💥Join UPSC 2027,2028 Mentorship (August Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Agriculture

  • Punjab, Haryana need to look beyond MSP crops

    In tackling agri-crises, these core Green Revolution States must shift to high-value crops and promote non-farm activities

    Early adopters of Green Revolution Technology

    • The region comprising Punjab, Haryana and western Uttar Pradesh, was an early adopter of Green Revolution technology.
    • It was also a major beneficiary of various policies adopted to spread modern agriculture technology in the country.
    • The package of technology and policies produced quick results which enabled India to move from a country facing a severe shortage of staple food to becoming a nation close to self-sufficiency in just 15 years.

    Practice Question:

    Q. The traditional Green Revolution States of Punjab and Haryana would need to shed “business as usual” approach and embrace an innovative development strategy in agriculture and non-agriculture to secure and improve the future of farming and rural youth. Discuss.

    The rice and wheat focus

    • Procurement of marketed surplus of paddy (rice) and wheat at Minimum Support Price (MSP) completely insulated farmers against any price or market risks. It also ensured a reasonably stable flow of income from these two crops.
    • Over time, the technological advantage of rice and wheat over other competing crops further increased as public sector agriculture research and development allocated their best resources and scientific manpower to these two crops.
    • Other public and private investments in water and land and input subsidies were the other favourable factors.
    • Thus, wheat in rabi and paddy in Kharif turned out to be the best in terms of productivity, income, price and yield risk and ease of cultivation among all the field crops (cereals, pulses, oilseeds).
    • It is no surprise then that the area share of rice and wheat in the total cropped area rose drastically in these states.
    • The progress and specialization towards these two crops served the great national goal of securing the food security of the country.

    Problems of the Green Revolutionsurfaced during the mid-1980s

    • During the mid-1980s, some inimical trends related to the rice-wheat crop system in general and paddy cultivation, in particular, surfaced followed by serious second-generation problems of the Green Revolution.
    • Some experts foresaw the serious consequences of the continuation of paddy cultivation in the region and suggested diversification away from the rice-wheat system in the mid-1980s.
    • Since then a large number of reports and policy documents have been prepared to develop alternative options to reduce the area under paddy — necessitated by its adverse effect on natural resources, the ecology, the environment, and fiscal resources.
    • Serious concerns have also been expressed about plateauing productivity and stagnant income from rice-wheat cultivation. However, the area under these two crops has only increased rather than fallen.
    • In order to develop viable options to infuse dynamism in the agriculture economy of this Green Revolution belt, there is a need to understand: what attracts farmers to rice-wheat crops, why it needs to be changed, and how it can be changed.

    Punjab, Haryana vs. States

    • High productivity, assured MSP which is often above open market price, free power, and fertilizer subsidy underlie the higher income per unit area from wheat and paddy cultivation.
    • Land-labour ratio is also very favourable in Punjab when compared to other States; on an average, a farmer owns and cultivates 2.14 hectares net sown area as against 1.42 hectares in Haryana and 1.17 hectares at the national level.
    • An estimate of income (derived from National Accounts Statistics) shows that all agriculture activities taken together to generate an annual net income of ₹5.31 lakh per cultivator in Punjab; it is ₹3.44 lakh in Haryana while the all-India average is ₹1.7 lakh (reference year, 2017-18).
    • A question often asked is that if per farmer agriculture incomes in Haryana and Punjab are two to three times more than the national average, then why is there so much talk of farmers’ distress in these two States?

    Why farmers’ distress in these two States when everything looks good?

    • The reasons seem to be the loss of growth momentum in the income from the agriculture sector, which has fallen to 1% in Haryana and 0.6% in Punjab after 2011-12.
    • This is quite low by any standard and not keeping in pace with an increase in households’ expenditure. The prospects of further growth in agricultural income from the crop sector dominated by rice and wheat are very dim.
    • With the productivity of rice and wheat reaching a plateau, there is pressure to seek an increase in MSP to increase income. However, demand and supply do not favour an increase in MSP in real terms.
    • In India, the per capita intake of rice and wheat is declining and consumers’ preference is shifting towards other foods.
    • The average spending by urban consumers is more on beverage and spices than on all cereals. On the supply side, rice production is rising at the rate of 14% per year in Madhya Pradesh, 10% in Jharkhand and 7% in Bihar.

    Issues related to procurement

    • The growing rice production will further increase pressure on the procurement and buffer stock of rice. Rice and wheat procurement in the country has more than doubled after 2006-07 and buffer stocks have swelled to an all-time high.
    • The country does not find an easy way to dispose of such large stocks and they are creating stress on the fiscal resources of the government.
    • The implication of all these changes is that farmers in the region will find it difficult to increase their income from rice-wheat cultivation and they must be provided alternative choices to keep their income growing.
    • Procurement of almost the entire market arrivals of rice and wheat at MSP for more than 50 years has affected the entrepreneurial skills of farmers to sell their produce in a competitive market where prices are determined by demand and supply and competition.
    • Thus, to enable Punjab and Haryana farmers to move toward high-paying horticulture crops requires institutional arrangements on price assurance such as contract farming.

    Environmental issues, unemployment

    • The biggest casualty of paddy cultivation and the policy of free power for pumping out groundwater for irrigation is the depletion of groundwater resources.
    • In the last decade, the water table has shown a decline in 84% observation wells in Punjab and 75% in Haryana. It is feared that Punjab and Haryana will run out of groundwater after some years if the current rate of overexploitation of water is not reversed.
    • In the last couple of years, the burning of paddy stubble and straw has become another serious environmental and health hazard in the whole region.
    • Another rather more serious challenge for the two States is to provide attractive employment to rural youths. Most of the farm work in these two States is undertaken by migrant labour.
    • The younger generation is not willing to do manual work in agriculture and looks for better paying salaried jobs in non-farm occupations. Government jobs are few and far less than the number of job seekers.
    • Thus, the option left is to create jobs in the private industry and the services sector. This requires private investments in suitable areas.
    • Punjab has witnessed a flight of private capital from the State during the rise of militancy which hurt the State economy, employment and the revenues of the State.
    • This setback has pushed the rank of the State in per capita income from number one in the 1970s and the early 1980s to number 13 among the major states of the country.
    • For further progress and to meet the aspirations of rural youth to get satisfactory employment, the State needs large-scale private investments in modern industry, services, and commerce besides agriculture.

    The solution lies in…

    • The solution to the ecological, environmental and economic challenges facing agriculture in the traditional Green Revolution States is not in legalizing MSP but to shift from MSP crops to high-value crops and in the promotion of non-farm activities.
    • Rather than focusing on a few enterprises, Punjab and Haryana should look at a large number of area-specific enterprises to avoid gluts.
    • This will require a mechanism to cover price and market risks. Farmers’ groups and farmer producer organizations can play a significant role in the direct marketing of their produce.

    Agricultural specificities and way forward

    • Both Punjab and Haryana need to promote economic activities with strong links with agriculture tailored to State specificities.
    • Some options for this are: promotion of food processing in formal and informal sectors; a big push to post-harvest value addition and modern value chains; a network of agro- and agri-input industries; high-tech agriculture; and a direct link of production and producers to consumers and consumers without involving intermediaries.
    • The traditional Green Revolution States of Punjab and Haryana would need to shed “business as usual” approach and embrace an innovative development strategy in agriculture and non-agriculture to secure and improve the future of farming and rural youth.

  • Convergence of agrarian discontent in South

    With protests becoming catalysts for anti-authoritarian struggle, the air is ripe for new visions of rural emancipation

    Recent policy changes and its impacts on agriculture

    • There has been a systematic attack on agriculture in South Asia over the last decades. This can be seen in ongoing protests in India.
    • Similar incidences of protests can be seen in Pakistan, where farmers protesting for support prices were beaten up and arrested in Lahore only a month ago, or Sri Lanka, where shortages of imported fertilizers and declining subsidies have led to farmers’ outcry.
    • In the middle of a long-simmering rural economic crisis pushed over the cliff by the COVID-19 pandemic, efforts by South Asian governments to project corporatization and deregulation as the way forward for agriculture have angered long-suffering farmers.
    • Successive governments have imposed a corporate agenda, seeking profits from food production and distribution by relaxing norms for cheap food imports, and encouraging export-oriented production, price speculation, agribusiness and retail supermarkets.
    • South Asia’s rural landscape has been profoundly reshaped by such ‘reforms’, dispossessing farmers of their land, and pushing them into wage labour and migration as coping mechanisms.
    • This hollowing out of rural livelihoods does not come with any assurance of stable jobs or a decent quality of life in urban areas.

    Pandemic opportunism

    • The COVID-19 crisis has increased such efforts and policy changes.
    • India is not the only country to have attempted to seize this moment to deregulate agricultural markets. In Pakistan, the government inked an agreement with the World Bank to further deregulate the country’s wheat market.
    • In Sri Lanka, with the national budget just passed for 2021, there are only meagre allocations towards revitalizing agricultural livelihoods and policies focused on supporting technologies suitable for agribusinesses.
    • Instead of the current crisis sending governments back to the drawing board, South Asia’s authoritarian regimes, complicit with corporate interests, are railroading in anti-farmer agricultural policies.

    Practice Question: Do you think there is a common ground between farmers protests in various South Asian countries. Discuss with proper examples.

    Menace of the corporatization of Agriculture

    • Corporate agriculture further worsens the existential danger faced by South Asian farmers.
    • The corporate solutions do not address the role of middlemen and traders in denying farmers a fair price for their labour.
    • Instead, opening up markets to large corporations is likely to spark the same sort of race to the bottom that has been seen in the industrial and service sectors.
    • Deregulation makes farmers’ livelihoods even more precarious and threatens food sovereignty through increased dependence on global agricultural trade.
    • It was the collapse of global agricultural commodity prices in the 1970s that had a large role to play in the debt crisis that haunts countries such as Pakistan and Sri Lanka.

    Reviving resistance

    • There is a powerful legacy of rural movements in South Asia that have fought for the rights of farmers, peasants and agricultural workers.
    • Rural movements played a crucial role in the anti-colonial struggle and fought for progressive land and agrarian reform after independence.
    • Seventy years on, they continue to fight against the recent waves of anti-farmer policies, while advancing new progressive visions such as peasant agro-ecology and food sovereignty, which put small food producers and the environment at the centre.
    • The current convergence of authoritarianism and corporate capital brings this existential crisis for rural agricultural producers even more sharply in focus.
    • Farmers’ movements have been aware of state connivance with exploitative actors, but they must now also contend with a breakdown of the democratic process and increased repression.
    • These should be ominous signs for regimes across South Asia which continue to act with impunity in the face of demands for economic and social justice.

    Voices of movements

    • The COVID-19 pandemic has pushed food sovereignty back into the public imagination. The solution, of course, only begins with making farming a viable livelihood.
    • Dominant assumptions about inevitable rural-urban migration and techno-utopian transformation in agriculture must be challenged.
    • Questions of land redistribution and other rural inequalities must remain a crucial part of the political agenda.
    • The situation of mostly female agricultural workers, the rural landless and Dalits in South Asia remains precarious. Even as rural movements across South Asia fight the ongoing attack on their livelihoods, they must also tackle rural inequality head-on.

    Conclusion

    • The air is ripe for new visions of rural emancipation in South Asia.
    • Rural movements are working to transform not just their world but are becoming catalysts for a broader anti-authoritarian struggle in South Asia.
    • The current phase of struggles has revived old questions while raising others about the future of our long-ignored rural world.
    • We must listen to the voices and demands of the rural movements converging across South Asia.

  • The roots of the agricultural crisis run deep

    The standoff between farmers and the government continues even after a few rounds of discussion.

    Un-timely reforms

    • Currently, the country was struggling with novel coronavirus-caused lockdowns, supply disruptions, job losses and falling incomes in an economy.
    • The reforms embedded in the three Acts are unlikely to help resolve the structural issues facing Indian agriculture, even their withdrawal is unlikely to change the ground reality.

    Farmers protest continues

    • The immediate trigger for the current protests is the enactment of the three Acts, on agricultural marketing, contract farming and stocking of agricultural produce, which deregulates the existing Acts on these.
    • Farmer unions have rejected the proposal and continue to demand complete withdrawal of the three Acts along with making MSP a guarantee.

    Government for negotiations

    • The latest proposal by the government indicates its willingness to amend the three agriculture-related Acts passed in September.
    • The government has proposed amendments which will empower the States to frame rules the contentious issues of registration of private traders, levy of taxes on trade outside the Agricultural Produce Market Committee (APMC) mandis.
    • Similar assurances have been given on access to the judiciary for dispute resolution and continuation of the Minimum Support Price (MSP) mechanism.

    Many protests, one thread

    • The last four years have seen a series of large protests in most of the States.
    • For example, a group of farmers from Tamil Nadu camped in Delhi for over 100 days, Maharashtra was witness to the ‘Kisan Long March’ of farmers on more than one occasion, protests erupted in Rajasthan, UP, Haryana and MP.
    • The latest round of protests may have seen spirited protests from farmers from Punjab and Haryana but has found the support of farmers from the other States as well.
    • The common thread in all these protests — of declining agricultural incomes, stagnant wages and withdrawal of state support to agriculture.

    Changing faces of agriculture

    • The real issue is the lack of remunerative prices for a majority of agricultural commodities, a sharp increase in price variability in recent years, and an unpredictable and arbitrary government policy regime.
    • The other major problem is the changing nature of agriculture which has seen increased dependence on markets, increasing mechanization along with increasing monetization of the agrarian economy.
    • The increased dependence on markets has contributed to increasing variability in output prices.
    • Limited government intervention in protecting farmers’ income and stabilizing prices through MSP-led procurement operations made the increased variability in frequency as well as its spread.
    • Other than rice and wheat — and to some sporadic instances, of pulses — most crops suffer from inadequate intervention from MSP operations.
    • Even these procurement operations are unable to stabilize prices with falling demand and a slowing economy. For example, wheat has seen a steady decline in year-on-year inflation based on Wholesale Price Index (WPI).
    • Uneven nature of procurement in some states is also responsible to arrest the decline in prices. Crops like paddy, maize have seen in many States significantly lower market prices than the MSP.

    Factors behind vulnerability

    • Increasing mechanization and monetization have led to an increase in the cash requirement.
    • Most of these are met by non-institutional sources including middlemen which have contributed to the rising cost of cultivation and an increase in loan defaults.
    • The demand for loan waivers is unlikely to subside with the rising cost of inputs.
    • These trends have accentuated after 2010-11 when the Nutrient Based Subsidy (NBS) for fertilizers regime led to an increase in fertilizer prices.
    • The withdrawal of diesel subsidy and a rise in electricity prices also contributed to making agriculture unviable.
    • The government has declined the agricultural investment in the first four years which resulted in rising input costs and falling output prices.
    • The shocks of demonetization and the lockdown only increased the uncertainty and vulnerability in the agricultural sector both on input and output prices.

    What lies ahead?

    • The demand for making MSP a guarantee for private trade is meaningless if the government is unable to ensure procurement for a majority of the 23 crops for which it announces MSP.
    • Thus, the withdrawal of the three Acts by the government will only seem to offer a temporary truce.

    Policy overhaul needed

    • The existing policy framework with an excessive focus on inflation management and obsession with the fiscal deficit will likely lead to lower support from the government either in price stabilization or reduction in the cost of cultivation through fiscal spending.
    • The agricultural sector needs a comprehensive policy overhaul to recognize the new challenges of agriculture which are diversifying and getting integrated with the non-agricultural sector.
    • This not only entails a better understanding of the structural issues but also innovative thinking to protect farmers’ livelihood from the uncertainty of these changes.
    • Above all, it requires financial support and institutional structures to support the agricultural sector and protect it. Only this can lead to the government’s dream of doubling the farmers’ income.

  • Diversification of output to overcome the MSP trap

    The article analyses the state of agriculture in Punjab and the its dependace on the MSP regime and suggest the diversification as a solution to the MSP trap.

    Punjab’s role in Green Revolution

    • India was desperately short of grains in 1965, and heavily dependent on PL 480 imports from the US against rupee payments, as the country did not have enough foreign exchange to buy wheat at global markets.
    • The entire foreign exchange reserves of the country at the time could not help it purchase more than 7 MMT of grains.
    • It is against this backdrop that the minimum support price (MSP) system was devised in 1965.

     India’s current grains management system: Issue of excess grains

    • Today, the Food Corporation of India (FCI) stocks grains touched 97 MMT in June this year against a buffer stock norm of 41.2 MMT.
    • The economic cost of that excess grain, beyond the buffer stock norm, was more than Rs 1,80,000 crore, a dead capital locked in without much purpose.
    • That’s the situation of the current grain management system based on MSP and open ended procurement.

    Decline in Punjab’s economic level

    •  In 1966 Punjab had the highest per capita income.
    • Punjab’s position fell to 13th in 2018-19.
    • There are several reasons behind this deterioration, ranging from lack of industrialisation to not catching up even with respect to the modern services sector like IT, financial services.

    What explains Punjab’s prosperity

    • Punjab’s agriculture is blessed with almost 99 per cent irrigation against an all-India average of little less than 50 per cent.
    • The average landholding in Punjab is 3.62 hectare (ha) as against an all-India average of 1.08 ha.
    • Punjab’s fertiliser consumption per ha is about 212 kg vis-à-vis an all-India level of 135 kg/ha.
    • The productivity levels of wheat and rice in Punjab stand at 5 tonnes/ha and 4 tonnes/ha respectively, against an all-India average of 3.5t/ha and 2.6t/ha.

    Assesing Punjab’s real contribution to income and agriculture

    • In Punjab, the total farm families are just 1.09 million, a fraction of the all-India total of 146.45 million.
    •  The overall subsidy, from just power and fertilisers would amount to roughly Rs 13,275 crores.
    • That means each farm household in Punjab got a subsidy of about Rs 1.22 lakh in 2019-20.
    • This is the highest subsidy for a farm household in India.
    • Let’s not forget that the average income of the Punjab farm household is the highest in India.[2.5 time’s the India’s average].
    • But to assess the real contribution of farmers/states to agriculture and incomes, the metric is the agri-GDP per ha of gross cropped area of the state in question.
    • This is an important catch-all indicator, as it captures the impact of productivity, diversification, prices of outputs and inputs and subsidies.
    • On that indicator, unfortunately, Punjab has the 11th rank amongst major agri-states.

    Way forward: Diversification of crops

    • States in south India like Andhra Pradesh, Tamil Nadu and Kerala have a much more diversified crop pattern tending towards high-value crops/livestock — poultry, dairy, fruits, vegetables, spices, fisheries.
    •  If Punjab farmers want to increase their incomes significantly, double or even triple, they need to gradually move away from MSP-based wheat and rice to high-value crops and livestock, the demand for which is increasing at three to five times that of cereals.
    • Punjab needs a package to diversify its agriculture — say a Rs 10,000 crore package spread over five years.

    Conclusion

    Once farmers diversify their farm output and double their incomes, they will not be stuck in the MSP trap.

  • The many layers to agricultural discontent

    Farmers protest against the Farm laws is based on the multiple reasons. The article analyses these concerns of the protesting farmers.

    Three farm laws and response to it

    • Three Farm Bills were passed by the Central government in September 2020.
    • In the process, the regulatory role the state played hitherto with regard to these issues was watered down to a great extent.
    • Apart from complex challenges that rural India confronts today, there is a substantial body of studies that demonstrates how the vagaries of the market and the role of the middlemen reinforce agrarian distress in India.
    • However, organised farmers’ bodies are not in sync with the reasoning of the government.

    Role of the states

    • There is a debate around the constitutional provisions with regard to the respective domains of the State and the Union with regard to agricultural marketing,
    • However, issues affecting the farming community have a far greater bearing on the States relative to the Centre.
    • Ideally, given its immediacy, the States are the apt agencies to respond to a host of concerns faced by the farming community, which includes agricultural marketing.
    • While enacting the Farm Bills, the Centre extended little consideration to the sensitivity of the States.

    Role of APMC

    • In Punjab and Haryana, tweaking the APMC system and its resultant bearing on Minimum Support Price (MSP) is seen by the farmers as a threat to an assured sale of their produce at a price.
    • MSP system provides a cushion, wherein the farmer can anticipate the cost of opting for these crops and tap the necessary supports through channels he has been familiar with.
    • Farmers are apprehensive of the vagaries of a competitive market where he would eventually be beholden to the large players including monopolies.
    • There is widespread apprehension that the measures proposed by the Farm Acts in addition to the existing agrarian distress, are only going to make the lot of the farmer even more precarious.
    • All across the country, the farming community is prone to sympathise with the demand to scrap the new laws, as they have little to offer to them in a positive sense.

    Conclusion

    Those with large holdings and produce for the market — are spearheading the present stand-off against the Farm Bills, as it affects them very deeply. But farming distress is shared in common by the different strata within the farming community, even though it has a differential impact on them.

  • In farmers’ protests, the core is procurement

     

    Context

    • Farmers’ protests have erupted once again in north India, their main worry is about a possible withdrawal of the Minimum Support Price (MSP) and a dismantling of the public procurement of grains.

    Why farmers in Punjab and Haryana are protesting

    • Farmers in Punjab and Haryana are heavily dependent on public procurement and assured price through MSP.
    • Nearly 88% of the paddy production and 70% of the wheat production in Punjab and Haryana (in 2017-18 and 2018-19) has been absorbed through public procurement [Food Grains Bulletin and Agricultural Statistics at a Glance, Government of India].
    • In contrast, in the other major paddy States such as Andhra Pradesh, Telangana, Odisha and Uttar Pradesh, only 44% of the rice production is procured by public agencies.
    •  In the major wheat States of Madhya Pradesh and Uttar Pradesh, only 23% of the production is procured by public agencies.

    Government needs to continue procurement

    • If farmers of Punjab and Haryana need the procurement system, the government needs it even more.
    • This is because of its obligations under the PDS and the National Food Security Act (NFSA).
    • Support under the NFSA is a legal and rights-based entitlement.
    • There are nearly 80 crore NFSA beneficiaries and an additional eight crore migrants who need to be supported under the PDS.
    • In the last three years, nearly 40% of the total paddy production in the country and 32% of wheat production has been procured by public agencies to supply the PDS.
    • Thus, the government has little option but to continue its procurement from these States in the foreseeable future.

    Way forward

    • Therefore, it is imperative that the government reaches out to the farmer groups and assures them of the indispensability of MSP-procurement system.
    • The government needs to start this initiative immediately to allay their legitimate concerns.
    • Two of the major limitations in the laws that need to be addressed immediately:
    • 1) The absence of a regulatory mechanism to ensure fair play by private players vis-à-vis farmers.
    • 2) The lack of transparency in trade area transactions.

    Conclusion

    The severe trust deficit that resulted from the way the Farm Bills have been rushed through needs to be addressed by adopting a conciliatory approach towards farmers and the States.

  • Closing the communication gap with the farmers

    The article suggests the policy options with the government to deal with the protest of the farmers against the recently enacted farm laws.

    Context

    • Farmers have protested against the recently enacted farm laws by converging on Delhi’s highways connected to neighbouring states.

    Why farmers are protesting

    • There is a gross communication failure on the part of the central government to explain to farmers what these laws are, and how they are intended to benefit them.
    • Neither do the laws say anything about it, nor is the MSP/APMC system going to disappear with these laws.
    • Nothing can be further from the truth.

    1) Should government  repeal the laws

    • Punjab farmer leaders, including two major political parties, demand repeal of these laws.
    • However, repealing would mean bringing back controls, licence raj and the resultant rent-seeking.
    • Milk, poultry, fishery, etc. don’t go through the mandi system and their growth rates are 3 to 5 times higher than that of wheat and rice.
    • Overall, almost 90 per cent of the agri-produce is sold to the private sector.

    2) Should the government make MSP legally binding

    • Another demand is making the MSP statutory and legally binding even on the private sector.
    • This is impractical as there are 23 commodities for which MSPs are announced, but in actual practice only wheat and rice enjoy MSPs in any meaningful manner, and that too only in 6-7 states.
    • Punjab is the biggest gainer as its 95-98 per cent of market arrivals of wheat and paddy are procured at MSP by state agencies on behalf of the Food Corporation of India (FCI).
    • The FCI is overloaded with grain stocks that are more than 2.5 times the buffer stock norms.
    • Such high stock indicates massive economic inefficiency in the grain management system.
    • If the government cannot cope up with excess production of just wheat and rice in any meaningful way, think of how it will handle 23 commodities under MSP.
    • In case of excess production the government will not have the wherewithal to buy all and stock them without any viable outlet.
    • It will massively distort markets, make Indian agriculture non-competitive and stocking of these will be financially unsustainable.
    • And then, why only 23 commodities, why not 40?
    • This type of state socialism is a sure path to financial disaster.

    3) Optio of the Price Stabilisation Scheme

    • The third policy option is to use the Price Stabilisation Scheme to give a lift to market prices by pro-actively buying a part of the surplus whenever market prices crash.
    • It can be done directly by NAFED-type agencies that are already active in the case of pulses and oilseeds.
    • Farmers can use Commodity Derivatives Exchanges where farmers can buy “put options” at MSP before they even sow their crops, and if the market prices at the time of harvest turn out to be below MSP, government can compensate them partly for lower market prices.

    4) Decentralise MSP: Let the states decide it

    • The fourth option is to totally decentralise the MSP, procurement, stocking, and public distribution system (PDS).
    • MSP and procurement exist basically to support farmers for supplying grains to the FCI to feed into the PDS.
    • So, the whole money on food subsidy can be allocated to states on the basis of their share in all-India poverty/proportion of vulnerable population, all-India wheat and rice production, all-India procurement of wheat and rice, etc.
    • A step further could include another Rs 1,00,000 crore of fertiliser subsidy and free up fertiliser prices from any controls.
    • Still further, even include another Rs 1,00,000, say, of MNREGA.
    • Let the Finance Commission work out a formula for distribution of this Rs 3,00,000 crore amongst states based on some tangible performance indicators.
    • And the Centre should get off from MSP, PDS, fertiliser subsidy, and MNREGA.

    Conclusion

    This would be true decentralisation, and can be accomplished provided enough ground work is done well in advance. But will this be acceptable to farmer leaders/opposing states/activists? Only time will tell.

  • Need to address farmers’ apprehensions

    Farmers are protesting the farm laws which brought changes in the agri-produce marketing and the contract farming. Farmers are also demanding the legal backing of MSP. The article analyses the issues and suggests the measures to address them.

    Analysing merits and feasibility of demands of protesting farmers

    1) The Farmer Produce Trade and Commerce (Promotion and Facilitation) Act

    • The Act creates a new “trade area” outside the APMC market yards/sub-yards.
    • Any buyer with a Permanent Account Number (PAN) can buy directly from farmer sellers outside APMC market.
    • The state government can’t impose any taxes on such a transaction.
    • Therefore, it is expected that this would lower buying costs for buyers and that would automatically mean higher prices for farmers.

    Concerns with the law

    • Buyers buying at lower cost does not necessarily mean they would pass on the cost saved on procurement to selling farmers.
    • The claim is also made that now farmers would have a choice of channels.
    • However, the majority of the farm produce across India with the exception of states like Punjab and Haryana does not go through APMCs.
    • Anybody with a PAN card allowed to buy agricultural produce could mean a free-for-all situation, which is not desirable.

    2) The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act

    What necessitated law on contract farming?

    • Contract farming has shown that marginal and small farmers are generally excluded.
    • The problems they face include the following-
    • Highly one-sided i.e. pro-contracting agency contracts.
    • Delayed payments.
    • Undue rejections and outright cheating.
    • Poor enforcement of contract farming regulation by the state governments.

    Concerns with the law

    • The Act defined FPOs (farmer producer organisations) as farmers, which restricts them to the supply side.
    • But there is hardly any FPO in farm production.
    • Further, the contract farming Act does not provide for remedies when companies cancel contracts or there is delay in taking delivery of produce.
    • The Act says that sponsor would also pay, besides the minimum guaranteed price, a premium or bonus which will be linked to APMC or e-trading price.
    • This goes against the very concept of contract farming.
    • The contract price should be left to the contracting parties to decide.
    • Further, if the understanding is that mandis are not discovering prices well, then why peg the contract price to such mandi price?

    Lessons from 2003 APMC Act

    • The government must go back to the 2003 Model APMC Act, which also had model contract agreement with mandatory and optional provisions in a contract.
    • In the 2003 Model APMC Act, the APMC was supposed to resolve the disputes.
    • Further under 2003 APMC Act when a licence is given to a trader or commission agent, there is a counterparty risk assurance.

    Apprehensions about MSP

    • The Shanta Kumar Committee report and the CACP reports had suggested reducing procurement and an end to open-ended procurement from states like Punjab to cut down costs of FCI.
    • It is feared that FCI itself may start procuring directly from the new trade area to cut down buying costs like market fees and arhtiya commission.
    • It is more about the changes in the “social contract” between the state’s farmers and the Union government.
    • The demand for legal backing to MSP also arises from the fact that the government has been announcing MSP for 23 crops, but procurement is limited to a few crops.
    • Also, CACP in one of its reports in 2017-18 (kharif) suggested that “to instil confidence among farmers for procurement of their produce, a legislation conferring on farmers ‘the right to sell at MSP’ may be brought out.”
    • Punjab’s amendments to farm Acts — making MSP mandatory for wheat and paddy are ill-advised as this law will discourage private buyers from buying.
    • It is difficult to enforce such a law. Private agricultural markets cannot be run through such diktats.
    •  By creating stringent rules (fine or imprisonment), the government may create a situation where farmers would not be able to sell at all.
    • Maharashtra attempted this legality in 2018 in its APMC Act but had to reverse it after protests by traders.

    Consider the question “What are the factors that necessitated the robust contract farming Act? What are the issues related to the Act? Suggest the measures to address these issues.”

    Conclusion

    Apprehension among the farmers related to the farm laws needs to be addressed and the concern in the laws need to be addressed.

  • 1.5x Formula for crops MSP calculation

    Talks between farmer unions and the government failed to reach a resolution. The main bone of contention in these talks is the Minimum Support Price (MSP) for crops, which farmers fear the new laws will do away.

    Try this:

    Q.There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (CSM 2014)

    What is MSP?

    • The MSP assures the farmers of a fixed price for their crops, well above their production costs.
    • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers.
    • They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
    • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

    Why in news yet again?

    • The Union Budget for 2018-19 had announced that MSP would be kept at levels of one and half times of the cost of production.
    • This year the govt. has increased the MSP for all mandated Kharif, Rabi and other commercial crops with a return of at least 50 per cent of the cost of production for the agricultural year 2018-19 and 2019-20.
    • This is the ambiguity from where this 1.5 times formula arrived at.

    How did the government fix the MSPs of crops before every planting season?

    • The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
    • It also takes into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

    What changed with the 2018 budget?

    • The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a “pre-determined principle”.
    • Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

    How was this production cost arrived at?

    • The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
    • ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
    • ‘A2+FL’ includes A2 plus an imputed value of unpaid family labour.
    • ‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.

    Now try this PYQ:

    Q.The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus (if any) paid to the farmers plus:

    (a) Transportation cost only

    (b) Interest cost only

    (c) Procurement incidentals and distribution cost

    (d) Procurement incidentals and charges for godowns

    Which production costs were taken in fixing the MSPs?

    • In 2018, then FM Arun Jaitley’s did not specify the cost on which the 1.5-times formula was to be computed.
    • But the CACP’s ‘Price Policy for Kharif Crops: The Marketing Season 2018-19’ report stated that its MSP recommendation was based on 1.5 times the A2+FL costs.

    What are the farmer’s demands?

    • Farm activists, however, had said that the 1.5-times MSP formula should have been applied on the C2 costs.
    • CACP considers A2+FL and C2 costs, both while recommending MSP. It reckons only A2+FL cost for return.
    • However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.

  • The perils of deregulated imperfect agrimarkets

    The article examine issue of agriculture produce marketing. The passage of FPTC Act 2020 sought to address the challenges faced by the farmers. However, these are several issues the Act fails to resolve. These issues are discussed here.

    Why do farmers sell outside mandis?

    • Official data show that even for paddy and wheat, respectively, only 29% and 44% of the harvest is sold in a mandi.
    • In other words a large proportion of Indian harvest is not directly sold in a mandi.
    • Farmers are forced to sell outside the mandis for two reasons.

    1) There are not enough mandis

    • The National Commission on Agriculture (NCA) had recommended that every Indian farmer should be able to reach a mandi in one hour by a cart.
    • Thus, the average area served by a mandi was to be reduced to 80 km2.
    • For this, the number of mandis was to increase to at least 41,000.
    • But there were only 6,630 mandis in 2019 with an average area served of 463 km2.
    • Using another set of criteria, a government committee in 2017 had recommended that India should have at least 10,130 mandis.
    • So, by all counts, India needs not less but more mandis.

    2) Transport cost

    • Most small and marginal farmers, do not find it economical to bear the transport costs to take their harvests to mandis.
    • Thus, they end up selling their harvest to a village trader even if at a lower price.
    • Even if private markets replace mandis, small and marginal farmers will continue to sell to traders in the village itself.
    • The situation will change only if economies of scale rise substantially at the farm-level.

    Why there is poor private investment in markets?

    • Already, 18 States have allowed the establishment of private markets outside the APMC; 19 States have allowed the direct purchase of agricultural produce from farmers; and 13 States have allowed the establishment of farmer’s markets outside the APMC.
    • Despite such legislative changes, no significant private investment has flowed in to establish private markets in these States.
    • The reason for poor private investment in markets is the presence of high transaction costs in produce collection and aggregation.
    • When private players try to take over the role of mandis and the village trader, they incur considerable costs in opening collection centres and for salaries, grading, storage and transport.
    • Corporate retail chains face additional costs in urban sales and storage, as well as the risk of perishability.
    • This is why many retail chains prefer purchasing from mandis rather than directly from farmers.

    Issue of mandi tax

    • Many commentaries treat taxes in mandis as wasteful. This assertion is not fully true for two reasons:
    • 1) Much of the mandi taxes are reinvested by APMCs to improve market infrastructure.
    • A fall in mandi taxes would reduce the surplus available with APMCs for such investment.
    • 2) In States such as Punjab, the government charges a market committee fee and a rural development fee.
    • The Punjab Mandi Board uses these revenues to construct rural roads, run medical and veterinary dispensaries, supply drinking wate etc.
    • Such rural investments will also be adversely affected if mandis are weakened.

    Weakening of MSP regime

    • Many policy signals point to a strategic design to weaken the MSPs.
    • 1) Rising input and labour costs necessitates a regular upward revision of MSPs to keep pace with costs of living.
    • However, MSPs are rising at a far slower rate over the past five to six years than in the past.
    • 2) The government has not yet agreed to fix MSPs at 50% above the C2 cost of production.
    • As a result, farmers continue to suffer a price loss of ₹200 to ₹500 per quintal in many crops.
    • 3) The Commission for Agricultural Costs and Prices (CACP) has been recommending to the government that open-ended procurement of food grains should end.
    • These policy stances have set alarm bells ringing among farmers.
    • The farmers Punjab, Haryana and western Uttar Pradesh feel that if mandis weaken and private markets with no commitment to MSPs expand, they fear a gradual erosion of their entitlement to a remunerative price.

    Steps to be taken

    • 1) India needs an increase in the density of mandis, expansion of investment in mandi infrastructure and a spread of the MSP system to more regions and crops.
    • 2) This increase in density should happen hand-in-hand with a universalisation of the Public Distribution System.
    • 3) APMCs need internal reform to ease the entry of new players, reduce trader collusion and link them up with national e-trading platforms.
    • The introduction of unified national licences for traders and a single point levy of market fees are also steps in the right direction.

    Consider the question “The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 was passed with a view to address the challenges faced by the farmers in selling their produce. However, there are concerns with the provision of the Act and its efficacy to addresss these challenges. What are the issues with the Act? Suggest the measures to address these issues.” 

    Conclusion

    The government’s must try to allay the fears of farmers over the Farm Bills and it is never too late to rethink. Unconditional talks with farmers would be an appropriate starting point.