export bans need to be banned and Minimum Export Price used judiciously

Way Forward

  1. A better approach to help farmers will be to move through an income policy, a la the Telangana model, which will have the least distortions
  2. It can subsume the input subsidies, setting input prices to be freely determined by the markets
Aug, 28, 2018

[op-ed snap] Supporting farmers, the middle way

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Various support schemes for farmers and their effectiveness


Context

Measures to increase farm output & income

  1. Recently, there has been an active discussion on the strategies for raising farm output by providing remunerative prices to agricultural products
  2. Over the years, between the price and non-price factors, on balance, the latter has been seen as more effective
  3. When output increases well beyond the market demand at a price remunerative to producers, market prices decline and in the absence of effective price support policy, farmers are faced with a loss of income, depending on how much the price decline is

Various mechanisms of farmer support

  1. The effectiveness of a price support mechanism such as the Minimum Support Price (MSP) for addressing price decline would depend on how effective the system is for managing the supply-demand imbalances
  2. The scheme of “price deficiency compensation”, which amounts to paying the difference between the market price and MSP, has gained acceptance in states such as Madhya Pradesh, Rajasthan and Haryana
  3. At the other extreme is the “open procurement system”, that has been in vogue quite effectively in the case of rice and wheat, where procurement is open-ended at the MSP

Gauging the effectiveness of these schemes

  • The “price deficiency” scheme may compensate the farmers when prices decrease below a certain specified level
  1. However, the market prices may continue to fall as the supply exceeds the “normal demand”
  2. Nearly all the produce may become eligible for the “deficiency payments” in theory as the prices, in general, would have fallen for all the producers
  3. An alternative is the limited procurement scheme. Under this scheme, the government will procure the “excess”, leaving the normal production level to clear the market at a remunerative price
  4. Thus, procurement will continue until the market price rises to touch the MSP
  • The effectiveness of the limited procurement system would depend on several factors
  1. The timing and speed with which the procurement is implemented are critical. It is important to determine the excess supply, which will indicate how much is to be procured
  2. Equally important is the quick assessment of price trends, particularly in the period immediately after the harvest begins, to arrive in the key markets
  3. In any case, the idea is not to absorb all the output but a quantity that would keep the supply-demand balance at the trend level
  4. The suggested “limited procurement system” will not work if the MSP is fixed at a level to which the market price will never rise
  5. A limited procurement option is necessary only in times of a sharp increase in production
Aug, 20, 2018

[op-ed snap] From Plate to Plough: Lean year as a foundation

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: All India Rural Financial Inclusion Survey (NAFIS), NABARD, Situation Assessment Survey (SAS), All India Debt and Investment Survey

Mains level: Contrast between NAFIS & Dalwai Committee report and way forward for Indian agriculture


Context

NABARD survey on farmer’s income

  1. NABARD presented the nation with a gift when it released the results of its All India Rural Financial Inclusion Survey (NAFIS)
  2. The survey estimates 2015-16 farmers’ income levels

About NAFIS

  1. NAFIS is based on a sample of 40,327 rural households in 29 states of which 48 per cent are agriculture households (agri-HHs)
  2. 87 per cent are small and marginal farmer households
  3. The survey combines the strengths of the NSSO’s Situation Assessment Survey (SAS) and RBI’s All India Debt and Investment Survey

Findings from NAFIS

  1. Based on household-level data, NAFIS estimates that an average Indian farming household earned Rs 8,931/month (Rs 1,07,172/year) in the agriculture year 2015-16
  2. This is up from Rs 2,115 earned in 2002-03 as per the NSSO’s SAS, implying a compounded annual growth rate (CAGR) of about 12 per cent in nominal terms and 3.7 per cent in real terms (2015-16 base) in 13 years
  3. The survey also estimates the income of non-agri rural HH at Rs 7,269/month, more than half of which comes from working as wage labourers
  4. On the financial aspects of these rural agri-HHS, NAFIS found for the reference year that about 43.5 per cent borrowed money with an average availed loan of Rs 1,07,083
  5. More than 60 per cent of these HHs borrowed from institutional sources, 30.3 per cent from non-institutional and 9.3 per cent from both
  6. More than half (52.5 per cent) of the agri-HHS were found to be indebted, with an average outstanding debt of Rs 1,04,602 for the year
  7. Almost 88 per cent of all rural HHs had bank accounts, and their monthly consumption expenditure on food was 51 per cent of total expenditure

Reasons for rise in estimates

  1. The rise in estimates is because of a wider definition of rural areas the NABARD survey includes areas that are bigger including Tier Three, Four and Five Towns
  2. If NAFIS followed NSSO’s definitions, the 2015-16 estimate of farmers’ income would have been somewhat lower, and so would have been its growth rate

Uses of NAFIS

  1. In terms of sources of income, NAFIS offers interesting insights, particularly for the Dalwai Committee
  2. The Dalwai Committee was set up in April 2016, to advise on the strategy to double farmers’ incomes by 2022

Farmers becoming labourers

  1. NAFIS estimates that in 2015-16, 35 per cent of farmers’ income came from cultivation, 8 per cent from livestock, 50 per cent from wages and salaries and 7 per cent from non-farm sectors
  2. It appears that working as labourers is a fall-back option for average farmers in drought years
  3. The increasing pressure as a result of shrinking average holding size (NAFIS estimates it at 1.1 hectares) is presumably forcing farmers to work as labourers to meet their needs
  4. This is very different from what the Dalwai Committee assumes when it says that by 2022-23, 69 to 80 per cent of farmers’ incomes will accrue from farming and animal rearing

Way Forward

  1. To achieve PM Modi’s dream of doubling farmers’ incomes by 2022-23, the Dalwai Committee points out that farmers’ real incomes need to grow at 10.4 per annum, that is, 2.8 times the growth rate achieved historically (3.7 per cent)
  2. This sounds like a challenge of raising country’s GDP growth from 7.2 per cent to 20 per cent
  3. It can possibly be done by 2030 unless the government undertakes drastic steps to augment farmers’ incomes at a faster pace
Jul, 21, 2018

[pib] Inter-Ministerial committee for “Doubling the income of Farmers”

Note4students

Mains Paper 3: Agriculture | Issues related to direct and indirect farm subsidies and minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Various schemes related to farmers

Mains level: The newscard enlists various initiatives at a glance, by the government for doubling farmer’s income


 News

Expert Committee

  1. The Government has constituted an Inter-Ministerial Committee under the Chairmanship of Chief Executive Officer, National Rainfed Area Authority, Department of Agriculture, Cooperation and Farmers Welfare.
  2. It aims to examine issues relating to the doubling of farmers’ income and recommend a strategy to achieve doubling of farmers’ income in real terms by the year 2022.

Building strategy for doubling of farmers’ income by 2022

  1. The Government has set a target of doubling of farmers’ income by the year 2022.
  2. In order to realise net positive returns for the farmer, schemes as follows, are being promoted and implemented in a major way through the States/UTs viz:-
  • Soil Health Card (SHC) scheme;
  • Neem Coated Urea (NCU);
  • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY);
  • Paramparagat Krishi Vikas Yojana (PKVY);
  • National Agriculture Market scheme (e-NAM);
  • Pradhan Mantri Fasal Bima Yojana (PMFBY);
  • National Food Security Mission (NFSM);
  • Mission for Integrated Development of Horticulture (MIDH);
  • National Mission on Oilseeds & Oilpalm (NMOOP);
  • National Mission for Sustainable Agriculture (NMSA);
  • National Mission on Agricultural Extension & Technology (NMAET) and
  • Rashtriya Krishi Vikas Yojana (RKVY)
  1. In addition, schemes relating to tree plantation (Har Medh Par Ped), Bee Keeping, Dairy and Fisheries are also implemented.
  2. All these schemes are implemented to enhance production and productivity of agriculture and thereby enhance income of farmers.

Minimum Support Price (MSP)

  1. MSP is notified for both Kharif & Rabi crops based on the recommendations of the Commission on Agriculture Costs & Prices (CACP).
  2. The Commission collects & analyses data on the cost of cultivation and recommends MSP.
  3. Giving a major boost for the farmers’ income, the Government has increased the Minimum Support Prices (MSPs) of all kharif crops for 2018-19 Season.
  4. This decision of the Government is a historic one as it redeems the promise of the pre-determined principle of fixing the MSPs at a level of at least 150 per cent of the cost of production announced by the Union Budget for 2018-19.

Farmer’s income is yet to be surveyed

  1. National Sample Survey Office (NSSO) has not conducted any survey during the last one year for collecting data on the present income of country’s farmers and animal rearers residing in various parts of the country.
  2. However, NSSO conducted a Situation Assessment Survey (SAS) of Agricultural households during its 70th round (January 2013- December 2013) in the rural areas of the country with reference to the agricultural year July 2012- June 2013.
  3. The survey collected the details of income generated by the agricultural households during the agricultural year from July 2012-June 2013 from different economic activities.
Jul, 20, 2018

[op-ed snap] Reform agriculture marketing systems to address farm distress

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Food Corporation of India (FCI), Commission on Agricultural Costs and Prices (CACP), Organisation for Economic Co-operation and Development (OECD)

Mains level: National Commission on Farmers (Swaminathan Commission) recommendations and how they can help in bringing farmers a better cost for their produce


Context

MSP hike and its utility

  1. The recent increase in the minimum support prices (MSP) for major kharif crops has reignited the debate about food price policy
  2. Some analysts believe that the increase has been excessive, that it will push up inflation, both directly and also indirectly via the fiscal burden of higher subsidies
  3. Others maintain that the increase is not enough, that the government has not delivered on its promise of announcing MSPs that are 50% over cost, as had been recommended by the National Commission on Farmers (Swaminathan Commission)

Need of Food Price Policy

  1. Foodgrains are basic necessities
  2. Any sharp increase in their prices can be extremely stressful, especially for low income and poor households, leading in turn to heightened political tension
  3.  Conversely, any sharp drop in crop prices can cause widespread distress among the millions of small farmers for whom the proceeds of their marketed produce is the main source of their livelihood

Present Food Policy Regime

  1. The present food policy regime was established following two consecutive drought years that led to severe food shortages in the mid- 1960s
  2. It consists of the Food Corporation of India (FCI), which procures rice and wheat, along with some state agencies, the Commission on Agricultural Costs and Prices (CACP), which recommends procurement prices, and the public distribution system (PDS), which distributes foodgrains and a few other essential items at subsidized prices

Methodology adopted to hike MSP

  1. The government has in principle adopted the policy of fixing procurement prices at least 50% over what CACP calls cost A2 + FL
  2. A2 includes the actual or imputed cost of all purchased or own inputs such as seeds, fertilizers, manure, bullock or machine labour + actual rent on leased in land + actual interest on working capital
  3. FL is the imputed value of family labour
  4. Thus A2 + FL excludes the imputed value of owned fixed capital, such as farm machinery, and the rental value of own land
  5. Adding these components would give us cost C2, the cost on which the Swaminathan Commission had recommended a 50% markup for procurement prices

Why imputed values should be used?

  1. Imputed values are the opportunity costs of both inputs and factors of production, such as land, labour or capital
  2. This means the costs that the farmer would have incurred if s/he had acquired these from the market or what s/he would have earned if she had supplied these owned resources to the market
  3. If the imputed rental value of owned land is not included in the reckoning then the average rental value factored into the costing would be less than the actual rental value paid by those who have leased their land, the large bulk of whom are marginal or landless farmers

Why cost of production doesn’t matter much

  1. Cost of production is only one of several considerations factored into the determination of MSPs, such as the estimated demand-supply balance, global prices, etc.
  2. Besides, announcing an MSP means nothing unless it is supported by public procurement at the announced MSP

What does it mean for distressed farmers?

  1. MSPs are only one among a range of policies that impact farm revenues and costs
  2. Organisation for Economic Co-operation and Development (OECD) uses two comprehensive indices of the net impact of all such policies on agricultural producers and consumers, respectively called the producer support estimate (PSE) and consumer support estimate (CSE)
  3. Based on an application of these indicators for India, it is claimed that Indian producers have suffered a net negative impact amounting to 14% of farm receipts on average for the period 2000-01 to 2016
  4. This bias against producers would in fact be much more severe for the small, marginal and landless farmers who account for 80% of rural households and face multiple price and non-price risks on top of the non-viability of their tiny plots of land
  5. Their circumstances also force them to sell their small lots of marketable surplus at prices way below the announced MSPs while having to buy their inputs at high prices

Way Forward

  1. Distressed farmers need not depend on the government to recover their viability
  2. The Amul Dairy Cooperative is an outstanding example of how farmers empowered themselves through cooperation
  3. There are more recent success stories in the Kudumbashree programme in Kerala, the Society for Elimination of Rural Poverty in Andhra, and embryonic cases in other states of such cooperation led by women’s self-help groups, initially for mobilizing credit and later for other activities
  4. These examples point to the power of aggregation and collective action in activities ranging from marketing and purchasing of inputs and machinery to land pooling, water management, organic agriculture, dairy, fishery and even some non-farm activities
Jul, 10, 2018

[op-ed snap] Rich farmers will gain the most from MSP hikes

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level:  NSSO stats on Farmers Income

Mains level: The newscard highlights very important issues with MSP and its associated beneficiaries. It broadly fails to benefit the marginal farmers, agricultural and urban labourers who are far outnumbered.


Context

  1. The common narrative about the hike in minimum support prices (MSPs) for farm produce is that farmers will benefit.
  2. Farmers in Punjab and Haryana are different from their brethren in Bihar and West Bengal or the north-east.
  3. We have small farmers, marginal farmers, peasants and kulaks and landlords. And its Target beneficiaries are not the needy. Let’s see how.

A 2013 NSSO Report has some clue

  1. A National Sample Survey Office (NSSO) report that mapped the income, expenditure and indebtedness of agricultural households in India in 2013 provides some clues.
  2. For households owning farms of less than 0.4 hectares, who are a 1/3rd of all agricultural households, net receipts from cultivation account for less than 1/6th of income.
  3. They will certainly not benefit from higher MSPs as their sole bread and butter is not only cultivation.
  4. For those holding between 0.4 and 1 hectare, net receipts from cultivation are around 2/5th of their earnings. This class constitutes another 1/3rd of all farming households.

Broad inference from this Report

  1. Taken together, farmers owning up to 1 hectare of land constitute 69.4% of total agricultural households.
  2. The report finds their monthly consumption expenditure is higher than their earnings from all sources, which means they are chronically in debt.
  3. Many rely on moneylenders, rich farmers and landlords to advance them the money needed for cultivation and they are often forced to sell their produce to these financiers at lower than market prices.
  4. In short, almost 70% of farming households are unlikely to be beneficiaries of the MSP hike.

Small and Big Farmers to get benefits

  1. Those having more than 4 hectares of land, a mere 4.1% of the farming population, get more than three quarters of their net income from cultivation.
  2. It is the rural rich, rural India’s ruling class, who pay no income taxes, who gain the maximum benefit from farm loan waivers, who will reap the bonanza from higher MSPs.

What Shanta Kumar Committee Report has to say?

  1. The revelations of the Shanta Kumar Committee report underscored that fact. It found that a mere 5.8% of agricultural households in India had sold paddy or wheat to any procurement agency.
  2. Even these households sold only a part of their total sales, ranging from 14-35% for different crops, at MSP.
  3. The upshot of this entire evidence is that the direct benefits of procurement operations in wheat and rice, with which FCI (Food Corporation of India) is primarily entrusted, goes to a minuscule of agricultural households in the country.
  4. Obviously then, much of the procurement that government agencies undertake comes from larger farmers, and in a few selected states (Punjab, Haryana, Andhra Pradesh and lately from Madhya Pradesh and Chhattisgarh).

Who are the losers from the government’s move?

  1. Economists’ estimates of the impact on inflation as a result of higher MSPs vary, but all agree that inflation will go up significantly, particularly if the government steps up its procurement.
  2. An IMF working paper said the disinflation in 2014-16 owed much to the government’s rationalization of MSPs. If that is correct, conversely, the sharp rise in MSPs now will fuel inflation.

Who loses the most from high inflation?

  1. The urban poor will be badly affected, of course, but also agricultural labourers, the most vulnerable class.
  2. Agricultural labourers now outnumber cultivators. Further, the marginal farmers may also not produce enough food for their requirements and have to buy from the market.

Benefiting the rural rich at the expense of the masses

  1. And that’s not even counting the price the economy will have to pay due to higher interest rates, uncompetitive agricultural prices, a bloated fiscal deficit and skewed incentives.
  2. That is why it is very likely that only lip service will be paid to the MSP hikes and it will be business as usual.

Way Forward

  1. If the objective is alleviation of rural distress, the Telangana government’s programme of income transfers looks far more promising.
  2. But in the long run, there is no alternative to creating enough jobs outside agriculture to absorb the disguised unemployment in farming.
Jul, 09, 2018

[op-ed snap] Resolving the farmer-consumer binary

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: OECD, ICRIER

Mains level: Agriculture policy making in India and how it can be improved


Context

Ensuring food security

  1. Given the overarching food security concern of 1.32 billion people in India, the country’s policymakers have a challenging task
  2. On the one hand they need to incentivise farmers to produce more and raise their productivity in a sustainable manner, and on the other, they need to ensure that consumers have access to food at affordable prices, especially those belong to the vulnerable sections

Maintaining fine balance

  1. In order to find a fine balance between these twin objectives, India has followed myriad policies that impact both producers and consumers
  2. These policy instruments range from domestic marketing regulations (for example the APMC Act, Essential Commodities Act, ECA), budgetary policies (such as input subsidies), trade policies (such as Minimum Export Prices, MEP or outright export bans and tariff duties) to food subsidies for consumers through the public distribution system
  3. These policies work in complex ways and their impact on producers and consumers are sometimes at variance with the initial policy objectives

Research on the nature of agriculture policies

  1. The OECD and ICRIER jointly undertook research over two years to map and measure the nature of agricultural policies in India and the ways they have impacted producers and consumers
  2. The report includes key policy indicators like Producer Support Estimates (PSEs) and Consumer Support Estimates (CSEs)
  3. In the case of PSEs, it basically captures the impact of various policies on two components:
  • One, the output prices that producers receive, benchmarked against global prices of comparable products; and
  • Two, the various input subsidies that farmers receive through budgetary allocations by the Centre and states

How is the data used?

  1. The two are combined to see if farmers receive positive support (PSE) or negative as a percentage of gross farm receipts
  2. It covers about two-thirds of India’s agricultural output
  3. A positive PSE (in percentage) means that policies have helped producers receive higher revenues than would have been the case otherwise
  4. Negative PSE (in percentage) implies lower revenues for farmers (an implicit tax of sorts) due to the set of policies adopted

Data from India

  1. The negative PSEs were particularly large during 2007-08 to 2013-14 when benchmark global prices were high but Indian domestic prices were relatively suppressed due to restrictive trade and domestic marketing policies
  2. This means is that there has been a pro-consumer bias in India’s trade and marketing policies, which actually hurts the farmers and lowers their revenues compared to what they would have received otherwise

Policy changes required

The first policy change that is needed is to “get the markets right” by reforming its domestic marketing regulations (ECA and APMC), promoting a competitive national market and upgrading marketing infrastructure

  • India also needs to review its restrictive export policies for agri-products which have inflicted large negative price support to farmers during the period studied
  • These changes will reduce and, in time, eliminate the negative market price support to farmers and allow them to earn much-improved returns

Second, the report recognises concerns of policy-makers to protect consumers from potential price hikes when global prices are on the rise

  • It argues for switching to an income policy approach through the Direct Benefit Transfer (DBT) targeted to the vulnerable sections of the population
  • The report shows that this would generate better outcomes all round, including for nutrition quality
  • This can be done gradually over a three-five year period, starting with cities and grain surplus states

Third, Indian agriculture and farmers would be much better-off if input subsidies are contained and gradually reduced

  • The equivalent savings can be channelled simultaneously towards higher investments in agri-R&D, extension, building rural infrastructure for better markets and agri-value chains, as also on better water management to deal with climate change

Fourth, given that agriculture is a state subject, a greater degree of coordination is required between the Centre and states, and also across various ministries for a more holistic approach towards reforming agriculture

Way forward

  1. These policy changes, many of which are already underway, will make Indian agriculture more competitive, more vibrant, sustainable and resilient, and will also augment farmers’ incomes on a sustained basis
Jul, 09, 2018

[op-ed snap] MSP Hike is a big blunder. Farmers are producers not objects of charity

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Minimum support prices (MSPs), European Economic Community

Mains level: Relation between farm sector and poverty alleviation and how DBT can help


Context

The recent hike in MSP

  1. The big jump in minimum support prices (MSPs) for kharif crops announced by the government could be its biggest economic blunder
  2. It gives farmers a fixed margin of 50% over their input costs and imputed labour cost, ignoring demand, supply and international competitiveness
  3. This makes no economic sense for any activity, let alone farming

What will be the impact of such incentives?

  1. Incentives that are being provided will worsen over-production
  2. The 50% margin over costs will raise prices above even their current uncompetitive levels, making exports even more difficult
  3. A fixed mark-up over costs will encourage even greater use of purchased inputs and labour, which in turn will send MSPs even higher in a vicious circle
  4. Higher food prices will worsen inflation
  5. The RBI will seek to curb this by raising interest rates, hurting industry and exports
  6. This will dent India’s long-term GDP growth and prosperity

Correlation between farm distress & poverty

  1. Farm distress is a reality but does not mean growing poverty
  2. A recent Brookings paper shows that 44 Indians per minute are rising above the poverty line, and extreme poverty will soon fall to almost nothing
  3. The farm problem is not poverty or scarcity but excess production of several crops
  4. The resulting glut has depressed farm prices, often below old MSP rate

Europe’s example

  1. The European Economic Community once tried something similar, offering prices to farmers well above global rates to make Europe self-sufficient in food, to provide food security in the event of war with the USSR
  2. High prices created unsold mountains of butter and meat and lakes of milk and wine
  3. These ultimately had to be disposed of by selling them at a throwaway price to the USSR, the supposed enemy
  4. Learning from this folly, Europe shifted its subsidies from crops to farmers
  5. Direct cash transfers to farmers replaced high prices for crops
  6. This finally brought supply and demand back in balance, eliminated huge surpluses, and still alleviated farm distress

What can India do?

  1. India needs to learn from the EEC’s mistakes, not replicate them
  2. Indian experience shows that subsidising goods (food, fertiliser, electricity, LPG) leads to large leakages to the undeserving and to middlemen
  3. Experts estimate that three rupees of spending are needed to get one rupee through to beneficiaries
  4. Direct benefit transfers to bank accounts work only if good financial and telecom infrastructure exist
  5. A possible national strategy would start with preparatory efforts for good land records and financial infrastructure
  6. Next should be phased moves to a cash grant of Rs 4,000 per acre per year, up to a limit of five acres per holding

Way Forward

  1. DBT will avoid the evils of cost-plus pricing and encouraging overproduction
  2. It will limit the cost of farm rescues while benefiting small farmers most
  3. It will curb gluts that depress prices

 

Jul, 06, 2018

[op-ed snap] The price is right

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: MSP system

Mains level: Government intervention in the agricultural sector and their overall impact


Context

Hike in MSP

  1. The cabinet has approved MSPs for Kharif crops for the year 2018-19
  2. The MSPs are not only 50 percent higher than the cost, in some cases, they are far greater
  3. Since the beginning of the economic reforms in the early 1990s, the focus of agricultural policy has shifted towards prices
  4. Farmers are losing faith in the market and seeking direct intervention by the government, mainly at the Centre
  5. The situation has been aggravated by unanticipated increases in the domestic production of some crops like pulses and the low global prices of agricultural commodities exerting downward pressure on domestic prices

History of MSP system

  1. India started the system of MSPs in the mid-1960s for wheat
  2. It gradually brought all major cereals, oilseeds, pulses, cotton, jute and sugarcane into its ambit

MSP economics

  1. The Union government has decided to keep MSPs at least 50 per cent above the sum of cost of production (A2) and imputed wages for the time spent by the farmer and his/her family (FL) in crop production
  2. A2 is a comprehensive cost and includes paid or imputed costs of all purchased or own inputs like seed, fertilizer, manure, bullock labour and machine labour, interest on working capital, irrigation expenses, depreciation, rent paid for the leased-in land, costs of repair and miscellaneous expenses

Using C2 cost instead of A2 will not be good

  1. Cost C2 is arrived at by adding the rental value of owned land and interest on fixed capital to cost A2 plus FL
  2. On average, around 40 percent of Cost C2 (imputed rent for own land and imputed value of family labour used in crop production) is not a cost but income to the farmer
  3. If MSP is just equal to cost C2, it includes 40 percent as a net return for the farmers
  4. No principle of economics tells us to award a margin on those costs which are not actually incurred
  5. Keeping MSP at 50 percent above cost C2 involves an increase in the current MSP by 27-89 percent for kharif and up to 45 percent for rabi crops
  6. Such a price entails a 50-100 percent increase in the existing farm-level prices of some crops at one go

Impact of using the C2 methodology

  1. Demand-side factors at present do not support such a sharp increase in prices
  2. In such a situation, the private trade will not have any incentive to operate in the market
  3. The entire onus of procuring the marketable surplus will come on the government, which in turn will be required to heavily subsidize the procured produce in order to dispose of it
  4. This will make domestic prices much higher than global prices, which will strongly hit exports and make India attractive for imports
  5. It will also leave little incentive for efficiency and diversification in the crop sector
  6. Such a move involves keeping prices artificially high and cannot be sustained fiscally

Why should market intervention in terms of prices be minimum?

  1. Excessive intervention in prices can have serious implications for the functioning of the market, fiscal resources and imports and exports
  2. The best prices for farm produce can be realised from a competitive market

What can be done to ensure fair prices?

  1. Regulatory reforms
  2. Institutional changes
  3. The development of appropriate infrastructure to promote the evolution of the agricultural market system

Way forward

  1. The new MSPs announced by the government for kharif crops meet the spirit the Swaminathan Committee recommendation of 50 per cent net return over Cost C2
  2. The stakeholders now need to differentiate areas for action by the Centre and the states
  3. There is a particular need to put pressure on the states to undertake the required reforms to make agricultural markets more efficient, competitive and responsive to the needs of producers and consumers
Apr, 02, 2018

[op-ed snap] From Plate to Plough: The right agri-support

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: MSP, FRP, Bhavantar Bhugtan Yojana

Mains level: Farm subsidies in India and related issues


Context

Falling prices of agro commodities

  1. Farm prices of several commodities fell way below their minimum support prices (MSPs) in 2016-17 and 2017-18
  2. Although the Centre regularly announces MSPs for 23 commodities (including Fair and Remunerative Price (FRP) for sugarcane), its implementation remains a distant dream
  3. Except for paddy, wheat, and sugarcane in major procuring states, the announcement of MSPs remains largely indicative in nature

Bhavantar Bhugtan Yojana (BBY)

  1. The Madhya Pradesh government tried to help farmers through the Bhavantar Bhugtan Yojana (BBY)
  2. It is a price deficiency payment (PDP) scheme, in Kharif 2017
  3. But it gave up abruptly in the rabi marketing season as the scheme could not cover even 25 per cent of the harvest, even though prices of most crops were way below their MSPs

Potential costs of scaling up the BBY/PDP scheme

  1. Scaling up BBY/PDP scheme requires reaching all farmers, registering their market arrivals, and paying them the difference between the MSP and market prices
  2. Cost plus pricing, which ignores demand side, will lead to major distortions in the system
  3. For example, farmers will find jowar relatively more attractive and increase its production
  4. Higher supply without any change in demand will create a glut and thus depress market prices, requiring either large-scale procurement by the government at enhanced MSP or a huge PDP
  5. Higher cotton and paddy MSPs will make India less competitive in global markets, adversely impacting their exports

Pricing methodologies

  1. A2+FL is the cost which includes paid out costs plus the imputed value of family labour
  2. C2 is comprehensive cost including the imputed rental value of owned land and imputed interest on owned capital
  3. The government is in a dilemma on which way to choose for MSP reforms

Way forward

  1. There is no shortcut to long overdue agri-market reforms
  2. Synchronising trade and tariff policy with the MSP policy has to be done
  3. Knee-jerk reactions in terms of loan waivers or some income support will only make the state of agriculture worse than bringing improvement
Mar, 10, 2018

NITI Aayog to work on mechanism for MSP implementation

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Minimum Support Price, NITI Aayog, Market assurance scheme, Price deficiency procurement scheme, Private procurement and stockist scheme

Mains level: Issues related to crop prices and MSP


News

A mechanism for implementation of the Minimum Support Price (MSP)

  1. Government think-tank NITI Aayog said it will work out a mechanism for implementation of the Minimum Support Price (MSP) for different crops in the country
  2. The Aayog noted that the procurement by central and state agencies is limited to rice and wheat and some amount of coarse cereals

Three concepts discussed

  1. The first option related to market assurance scheme, which proposes procurement by states and compensation of losses up to a certain extent of MSP after the procurement and price realization out of the sale of the procured produce
  2. Second option related to price deficiency procurement scheme
  3. Under this scheme, if the sale price is below a modal price then the farmers may be compensated to the difference between MSP and actual price subject to a ceiling which may not exceed 25 percent of the MSP
  4. No compensation would be due if the modal price in neighboring states is above the MSP
  5. Third option related to private procurement and stockist scheme
  6. It relates to procurement by private entrepreneurs at MSP and government providing some policy and tax incentives and a commission to such private entities

Better prospects via private procurement

  1. The option of private procurement and stockist scheme offered great promise as it reduces the fiscal implications for the government, involves private entities as partners in agriculture marketing and improves the competition in the market
  2. The government’s liabilities for storage and post-procurement management and disposal are also avoided
Oct, 18, 2017

[op-ed snap] Retrench India’s farm economy to sustain it

Image source

Note4students

Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: National Agriculture Market (eNAM), Pradhan Mantri Krishi Sinchayee Yojana

Mains level: Long pending agricultural reforms in India


Context

  1. In 2007-08, Madhya Pradesh government announced a bonus of Rs 150 above the minimum support price (MSP) per quintal of wheat
  2. Predictably, a large segment of farmers in the state shifted to the crop
  3. The bonus was stopped in 2014
  4. Farmers who had shifted production were not pleased
  5. It fed into the resentment that would eventually erupt in widespread farmer agitations in the state this year

Artificial incentives for agriculture

  1. The Indian state has often played the same role in the agricultural sector
  2. Its policies have created artificial incentives that are unsustainable, an inefficient drain on public funds, or both

Another such scheme by MP government

  1. The Bhavantar Bhugtan Yojana will replace government procurement with compensatory payments
  2. This will be when market prices are below the MSP
  3. It is being implemented as a pilot scheme for eight crops

Hope from the scheme

  1. The hope is that this will sidestep the implementation shortcomings of the procurement system
  2. These extend from the lack of government storage facilities and supply chain logistics
  3. Also, the fact that despite the government declaring MSPs for 25 crops, it largely procures only rice and wheat
  4. It will be less distortionary, freeing up space for the market to set rates

Reality check

  1. The knowledge that the government will make up the shortfall will incentivize traders to set rates well below the MSP
  2. The scheme has a two-month window, which means that the rush to sell in that period will also push prices down

Need for government intervention

  1. The agricultural sector is one of the handful where inelastic demand for the products, the deleterious public effects of supply shocks and inherent risks for suppliers mandate a government role

Agricultural reforms: What is needed?

Truly transformative agricultural reforms will require work on three levels

  1. The first level is mandi system
  • With the 2003 and 2017 versions of the model Agricultural Produce Market Committee (APMC) Act, governments have attempted to liberalize this system, providing for private markets and integrated state markets
  • This was a step towards a national market facilitated by the National Agriculture Market (eNAM)
  • The problem with this is that it still operates within the mandi system
  • Solution: Government needs to get out of the business altogether—and that is only possible with a switch from the public distribution system to direct benefit transfers

2. The second level of reforms should be aimed at inputs

  • The Pradhan Mantri Krishi Sinchayee Yojana aims to extend irrigation cover to all forms and maximize water-use efficiency over a period of five years
  • In a water-stressed yet groundwater-dependent country like India, this is only possible with comprehensive rural electrification, allowing for techniques such as drip irrigation
  • The other major reform needed here is access to formal credit
  • The current dependence on informal credit leaves farmers beholden to middlemen and traders who are often the credit suppliers, thus undercutting the former’s bargaining power

3.  The third level of reforms should be reduction in number of people participating in Agriculture

  • As per the last Agriculture Census, the average farm holding in India is a minuscule 1.15 hectares
  • Their number has been on the rise since the 1970s and is expected to touch 91% by 2030
  • There is no feasible way to make such a fragmented agricultural economy workable
  • For a sustainably healthy agricultural economy, the number of people participating in it must be drastically reduced
  • Measures such as enabling large-scale contract farming and corporate farming will help here—but the only genuine solution is job creation in non-agricultural sectors
Jun, 22, 2015

[op-ed snap] Fixing the MSP policy

 


Key Points:

  1. The hikes in minimum support prices (MSP) have been the highest for pulses.
  2. While it is the combination of higher MSPs and procurement that makes farmers grow more of a crop,
  3. getting FCI or other state agencies to step up procurement may not always be possible.
  4. And these are the 2 main reasons which incentivise the farmer. But how do you fix the math behind the MSP policy?

    Above all, most important thing – India needs to produce more pulses since pulse inflation is very high.

Jun, 22, 2015

[op-ed snap] For rich farmers

It is hard to understand the logic of raising the minimum support price for rice when the government is sitting on a mountain of foodgrain.

  1. In April, the Food Corporation of India & states held close to 52 million tonnes of wheat and rice, which is more than sufficient for all subsidized consumption needs during the year.
  2. Still, the government’s desire to show that it was doing something for farmers has outweighed economic rationale.

For example, it is understandable that support price for pulses has been raised. Most farmers growing lentils are poor and live in rain-fed areas. Wheat and rice farmers, in contrast, have access to irrigation.

Jun, 13, 2015

[op-ed snap] When a higher MSP is not the solution

  1. The govt. decided to go in for large-scale imports instead of raising the minimum support price (MSP) for pulses.
  2. On paper, the government could have boosted pulses output by increasing the MSP.
  3. In reality, pulses are one crop that has proved relatively impervious to price signals.
  4. A higher MSP will only translate into higher prices, hurting the poor in both rural and urban areas.
Apr, 19, 2015

[cd explains] How does MSP work?

  1. Government fixes MSPs of various kharif & rabi crops every year. Commission for Agricultural Costs & Prices (CACP) takes care of this.
  2. Procurement under MSP is undertaken by the designated Central and State Government agencies and Cooperatives.
  3. Producers have the option to sell their produce to Government agencies or in the open market as is advantageous to them.
  4.  States/UTs have been advised to amend their respective State APMC Acts on the lines of Model Act, 2003.

The Model Act provides for direct marketing, contract farming, farmers/consumer markets, setting up of markets in private and cooperative sectors, e-trading etc.

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