NDA’s new scheme won’t address farm distress

Stabilising horticultural production incomes is crucial for augmenting farm incomes

Faced with the spectre of rural anti-incumbency after the Gujarat results, the Modi government is in firefighting mode. Reportedly, a scheme is being planned to provide partial support to state governments to procure crops (except rice and wheat) for which minimum support prices (MSPs) are announced. States who do such procurement would be responsible for disposing of the procured crops. Such measures will not take us very far in addressing India’s systemic farm-distress. Here’s why.

In addition to rice and wheat, MSPs are announced for 18 more crops. These include coarse cereals, pulses, oilseeds and cotton. Fruits and vegetables are not in the MSP basket. Horticultural production now has a bigger share than food grain production in India. The lack of commensurate growth in storage infrastructure for perishables has made horticultural prices extremely volatile. When prices rise, the middlemen make money, but when they fall, it is the farmer who is ruined. The proposed scheme will do nothing to correct this fundamental asymmetry in risk sharing for more than half of India’s farm produce.

An even bigger question is what state governments will do with the procured food grain? The public distribution system (PDS) entitlements are currently limited to rice, wheat and coarse grains. Trying to sell the procured grains even on a zero-profit basis would mean competing against sellers in the market. This is not practical. If states decide to offer pulses and oilseeds at subsidised prices through their PDS, it would entail an additional financial burden on already stressed state finances.

Such a policy could work if the PDS were to be made broad-based with provisions for distribution of pulses and edible oil. In that case, states would be eligible for funds required to distribute the procured food grains under the proposed scheme.

Another problem with the proposed scheme is the lack of storage infrastructure in most states. According to November 2017 figures, 70% of the Food Corporation of India’s total food storage capacity is concentrated in the northern region of the country. It is more likely that the procured grain would rot due to a lack of proper storage.

One of the primary goals of the MSP policy is to provide a price floor to protect farm incomes. Received wisdom in India blames lack of reforms in agricultural markets for the large gap between farm gate and retail prices of agricultural commodities. Letting go of state controls is no silver bullet for this problem. One statistic can be cited to counter such claims. United States Department of Agriculture data from the late 1990s onwards shows that farm prices of flour, vegetables and fruits etc. are rarely more than one-third of retail prices in the US, which is among the most liberalised economies in the world.

The Indian farmer needs to sell his produce with as little intermediation as possible in order to make decent profits. One of the biggest roadblocks for this to happen is lack of mass demand for the majority of farm produce. The latest National Sample Survey Office data shows that an average rural Indian spent just around Rs. 80 (urban Indians spent Rs. 120) per month on vegetables and fresh fruits in 2011-12. If people could afford to spend more on these items, the farmer would find a lot more opportunities to sell his products without depending on intermediaries who have access to better logistical and financial resources to transact in distant markets.

Concepts such as farmers’ markets – where farmers directly sell a wide range of produce to food security programme beneficiaries – being practised in the US can help achieve this objective. The number of farmers’ markets in US has increased by more than five times between 1994 and 2017. This shows that it is popular among both sellers and buyers.

Can we not envisage a basic cash/coupon transfer programme which would allow PDS beneficiaries to buy vegetables and fruits from similar markets? This would augment farm incomes and also address the rampant malnutrition problem. To begin with, the project could be started in districts most prone to malnutrition. Even the MGNREGA was started on a pilot basis initially.

Wouldn’t this be a better use for money than subsidising the purchase of bajra or mustard without any clarity about their end-use, which is what the proposed scheme would lead to?

WHEN PRICES RISE, THE MIDDLEMEN MAKE MONEY, BUT WHEN THEY FALL, IT IS THE FARMER WHO IS RUINED. THE PROPOSED SCHEME WILL DO NOTHING TO CORRECT THIS FUNDAMENTAL ASYMMETRY