Price sta­bil­i­sa­tion fund

The crash in potato price is trig­ger­ing a wave of sui­cides in sev­eral states. Will the NDA gov­ern­ment's am­bi­tious Price Sta­bil­i­sa­tion Fund help farm­ers?


Er­rant weather is testing the gov­ern­ment's am­bi­tious scheme

SOON AF­TER the Na­tional Demo­cratic Al­liance gov­ern­ment an­nounced its am­bi­tious Price Sta­bil­i­sa­tion Fund to con­tain price volatil­ity in the do­mes­tic mar­ket, the scheme faces its acid test. A bumper crop has led to a free fall in potato prices in sev­eral states this year. Be­tween March 1 and April 4,at least 17 potato farm­ers in West Ben­gal, a ma­jor potato-pro­duc­ing state, com­mit­ted sui­cide. Sim­i­lar cases are also be­ing re­ported from Pun­jab, Haryana and Ut­tar Pradesh. Will the Price Sta­bil­i­sa­tion Fund (psf ) be able to sta­bilise the mar­ket ?

With a cor­pus of 500 crore, psf has two ob­jec­tives: one, ar­rest­ing crash­ing prices of potato and onion through pro­cure­ment dur­ing bumper har­vests; and two, main­tain­ing buf­fer stocks of the com­modi­ties to meet de­mand dur­ing the lean pe­riod.

While the pro­cure­ment will be done by Cen­tral gov­ern­ment agen­cies like Na­tional Agri­cul­tural Co­op­er­a­tive Mar­ket­ing Fed­er­a­tion of In­dia Ltd (nafed), buf­fer stocks will be main­tained by the state gov­ern­ments. For this, a re­volv­ing fund will be set up to which psf and the state gov­ern­ment will con­trib­ute equally (the ra­tio of psf-state con­tri­bu­tion would be 75:25 in the case of north-eastern states). State and Cen­tral

gov­ern­ment agen­cies can also draw interestfree loan to sup­port their work­ing cap­i­tal and other ex­penses on pro­cure­ment, stor­age and dis­tri­bu­tion of the com­modi­ties. Ac­cord­ing to psf pro­cure­ment guide­lines, th­ese com­modi­ties would be col­lected di­rectly from farm­ers or farm­ers’ or­gan­i­sa­tions at man­dis and made avail­able at a rea­son­able price to con­sumers dur­ing the lean pe­riod.

An­a­lysts ap­pre­ci­ate the price sta­bil­i­sa­tion scheme for the coun­try’s two most volatile com­modi­ties, but sound cau­tion.

A se­nior of­fi­cer of the Small Farm­ers’ Agribusi­ness Con­sor­tium (sfac), who does not wish to be named, says: “If the gov­ern­ment floats ten­ders for pro­cure­ment, there is a high chance that pri­vate en­ti­ties would lift the com­modi­ties from the mar­ket and hoard them. So it is im­per­a­tive that only gov­ern­ment agen­cies are roped in pro­cure­ment.”

Oth­ers say the amount al­lo­cated for the fund is too lit­tle given the enor­mity of the prob­lem. “Even 5,000 crore would prove to be min­i­mal for ad­dress­ing the scale of such prob­lem,” says Ashok Gu­lati, for­mer chair­per­son of Com­mis­sion for Agri­cul­tural Costs and Prices.The fund would be highly in­suf­fi­cient in the event of a huge price crash, says the sfac of­fi­cial.

“In 2006, the fourth re­port of the Na­tional Com­mis­sion on Farm­ers had rec­om­mended set­ting up such funds to pro­tect farm­ers from price fluc­tu­a­tions, but only for crops, such as cumin that are cru­cial for sur­vival in arid ar­eas,” says Ra­man­janeyulu G V of Cen­tre for Sus­tain­able Agri­cul­ture, Hy­der­abad. It seems by set­ting up psf for potato and onion—the two po­lit­i­cally volatile com­modi­ties—the gov­ern­ment plans to avoid fix­ing the min­i­mum sup­port price (msp) of crops. Only msps of potato and onion can help save farm­ers, he adds.

An­a­lysts are also ques­tion­ing the tim­ing of in­tro­duc­ing the scheme.The nda gov­ern­ment had an­nounced psf scheme in its first bud­get in July 2014. It was also part of the elec­tion man­i­festo of the Bharatiya Janata Party. Then why did it de­lay rolling out the scheme? asks food and agri­cul­ture an­a­lyst Devin­der Sharma. Mar­ket prices of onion and potato were high last year. This prompted farm­ers to in­crease acreage of potato and onion which flooded the mar­ket and caused the price crash, says Sharma.He al­leges that the gov­ern­ment had sensed that the prices of onion and potato would crash be­fore it came to power.

There is scep­ti­cism about psf’s suc­cess. “psf will cer­tainly pro­tect farm­ers from dis­tress sell­ing.But the moot ques­tion is how it will be im­ple­mented,” says Gopal Naik, who teaches agro-econ­omy at the In­dian In­sti­tute of Man­age­ment, Ben­galuru. He cites the psf for tea, cof­fee, rub­ber and tobacco. In 2003, the Union Min­istry of Com­merce and In­dus­try set up the psf with a cor­pus fund of ` 500 crore when in­ter­na­tional prices of the com­modi­ties were de­clin­ing. They were well-off farm­ers and it was eas­ier for them to get help. So the scheme was a suc­cess, says Naik. “But in the present case, we do not know the ex­act num­ber of af­fected farm­ers as well as the num­ber of small and mar­ginal farm­ers in the coun­try,” Naik adds. “Be­sides, psf is not a self-sus­te­nance model where the gov­ern­ment puts funds and the af­fected com­mu­nity man­ages it. We have to look at sus­tain­able mod­els of dif­fer­ent coun­tries.”

Naik cites the US as a model, where pro­duc­ers keep one per cent of the to­tal sale pro­ceeds as price sta­bil­i­sa­tion funds. They use it dur­ing dis­tress sale with the help of the gov­ern­ment.

Ramesh Chand, an agro-econ­o­mist and direc­tor of the Cen­tre for So­cial Devel­op­ment in Delhi, agrees that price sta­bil­i­sa­tion should not be en­tirely left to the gov­ern­ment, es­pe­cially for hor­ti­cul­ture crops that are mostly farmed by well-to-do farm­ers. Any scheme, be it psf or in­sur­ance, which aims at pro­vid­ing fi­nan­cial re­lief to grow­ers at a time when prices of th­ese com­modi­ties fall be­low a spec­i­fied level, should be par­tic­i­pa­tory, he sug­gests.

Long-term so­lu­tion needed

Not all think psf as a vi­able so­lu­tion. Price crashes are just the symp­tom of a deeper malaise, points out P S Birthal, prin­ci­pal sci­en­tist at the Na­tional In­sti­tute of Agri­cul­tural Eco­nomics and Pol­icy Re­search. “I don’t think psf would help much. Even dur­ing dis­tress sell­ing of potato for ` 1 and ` 2 a kg, the mar­ket price is eight to 10 times higher. It shows there is a se­ri­ous prob­lem in the sup­ply chain. It is time to iron out flaws ex­ist­ing in the sup­ply chain in­stead of opt­ing for the procur­ing method,” he says.

Gu­lati says the gov­ern­ment should look for long-term so­lu­tion to pro­tect farm­ers from dis­tress sell­ing. “We should start link­ing food pro­cess­ing in­dus­tries to farm pro­duc­ing or­gan­i­sa­tions and en­cour­age con­tract farm­ing,” he sug­gests.

So, will psf be vi­able for farm­ers? The jury is still out on that one.

An­a­lysts are ques­tion­ing the tim­ing of in­tro­duc­ing Price Sta­bil­i­sa­tion Fund. The NDA gov­ern­ment had an­nounced set­ting up the fund in its first bud­get pre­sented in July 2014. Then why did it de­lay rolling out the scheme?

Stray an­i­mals eat­ing pota­toes dumped by farm­ers at Sanc­tu­ary Road Nabha in Pa­tiala on April 3, 2015

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