At the end of the day, the Indian farmer must be enabled through regulatory and other policy support, to get a much larger share of the value of his produce than the meagre 3% to 30% of the consumer price he currently gets.
With the three agri-laws now on the statute books—and it seeming increasingly likely that they will remain there despite the on-going farmers’ protests and challenges to their legality—it is time to turn our attention to the path forward, and address both the real and perceived apprehensions. In addition to now taking on the onus of ensuring the average farmer in India is not only worse off than before, the Union Government has also become more directly responsible for the well-being of 600 mn farmers and their kin. The option of putting the states in the dock for ills of farming—otherwise a state subject—may no longer be available to the Centre.
Amongst the first issues towards assuaging the farmers and helping raise their incomes is undertaking a holistic view of the countrywide public distribution system (PDS); this includes the buying of grains and other items for the program at seasonally determined minimum support prices (MSPs) and the continuance of the monolithic structure of Food Corporation of India (FCI) which procures, stores and reaches it to every nook and corner of the subcontinent.
For several decades dating back to the days of acute food shortage after Independence, PDS has been in existence. With the Centre bearing the costs, it is the State Governments that are tasked with actually running the operations, beginning with the lifting of stocks from FCI warehouses to the issuing of entitlement-vouchers (ration cards) to about two-thirds of population viz 850 mn consumers as well as the selection and supervision of the over twenty lakh “fair price shops”. For the 270 mn citizens still below the poverty threshold income of US$1.8/day, this program remains their primary mode of sustenance. That PDS, in one form or another, would continue remains beyond doubt. However, whether the mechanism of MSP and its prima donna FCI should subsist in their current avatars remains a subject of public debate.
Since the early 1960s, MSP has served as insurance against steep falls in market prices, and currently extends to 23 crops. Yet, reportedly only 24% of crops by value added and 10% of farmers (as per the Shanta Kumar Committee it was just 6% in 2015) benefit from it. That too is largely in the already well off states of Punjab, Haryana, Western UP, Madhya Pradesh, and the coastal pockets of Andhra Pradesh and Tamil Nadu. The two crops majorly covered are wheat (in the North) and paddy (both in North and South). It is their growers who are at the forefront of the ongoing protests and demanding the continuance of MSP and that it be applicable even to trades outside the notified market-yards.
While the latter is legally untenable, the mechanism of MSP has to be made more dynamic. Today, we have become self-sufficient in wheat and rice and the FCI godowns are brimming with sizeable amounts of taxpayers’ money being spent on storing them. It is time the farmers growing them are moved to cultivating protein-rich foods like pulses, soyabeans, oilseeds, vegetables and fruits. Growing paddy and sugarcane drastically reduces the water table and also necessitates power subsidies. The price incentive of MSP backed by a robust PDS offtake mechanism, needs to be used effectively to make a pattern shift in cropping. In fact, with the share of all crops as a whole declining sharply from 65.4% of Gross Value Added (GVA) in agriculture in 2011-12 to 55.3% in 2018-19 (and projected to decline to 45.6% by 2024-25), it is the sunrise segments such as horticulture, milk, fisheries and meat which now require the MSP kind of risk mitigation.
Whether the new legislations were enacted or not, MSP needed to be restructured in any case. Now, the Union Government has to be even more careful about the optics—in no way should the changes be seen as giving up on MSP or reducing its funding. However, eligible agri-products must be expanded to benefit a larger number of small and marginal farmers across states rather than the handful at present, and items with higher demand from the common man be prioritised. More importantly, there is no reason for MSP to be backed by the actual buying of tendered produce and saddling public agencies with storage and transporting it. Instead, price support can be provided by paying farmers the difference between the MSP and the prevailing market price. Such a deficiency-payment or “Bhavantar” scheme, already trialled in Madhya Pradesh, can be rolled out nationally for a few products after incorporating the lessons learnt.
Taking cognizance of the new dispensation exposing the farmers to new income risks, it is imperative to legally assure them about the continuance of MSP and APMCs (unlike in Bihar where the abolition of APMCs in 2006 pushed farmers into the clutches of traders and moneylenders). Alongside, the MSP for different items has to be raised consistently without the apprehension of it being inflationary. After all vis-à-vis manufactured goods and services, agriculture, the main vocation of the nation, has had to put up with adverse terms and there is a huge backlog to cover. M.S. Swaminathan, credited with the success of the Green Revolution in India, had several years ago, recommended providing an assured price that ensures a return of at least 50% more than the cost of cultivation. Despite announcing a commitment to do so, this arrangement has been extended only to pulses and oilseeds due to fiscal constraints. The suggested formula of C3 +50% must be adopted for all the agri-goods at the earliest—it implies all direct costs, imputed costs of labour including family-provided, and the notional land lease cost.
APMCs and their infrastructure must not be disbanded. It should be maintained and, in fact, augmented to ensure effective competition to private traders. Alongside the number of market-yards available to peasants be multiplied several fold to enable easy access, particularly to those with small marketable surpluses. All transactions outside APMC yards also need to be brought within a regulatory framework to ensure fair prices and timely payments to farmers. By remaining operational, the notified market-yards will continue to provide the much needed price discovery arrangement.
Another key point in our new direction is effecting a change in crops cultivated. Ashok Dalwai, the Chair of the government appointed committee on doubling farmers’ income (now pushed to 2024), has advocated a major change in favour of growing more value added crops rather than continuing with the low value staples and coarse cereals. Focusing on secondary agriculture or the “industrialisation of agriculture” (viz. producing ethanol, proteins, starch, enzymes, adhesives, agar, biochemicals etc) and growing bio-fortified varieties that boost the nutritional value of food-intake is equally desirable. It is worth highlighting that India was recently placed a poor 94th in the Global Hunger Index, 2020, below Pakistan, Myanmar, Nepal and Bangladesh. If we are to make such a shift, farmers will need to be financially supported and the infrastructure developed to support agri-logistics, agro-processing and marketing. These in turn should result in increases in remunerative yields at different stages of processing. Adopting a cluster-based approach to formalising micro food enterprises could help in bringing about diversification in their product segments.
Perhaps, an easy start is to agree to insert a provision in Section 5(1) of the Contract Farming Act that the price at which a contract to buy produce will be entered into cannot be less than the notified MSP for such a crop. The new law, which specifically prohibits the alienation of land, already guards against the oft-stated fear that large businesses may take away the land of poor defaulting farmers. By also banning the use of prohibited technologies, the enactment also ensures that genetically modified seeds can’t rightly be brought in through the backdoor.
At the end of the day, the Indian farmer must be enabled through regulatory and other policy support, to get a much larger share of the value of his produce than the meagre 3% to 30% of the consumer price he currently gets. There is much to be learnt by looking at the experience of the milk industry, where with 20% of the global output, India has become the world’s foremost producer—much of this success has been predicated on the supplier getting 75%-80% of the realised value. To now effect transformative changes in farmers’ outcomes, this has to be emulated in the entire ecosystem surrounding Indian agriculture.
Dr Ajay Dua, a public policy specialist and a development economist by training, is a former Union Secretary.