Price deficiency payments the way forward in agriculture

More farmers can be covered, with no need for government procurement

States have generally shown more sensitivity and imagination than the Centre in dealing with agricultural issues, including responding to the crisis from falling crop realisations. Thus, we have the Madhya Pradesh (MP) government’s Bhavantar Bhugtan Yojana, a scheme that pays farmers the difference between the official minimum support price (MSP) and the average modal or most-quoted rate in markets for any crop. And unlike physical procurement, which entails additional costs of handling and storage, Bhavantar money is directly credited into farmers’ bank accounts. It enables covering more farmers even without a single tonne being bought by government agencies.

The Congress government in Karnataka under Mr Siddaramaiah has, likewise, been giving a ~5-per-litre incentive to milk farmers over and above the rate that dairies are paying — which is again transferred separately to their accounts. The scheme has partially helped insulate Karnataka's producers from the current crash in milk prices, which has hit their counterparts in Maharashtra and other states more hard. Both MP and Karnataka are essentially operating price deficiency payment programmes, wherein government support to producers does not involve direct market intervention. To the extent the government simply pays the difference between the MSP and the market-determined price, such schemes are less market-distorting, while also more economical and equitable than programmes requiring physical purchases and stocking. For all the risks of price manipulation by market players — which, just as in stocks, isn’t beyond regulation — there is no doubt, though, that deficiency payments are the way forward.