Leaving farmers to reap the bitter harvest

Devinder Sharma
January 19, 2014

A day after Parliament approved foreign direct investment in multi-brand retail in December 2012, a newspaper report highlighted how a big retail company was exploiting both the farmers as well as the consumers: the wholesale cash-n-carry Bharti-Walmart enterprise, the report said, was buying baby corn from contract growers in Punjab at Rs. 8 per kg, selling it in wholesale at Rs. 100/kg and finally the consumers were paying Rs. 200/kg. In other words, farmers were getting only 4% of the end price consumers paid.

So to say that private enterprise will save Indian agriculture is all bunkum. Take the case of paddy in Bihar, the only state to have repealed the Agriculture Produce Marketing Committee (APMC) Act way back in 2006, thereby allowing farmers the freedom to sell their produce to whomsoever they like. Against the procurement price of `1,310 per quintal of paddy that Punjab farmers got this year, Bihar farmers have managed to sell paddy at something around `800-900 per quintal. This is nothing but a distress price/sale, a classic example of the ruthless exploitation by private traders.

Ironically, the Commission for Agricultural Costs and Prices (CACP), which is supposed to ensure remunerative prices to farmers, lists Bihar as the top ‘market-friendly’ state as far as agriculture is concerned. Punjab, which has a network of mandis and provides an assured price to farmers, is at the bottom of the chart. At a time when being market-friendly is the new mantra, the CACP is asking Punjab to disband the APMC Act and allow markets to operate freely. In other words, it wants Punjab farmers to go the Bihar way.

So when Rahul Gandhi asked the Congress chief ministers to exempt fruits and vegetables, which have contributed much to raging food inflation, from the APMC Act by January 15, I thought he had gone by what FICCI/CII have been campaigning for. What probably he has never been told is that only about 30% of India’s farmers get the benefit of procurement prices. The rest 70% are in any case dependent on the markets. If the markets were so helpful to these 70% farmers, I am sure by now the farmers in Punjab and Haryana would have demanded the repeal of the APMC Act.

But that hasn’t happened. The APMC Act, despite all its flaws, provides an assured price and market to farmers. It is primarily for this reason that Punjab farmers are refusing to diversify from wheat and rice cultivation in the absence of an assured price mechanism for other crops. This year, Madhya Pradesh is expected to take over Punjab in wheat production. It will manage to achieve this only because farmers have been given a bonus above the procurement price and thankfully have not been left to the mercies of unscrupulous private traders.

I am amused when some economists blame the APMC for the monopolistic market structure that restricts the entry of free trade and competition, thereby denying farmers an economic price for their produce. This is a wrong assumption. Under the APMC Act, farmers bring produce to the designated mandis where private traders are first allowed to make purchases. It’s only when there are no buyers left that the Food Corporation of India (FCI) or the State procurement agencies step in to lift whatever is available at the minimum support price.

This is what irks the private trade. It doesn’t want to pay the minimum support price to farmers. For example, if it can get paddy at `800-900 per quintal in Bihar, why should it shell out `1,310 per quintal in Punjab?

To say that our present market structure does not permit the entry of new players who want to invest in other infrastructure is wrong. In seven years after repealing the APMC Act, Bihar has seen no revolution in agricultural marketing. Farmers have been left in the lurch and the private trade has not made any investments. The clamour to do away with the APMC Act is primarily to pave the way for setting up terminal markets for the big agribusiness companies as well as for multi-brand retail.

Devinder Sharma is a food policy analyst.
The views expressed by the author are personal

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Surging cultivation costs behind hike in support price



The Commission for Agriculture Costs and Prices (CACP) has justified the hike in minimum support price (MSP) for kharif crops such as paddy and oilseeds on sharp rise in cultivation costs.

The Government last week approved the hike in MSP for crops such as paddy, oilseeds and pulses ranging from 16 per cent to 53 per cent, as recommended by CACP.

Defending the MSP for common paddy, which has been hiked by 16 per cent over last year’s Rs 1,080 a quintal, the CACP said that the recommended MSP for 2012-13 just about covers the projected cost of cultivation (C2) for farmers. C2 includes the paid out costs, the imputed cost of family labour and the rentals of land foregone on account of cultivation.

The C2 works out to an average of Rs 1,185 a quintal for paddy this year. At the same time, the CACP has pegged the paid out costs (A2+FL) including the costs of inputs such as seeds, fertiliser, interest on capital and imputed family labour at Rs 847.


The CACP said cultivation costs for farmers have shot up in past three years on account of sharp rise in inputs such as labour wages, fertilisers, diesel, fodder and cattle feed. The average labour wages shot up 74 per cent in the past three years and so also the price of fertilisers such as DAP, which have more than doubled in the past one year.

The C2 for paddy at Rs 1,185 for the current year is 53 per cent higher than the actual projected costs in 2008-09, it said. But the paddy MSP has gone up by 20 per cent in the past three years, resulting in a substantial margin squeeze.

“Overall, the rationale of MSP pricing this year is to keep the paddy farmers incentivised by covering their weighted average costs, but work more on coarse cereals, pulses and oilseed whose production has fallen, and cotton where exports have been rising and domestic stocks have fallen,” the CACP said. The maximum focus, however, is to encourage growers of oilseeds and pulses, which are the country’s largest agri-imports, at least to the extent that they remain internationally competitive.


The Commission has strongly recommended that exports of common rice and cotton should be kept open else there could be a pricing crisis for farmers. “If the Government wants to regulate exports, it can use the tariff policy (export duty) rather than abruptly and absolutely banning export of any agri-product. In case the Government puts an export ban on common rice or cotton, it should simultaneously announce a bonus of at least 10 per cent on those commodities in addition to their MSP,” the CACP said. It also recommended that exports of pulses be opened in larger quantities so that farmers are incentivised to produce more of them.


Freeze paddy support


Increasing paddy MSPs will only benefit farmers in Punjab and Haryana, who ought to be discouraged from growing water-guzzling, non-basmati paddy.

 There is no case at all for raising the minimum support price (MSP) of paddy by around 16 per cent for the new 2012-13 crop year, as demanded by the Agriculture Ministry. Krishi Bhawan has apparently mooted an MSP of Rs 1,250 and Rs 1,280 a quintal for the ‘common’ and ‘grade A’ paddy varieties that are due for transplanting with the arrival of the south-west monsoon. This is as against their corresponding rates of Rs 1,080 and Rs 1,110 fixed last year. The proposed hikes have little justification when rice stocks in public godowns, at over 32 million tonnes (mt) as on June 1, are more than two-and-a-half times the normative buffer and strategic reserve requirements. If to this, another 50 mt of wheat is added, we have a situation where government godowns are overflowing with these two fine cereals. The appropriate policy response for that would be to freeze their MSPs, rather than even debate over how much to increase them this time.

The Agriculture Ministry can, of course, defend a sharp MSP increase by citing higher cultivation costs, especially on account of labour and non-urea fertilisers, experienced by paddy growers. Moreover, there is also a need to incentivise farmers in Eastern India, where yields are currently low, but can go up substantially because of the higher rainfall and groundwater aquifer levels in this region. Neither of these arguments, however, really makes a case for hiking MSPs. The right answer to higher cultivation costs would be to raise paddy yields and shift production to States having the maximum potential for that. Higher MSPs mean little to farmers in Bihar, West Bengal or Assam; their interests are far better served if the Government actually procures even at the existing rates, besides ensuring timely availability of fertilisers, credit, seed and extension support. Increasing MSPs instead will mainly benefit farmers in Punjab and Haryana, who ought to be discouraged from growing water-guzzling non-basmati paddy in the first place.

So what should the Government do? Well, it must freeze the MSP for paddy at the current level and raise the same substantially for pigeon-pea, green/black gram, groundnut, soyabean and maize. And it should do so straight away, so that farmers get the right signals ahead of the ensuing kharif plantings. Their incentives need to be aligned with the country’s requirements of cutting down on its imports of edible oils and pulses, amid burgeoning public inventories of rice and wheat. The case for resetting MSPs accordingly gets strengthened even more in the current scenario of an extended dry spell since October and a monsoon outlook that seems far from promising. The public money going into paying higher MSP on paddy can well be spent in promoting water-saving SRI (System of Rice Intensification) or direct-seeding technologies. Even better is if it is used to induce farmers to boost pulses and oilseeds yields.

(This article was published on June 7, 2012)

Time for a closed-ended MSP programme


Attention so far has been on the distribution side of the food problem and alternatives such as cash transfers have been suggested. However, another serious problem that we confront when handling foodgrains is on the procurement side which has come in the way of the development of the farm sector.

Food procurement by the Food Corporation of India (FCI) is essentially a process with two objectives. The first is to ensure a fair price to the farmer and the other is to enable food security in terms of creating a buffer and a mechanism for food distribution through the public distribution system and other social programmes. To achieve these goals, we have the concept of a minimum support price (MSP) offered by the government and FCI, which physically handles foodgrains. Two aspects of MSP are that they are announced for all crops at the time of sowing, and the second is that procurement takes place only in rice and wheat, and to a minimal extent in coarse cereals. The curious thing about procurement is that it does not take place in other products because market prices are generally higher. It is also true that FCI does not have the machinery in place for the same. Lastly, procurement is active in only a few states: Punjab, Haryana, Uttar Pradesh for wheat, and Andhra Pradesh, Chhattisgarh and Tamil Nadu additionally for rice.




The starting point of problems in the procurement process is that it is an open-ended scheme, where FCI has to perforce accept any fair quality of rice and wheat from farmers. There is no choice here and intuitively it can be seen that this system tends to create a farmer bias for rice and wheat. This problem will get exacerbated as output keeps rising as we also need to create the logistics support to ensure that we can progressively handle these quantities. In fact, FCI was to be the last resort for the farmer, but has ended up becoming the first preference due to the continuous increase in MSPs. 

There have been repercussions on both FCI as well as farming in general on account of this scheme. The first is that FCI has been procuring larger quantities of rice and wheat as MSP has been continuously raised by around 10% every year, making it attractive. This has led to surplus stocks, which are around twice as much as to be maintained, based on the buffer stock norms specified by the government. There are presently around 25-30 million tonnes lying with FCI. The economic cost of these products, as mentioned by the Economic Survey, is Rs1,500-2,000/quintal, which means around Rs43,000-52,000 crore is tied up in warehouses. The second unintended consequence is that FCI becomes the biggest hoarder of foodgrains and leads to anomalies, where shortages in the commercial market lead to higher prices for millers even when production reaches peak levels as FCI is holding on to surplus stocks.

This policy of open-ended procurement combined with higher MSPs has created more serious problems for agriculture. To begin with, farmers prefer to grow rice and wheat because the prices received are getting better by the day. Therefore, they are reluctant to migrate to other crops such as oilseeds and pulses, where typically the nation runs an import bill. This has skewed the cropping pattern in the country. Further, excessive growth of rice and wheat also tends to affect the water table level as these crops consume more water, thus affecting long-term prospects of farming. Also, given that these crops use more fertilizers and pesticides which enable rapid growth, the quality of the soil tends to deteriorate over time. All this means that agriculture will face problems going ahead.

What are the solutions here? First, the procurement system has to be made closed-ended where FCI can go up to a certain margin over the buffer norms. While this can be based on a first-come-first-served basis, the unique ID can be used for bringing about a quota system where FCI purchases only up to a certain level from every farmer. This would be a fair way of going about it. Alternatively, farmers can be provided cash transfers which will be the price difference between the market price and MSP. This can be achieved in a transparent manner, if they can be made to sell on electronic commodity exchanges where there is an audit trail and one can eschew adverse selection.

On the cropping side, the government should aim at providing incentives to farmers growing other alternative crops such as pulses and oilseeds. A cash bonus could be considered, based again on the unique ID. Subsidized credit, power or seeds in the form of a package can be provided to draw farmers to these crops.

We certainly need to move away from open-ended schemes while retaining the ethos of not diluting the present benefits to farmers in a smarter manner. Or else the skewed farm matrix will continue to dominate our farm topography, which is not desirable.

Madan Sabnavis is chief economist, CARE Ratings.

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రైతు పేరుతో కొత్త డ్రామా!



పక్క రాష్ట్రం లోనో, విదేశాలలోనో ధరలుంటే అక్కడికి వెళ్లి స్వేచ్చ గా అమ్ముకునే అవకాసం వుండాలనే పేరుతో జరిగిన కొత్త రాజకీయ డ్రామా ని కొంచెం అర్థం చేసుకోవాలి. ఈ రోజు రాష్ట్రం లోనే కాదు, దేశం లోనే గోదావరి జిల్లాలలో వారి పండించటానికి అయ్యే కర్చు ఎక్కువ. దీనికి ప్రధాన మైన రెండు కారణాలు అధికంగా రసాయనిక ఎరువులు వాడటం, అధికం గా కౌలు ధరలు పెరగటం. ఈ రెండిటి వలన ఎంత ఎక్కువ దిగుబడి వచ్చినా, ధాన్యం ఉత్పత్తి ఖర్చు చివరికి తెలంగాణా, రాయల సీమలలో అధిక ఖర్చుతో బోరు బావులు వేసుకొని పండిస్తున్న రైతుల కంటే ఎక్కువ. దీనితో రాష్ట్రం లోను, ప్రపంచం లోను ఎక్కడికి వెళ్ళిన మన వుత్పత్తి కర్చు ఎక్కువే కాబట్టి గిట్టుబాటు కాదు. ఏమైనా ఎవరిన వేలం లో క్వింటా ‘లక్ష’ కి వేలం లో కొంటె తప్ప.

అమ్ముకునే స్వేచ్చ రైతులకి చట్టం లోని లొసుగుల వలన కాదు…అప్పుల ఊబి లో చిక్కుకోవటం వలన రావటం లేదు. వారి మీద ఆంక్షలు వున్నాయి కాని మరి పప్పు ధాన్యాలు, నూనె గింజలపై ఏమి ఆంక్షలు లేవు మరి వాటి విషయంలో రైతులు ఎందుకు నష్ట పోతున్నారు? అప్పు తీసుకున్న వారికే అమ్ముకోవాల్సిన పరిస్తితిలో, ఊర్లోనే వేరే వారికీ అమ్ముకోలేని పరిస్తితి లో రైతులు వుంటే, పక్క రాష్ట్రాలకి విదేశాలకి వెళ్లి అమ్ముకునేది వ్యాపారులే. వారి లాభాల కోసమే ఈ డ్రామా అంతా. కౌలు రైతులకి బ్యాంకుల నుంచి రుణాలు రక పోవటం తో బయట నుంచి అధిక వడ్డికి (ఒక్కోసారి 36 శాతం వరకు) తెచ్చుకోవాల్సి వస్తుంది.

రెండు మూడు తరాల క్రితమే వేరే రాష్ట్రాలకు, విదేశాలకు వలస వెళ్ళినా, ఇంకా గ్రామాలలో భూముల పై హక్కులు వుంచుకొని, అధిక కౌలు వసూలు చేసుకుంటూ, ప్రభుత్వ రుణాలు, సబ్సిడీలు, ఇతర సహయాలన్ని మింగుతున్న కొత్త తరం భూస్వాముల నుండి సాగు దారులను రక్షించ నంత వరకు, పెట్టు బడి ఖర్చులు తగ్గే దిశ గా వ్యవసాయ పద్దతులు మారనంత వరకు ఈ పరిస్తితి మారదు. ఈ విషయం లో అన్ని రాజకీయ పార్టీలు తమ స్పష్టమైన వైఖరి ప్రకటించాలి.