Addressing agrarian distress: An alternative ‘area planning’ price support scheme for farmers

Addressing agrarian distress: An alternative ‘area planning’ price support scheme for farmers

The existing MSP-based procurement system is fiscally unsustainable. The time has come to consider market intelligence-based regulation of crop production

Addressing agrarian distress: An alternative ‘area planning’ price support scheme for farmers
A farmer sitting with his sacks of onion at a mandi. (Express Photo by Amit Mehra)

Farmers are always in distress when prices of their produce are subdued. The response of governments, obviously prompted by political pressures, has been to sharply hike minimum support prices (MSP) of crops or declare loan waivers.

Thus, the current government at the Centre has significantly raised the MSPs of both the kharif and rabi crops for 2018-19, while claiming to have implemented the ruling party’s 2014 election promise of pegging these at 1.5 times the estimated production costs of farmers. State governments, whether ruled by the BJP or the Opposition, have similarly unveiled loan waiver packages. Some like Telangana, Jharkhand and Odisha have announced flat annual assistance to farmers, either on a per-acre or per-family/household basis.

None of these quick-fix solutions to address agrarian distress have really worked on the ground. Even if they have — such as Telangana’s Rythu Bandhu per-acre assistance scheme — the fiscal costs make them difficult to sustain in the long run. MSPs and loan waivers, on the other hand, haven’t probably even achieved their political objectives. There are enough reports showing market prices of most crops to be ruling way below the latest MSPs. In sugarcane, the current 2018-19 season marks the first ever, where mills are struggling to pay even the Centre’s “fair and remunerative price” to growers, leave alone the higher “advised” rates fixed by states such as Uttar Pradesh. Loan waiver implementation, likewise, has seen much less-than-expected coverage of farmers, besides restrictions on the write-off amounts (not more than Rs 1-2 lakh) and the institutions to whom credit is outstanding (mostly cooperative banks).

The above farm distress and inability to sufficiently mitigate has entirely to do with prices. Higher MSPs have little meaning when market supply-and-demand conditions and lack of government procurement do not allow for their effective enforcement.


The Food Corporation of India (FCI) undertakes paddy and wheat procurement, with the share of these to the output of the two cereals amounting to 33.8 per cent and 35.90 per cent, respectively, in 2017-18. In the last couple of years, there has been procurement of pulses and oilseeds as well under the Centre’s Price Support Scheme (PSS) through agencies such as the National Agricultural Cooperative Marketing Federation. Last year, a record 4.5 million tonnes of pulses, accounting for 17.8 per cent of the country’s production, got procured.

Such purchases, however, have their limitations, which are both fiscal and market-related. Large-scale procurement leads to massive accumulation of stocks with government agencies. That, in turn, puts further downward pressure on prices, as the private trade stops buying in the belief that the agencies will have no option but to offload these in the market. It forces further governmental procurement to support farmers, setting off a vicious cycle. We have seen this in rice and wheat — and now also in arhar/tur, chana, groundnut and rapeseed-mustard.

It is clear, then, that a completely new approach for price support is required, especially in today’s scenario where India has moved from a structurally deficit to surplus producer in most agri-commodities. The alternative mechanism could be that of “area planning” adopted by countries such as the US, the UK and Australia.

In the UK, all farmers owning more than five hectares have to obtain approval for use of their land for not just crop cultivation, but even for erecting buildings or carrying out excavations and engineering operations for allied agricultural activities. The US and Australia have zoning regulations that also seek to align crop production to domestic, industrial and export demand. Subsidies, too, are linked to farmers allocating defined areas under particular crops.

In India, the Sugarcane Control Order actually has a provision to fix the quantity of crop any grower can cultivate for supplying to a mill for which that cane area is “reserved”. The grower is entitled to the government mandated price only for that reserved quantity of cane supplied. This model, although not strictly enforced in sugarcane itself, can be extended to other crops. The Shanta Kumar High Level Committee for Restructuring of FCI had, in fact, recommended limiting MSP-based procurement of cereals, but government agencies continue buying paddy and wheat without any cap for individual farmers. Only under PSS, a 25 quintals-per-farmer per day ceiling has been fixed for availing MSP-based procurement support.

What we need really is to go one step further.

It should be possible to make national-level estimates of demand for various agricultural commodities well ahead of every cropping season. This demand, factoring in both domestic consumption and global export-import projections, can then be divided among major producing states in proportion to their respective five-year-average output/acreage levels. The states can further sub-divide their demand allocations at regional and district levels. Based on the demand estimates, the state agriculture and horticulture departments can register individual farmers’ area under different crops before the sowing season. Only the crops grown on such registered areas can be entitled to MSP procurement benefits. Any excess production will have to be sold by farmers at the going market rates.

The proposed area planning for crops admittedly poses huge challenges in a democracy, apart from seemingly deviating from the received wisdom of leaving everything to market forces. But farmers themselves — based on responses received during a 2017 survey conducted by the author in Punjab, Haryana and Himachal Pradesh — seem quite open to the idea. They are more exposed to price volatility from supply-demand mismatches than economists. Planning of area under individual crops, keeping in view likely supply-demand scenarios, will not only help check undue price volatility, but also promote optimal utilisation of scare resources such as fertilisers and water. The time has definitely come to regulate the area planted to crops such as sugarcane.

Area planning implementation would require, first and foremost, publicising the idea and assuring procurement/MSP support for the produce of farmers whose individual areas are registered ahead of the planting season. Secondly, the government — maybe, the Commission for Agricultural Costs and Prices — should come out with credible forecasts of domestic consumption, industrial and export demand for every crop. That, of course, calls for market intelligence beyond what the government has displayed — whether in delaying lifting of export and stock holding restrictions on onion, potato and sugar or not curbing import of pulses. And this is linked to the third condition: the government should stop obsessing about increasing production of every crop by 5-10 per cent each year. For farmers, production is important, but it is prices that are really mattering more.

The writer is SBI Chair Professor at Centre for Research in Rural and Industrial Development, Chandigarh