Due to certain peculiarities of agriculture, farmers as producers, unlike their counterparts elsewhere, are not in a position to decide the price of what they produce. Price discovery through sheer free play of supply and demand that rarely exists elsewhere, prevails in agriculture. That, unfortunately, relegate the farmers to price ‘takers’ rather than ‘makers’, and that is the root cause of the problem.
Keeping this serious deterrent in view, the government of India has been ‘intervening’ by declaring Minimum Support Price (MSP) to put a check on ‘free market forces’ so that the prices of farm commodities are not pushed below that benchmark level.
Though MSP is announced for 23 crops every year, actual procurement by the government may not cross even 5 per cent of farm production. Benefit of such procurement accrues mostly to paddy and wheat growing farmers of Punjab, Haryana and Uttar Pradesh.
According to a study by the Karnataka Agricultural Prices Commission (KAPC), 78 per cent of agricultural commodities are being transacted at prices below MSPs in different APMCs (Agricultural Produce Market Committees) in the State.
The situation at the national level is no different, as a majority of transactions were found to be below MSP — for paddy, they were below MSP in 12 States; for wheat and maize, in seven States; bajra, nine; and ragi, six.
And hence, the farmers’ organisations are unequivocal in not only demanding a repeal of those unwanted farm laws but also candid in their claim for a ‘legal recourse’ to ensure that transaction of all farm commodities should be at prices not below the government declared MSP.
The KAPC, in this backdrop, has proposed Statutory Minimum Purchase Price (SMPP) based on either MSP or cost of cultivation for all farm commodities followed by an amendment to the State’s APMC Act along with penalty and punishment so as to ensure that no buying from farmers takes place below the SMPP anywhere in the State.
A similar amendment was also suggested to the Essential Commodities Act that is under the preview of the Central government so as to introduce a uniform law across the nation. A private member bill was also introduced in Parliament in 2018 this regard.
The Market Assurance Scheme, once proposed by the Centre, empowers the State government to undertake procurement on time so as to siphon off the surplus. As permitted by the Centre, the State government should undertake direct procurement up to 25 per cent of the production of the crops that are under the coverage of MSP.
The novel Price Deficiency Payment Scheme (compensating the difference between MSP and market price) needs to be extended to other commodities, especially horticultural crops to the extent of 70 per cent of production; that is, double the current market arrivals in a State like Karnataka.
With these two crucial interventions preceded by a legal recourse, it is possible to arrest the price fall below SMPP for the main farm commodities of Karnataka. This requires an estimated annual budget outlay of around ₹11,500 crore. The financial requirement mentioned above is based on transactions of the past three years at different APMCs for 22 crops that occupy 85 per cent of Karnataka’s gross cropped area.
As Karnataka contributes around 5 per cent of India’s total farm production, by a simple extrapolation we can estimate that a lumpsum of around ₹2.30 lakh crore for a Price Stabilisation Fund may be needed to ensure farmers’ right to a remunerative price discovery in principal farm commodities of the nation as a whole.
In the meantime, farmers need adequate pledge loan to facilitate storage of their produces. Private traders, FPOs and co-operatives, who will be compelled to buy at MSP, need adequate support and incentives as provisioned under the Centre’s innovative Private Procurement and Stockist Scheme.
The price that needs to be legalised — either the current MSPs or the one recommended by Swaminathan that ensures a margin of 50 per cent or a ‘Reserve Price’ that covers just cost of production as indicated by the Committee on Doubling Farmers’ Income — must be settled first.
Further, the utilisation of procured farm commodities for public distribution and several other programmes envisioned under the National Food Security Act 2013 is a win-win solution to the present problems.
Measures such as district crop plan, crop specific production policies coupled with advanced market intelligentsia like price forecasting and supply projection will be handy to effectively address the mismatch between supply and demand.
An institutional arrangement with full autonomy to operationalise all the above so as to infuse an element of hope among the agitating farmers is needed at this point of time.
The writer is an agri-economist and a former chairman of the Karnataka Agricultural Prices Commission