In election year, farmer on centrestage

Average wholesale rates in mandis during October-November ruled lower than the government’s minimum support prices (MSP) for practically every agri-commodity.

One indicator of the price pressures being faced by farmers is the official wholesale price index (WPI). The average annual inflation based on it during January-November 2018 over January-November 2017 was minus 0.33% in “food articles” and 1.66% for “non-food” agricultural articles. Coming on top of the previous calendar year’s corresponding rates of 2.22% and minus 0.99%, respectively, it represents a price-flattening, if not deflationary, trend that Indian agriculture has never experienced on this scale before. And hardly any crop has been spared — including even relatively high-value items such as vegetables and milk.

The average WPI for vegetables during January-November 2018 was 6.08% below that for the same period of 2017. In Maharashtra, farmers are now getting just around Rs 20 per litre for cow milk with 3.5% fat and 8.5% solids-not-fat or SNF content. They had taken to the streets in July, following which the BJP-Shiv Sena state government had directed dairies to procure milk at Rs 25 per litre in return for a Rs 5/litre reimbursement, primarily intended as a support for producers. But with the payments not being released on time, the dairies — who estimate the state government’s dues at roughly Rs 100 crore — have reverted to paying farmers Rs 20/litre from this month. This, when the same milk, not too long ago, was fetching Rs 27-29 per litre, even without subsidy.

The road ahead

The above price pressures are unlikely to ease, at least in the run-up to the polls. Among the major crops to be marketed in the coming months are arhar/tur (pigeon-pea), chana (chickpea), potato, onion, rapeseed-mustard, wheat and, of course, sugarcane and milk.

Arhar is planted during kharif (June-July), but its mandi arrivals are only in January-February. Chana, mustard and wheat are rabi (winter-spring) season crops. The first two are harvested and sold mostly in March-April, while it is April-May for wheat. What is significant is that even before their marketing is to start, the ruling prices of arhar in Maharashtra at Rs 4,300-4,400/quintal, mustard in Rajasthan at Rs 3,700-3,800/quintal and chana in Madhya Pradesh at Rs 3,900-4,000/quintal are quoting below their respective MSPs of Rs 5,675, Rs 4,200 and Rs 4,620 per quintal. Guaranteeing MSPs may be easier in wheat and paddy, only because these two fine cereal crops are procured by government agencies.

Things are worse for the so-called TOP crops: tomato, onion and potato. Tomato prices at Kolar (Karnataka) have averaged just over Rs 650/quintal this year, compared to Rs 1,700-plus in 2017. Prices of onions in Lasalgaon (Maharashtra) and potatoes in Agra (Uttar Pradesh) hovered at Rs 1,300-1,400/quintal in October, but have since — particularly after Diwali — collapsed to sub-Rs 500 levels. The reason: Dumping of stored produce from last year’s rabi crop. The rabi potato, which farmers plant in October to mid-November and harvest towards February-March, is mostly kept in cold stores. The same goes for onion sown in November-December and harvested over March-April, which they again largely stock for selling through the summer and monsoon months. This time, too, farmers waited for prices to rise during the off-season, which did not really happen except for a brief period after mid-October. The unsold stocks have had to, then, be disposed of post-Diwali. Many farmers haven’t even bothered to take back their potatoes lying in cold stores, as they are in no position to pay the owners who would have extended finance to them as well.

But lower prices — and stocking bets going wrong — have also led to farmers reducing onion and potato acreages this rabi season. Whether that will help improve realisations by April, in time for the elections, remains to be seen.

Bitter challenge

For the ruling BJP, the real challenge, though, is going to be in sugarcane. Sugar mills began crushing for the new 2018-19 season (October-September) just after Diwali from November. In Maharashtra, mills had, as on December 15, crushed cane worth Rs 5,026.79 crore at the Centre’s fair and remunerative price (FRP), but have managed to pay only Rs 1,469.50 crore, translating into arrears of Rs 3,557.29 crore.

The problem is even more in UP, where mills, based on data till December 24, are still to pay Rs 2,129.46 crore from the last 2017-18 season’s total cane dues of Rs 35,463.68 crore. For the current season, they have already crushed cane worth Rs 4,957 crore — at the UP government’s average “advised” price of nearly Rs 320 per quintal, as against the corresponding FRP of Rs 250/quintal for Maharashtra after deducting harvesting and transport charges from the field — and paid just Rs 1,561 crore. That adds up to arrears of Rs 5,525 crore, which might only further mount and peak as elections approach.

For mills, the key issue is prices. Banks typically lend up to 85% of the value of their stocks. Thus, on a ex-factory realisation of Rs 31/kg in UP and production of 10.75 kg from crushing one quintal of cane, the maximum working capital that can be obtained is Rs 283. Since some 15% of this money also has to go towards meeting other expenses (salaries, gunny bags, chemicals, repairs, etc), mills can, at today’s sugar prices, pay farmers only Rs 241/quintal or so. Even this, moreover, is provided they have access to bank finance; many have already exhausted their cash credit limits, having borrowed heavily against pledged stocks whose value has come down along with sugar prices.
Without sugar realisations going up, or some kind of special budgetary/liquidity support from the Centre and state governments, cane arrears could seriously dent the BJP’s prospects in the upcoming polls, where UP and Maharashtra together account for 128 out of the total 543 Lok Sabha seats.

Dry spring

Prices apart, farmers, especially in Maharashtra and Gujarat, are facing a double whammy in the form of drought. Large parts of both states — and also Bihar and Jharkhand — have had poor rains in the main southwest (June-September) as well as northeast (October-December) monsoon seasons. This has affected soil moisture availability and water levels in irrigation reservoirs, in turn, reducing rabi season plantings. In Gujarat, the area sown under rabi crops this time has fallen sharply relative to last year — by 27.9 % for wheat, 42.5% for chana, 11.2% for mustard, 13% for jeera (cumin), 57.7% for dhaniya (coriander), 7.2% for potato, 39.7% for onion, 22.7% for vegetables and 9.4% for fodder. Overall rabi sowings in Maharashtra are, likewise, down by more than a third.

The effects of these will, again, peak during elections. Arranging water and fodder for animals till the next monsoon isn’t going to be easy. And with a less-than-bumper rabi crop to harvest, incomes for farmers and agricultural labourers, too, may take a hit — which is not great news politically either.

Opposition fix

But the heat isn’t going to be on the BJP alone. The Congress — which was so far ruling only Karnataka and Punjab and has now come to power in MP, Rajasthan and Chhattisgarh — will be under no less pressure, more so to deliver its recent Assembly poll promises of farm loan waivers and higher crop prices. And this has to be done before April-May 2019. The Congress government in MP has announced waiver of all outstanding crop loans of up to Rs 2 lakh taken by farmers from cooperative and nationalised banks till March 31, which is estimated to cost Rs 35,000-38,000 crore. Besides, it may have to cough up Rs 2,200 crore to pay a Rs 500-per-quintal bonus (“flat bhavantar”) on soyabean and maize sold by farmers in the current kharif marketing season from October 20 to January 19.

This bonus, ironically, was declared by the previous BJP government —which the present regime, perhaps, has no choice but to implement. In Chhattisgarh, too, the Congress can ill-afford to backtrack on waiving Rs 6,100 crore of all farmer loans from cooperative and rural development banks (already announced) and paying paddy farmers an extra Rs 750/quintal over the Centre’s MSP of Rs 1,750 (a manifesto promise that might cost another Rs 3,600 crore).
The best example of the sheer fiscal difficulties in implementing poll promises is in Punjab, where the ruling Congress has succeeded in waiving only Rs 1,750 crore of loans up to Rs 2 lakh given by cooperative banks to marginal farmers cultivating less than 2.5 acres. This was as opposed to the February 2017 Assembly election promise — of every farmer’s debt owed to all banks, totalling Rs 67,000 crore, being taken over by the state government. In Karnataka, the ruling Congress-JD(S) alliance has said that it has completed the process of identifying beneficiaries and reconciling these with their bank details. The actual waiver aggregating over Rs 42,000 crore will be done by January-end, a claim that will definitely be tested on the ground.

Looking forward

The one big reform that the next government at the Centre, irrespective of who leads it, could seriously consider is direct benefit transfer (DBT) payments to farmers.

Telangana has already implemented this via a flat Rs 4,000-per-acre investment support for every farmer before each crop season. Going by the ruling Telangana Rashtra Samithi’s resounding win in the recent state elections, Rythu Bandhu seems to have sold politically. It explains the BJP government in Jharkhand announcing a similar scheme with a higher Rs 5,000-per-acre per farmer support from the ensuing kharif season.

The ultimate dream for reform-minded economists would be to end all agricultural subsidies — on fertilisers, irrigation, power, credit and even MSP-based support — and replace these with a flat per-acre DBT payment. A Telangana/Jharkhand-like scheme extended to the country’s gross cropped area of 500 million acres would cost Rs 200,000-250,000 crore annually. While less wasteful and market-distorting, the fiscal costs vis-à-vis benefits may still be worth debating and could be the precursor for a wider “universal basic income” support mooted by the former Chief Economic Adviser Arvind Subramanian.

(With inputs from Gopal Kateshiya in Rajkot)