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Saturday, May 28, 2022

To help farmers, right approach is through Farmer Producer Organisations, not APMC mandis

The art of policymaking is to balance the interest of producers and consumers within reasonable financial resources.

Written by Ashok Gulati |
Updated: January 4, 2021 1:23:05 pm
The government should be ready to give in writing that the existing system of APMC markets and MSP will continue and be strengthened. (Illustration by C R Sasikumar)

One hopes that the talks between the agitating farmers and the government lead to an amicable solution soon. But if farmer leaders stick to demanding a repeal of the farm laws, then I am afraid the stalemate is likely to continue. In such a charged environment, rationality often becomes victim to anger and hatred, which does not serve anyone’s purpose, including the farmers’.

Nevertheless, let me spell out some basic facts about Indian agriculture, which may help negotiators on both sides, with a common objective of benefitting the larger interest of the farming community.

A major study that we at ICRIER conducted with OECD showed that over the period 2000-01 to 2016-17, Indian agriculture was implicitly taxed to the tune of almost 14 per cent of its value. This was primarily due to restrictive trade and marketing policies, ranging from export controls and stocking limits to the restrictive mandi system. The way to improve farmers’ price realisation, therefore, was to liberate agriculture from these various controls. The farm laws under discussion are intended to do precisely that. Interestingly, this has been a long-standing demand of one of the tallest farmer leaders, the late Sharad Joshi, since the 1991 reforms. But somehow, a fear has been created that these farm laws will rob farmers of APMC markets, MSP, and they may even lose their lands to big corporate houses through contract farming. These fears, genuine or imaginary, have been blown out of proportion for political reasons.

There is no doubt that APMC markets and MSP will face competition from private markets and out-of-APMC mandi transactions. But will this hurt the farmers or play in their favour? Opinions differ. I believe it will help the farmers at large, especially small and marginal ones. The creation of an additional 10,000 Farmer Producer Organisations (FPOs) and the promised Agri-infrastructure Fund of Rs one lakh crore will aid this process. But many among the agitating farmers fear losing the MSP for wheat and paddy that they get in Punjab-Haryana.

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What is the reality about MSP? The NSSO’s Situation Assessment Survey (70th round) revealed that in 2012-13, only 6 per cent of farmers sold their produce at MSP. And of course, a majority of them were from the Punjab-Haryana belt. After that, there is no such survey available in the country. In recent research with my colleague, Ritika Juneja, we worked out the value of agri-produce (paddy, wheat, pulses, oilseeds and cotton) bought by government agencies at MSP for the year 2018-19, and how much that constitutes as a percentage of the total value of agri-produce. Interestingly, the number again comes to about 6 per cent.

So, in all these years since the MSP was given birth to in 1965 through a newly-constituted Agricultural Prices Commission (now renamed as Commission for Agricultural Costs and Prices, which I had the privilege to chair during 2011-14) and the Food Corporation of India (FCI), only 6 per cent of farmers and broadly, 6 per cent of the value of agri-produce has benefitted from this system. And remember, the MSP and APMC system primarily helps those who have large surpluses, mainly the large farmers. So, if one really wants to help the small and marginal farmers, the right approach is through FPOs at the village level and not in APMC mandis. And, about 86 per cent of Indian farmers are small and marginal (less than 2 ha), operating roughly 47 per cent of the total operated area in the country. So, those who are arguing for APMC mandis and MSP are basically arguing for those 6 per cent of farmers or 6 per cent of the value of agri-produce.

Given these basic facts, how do we dispel the fears of agitating farmers? First, the government should be ready to give in writing that the existing system of APMC markets and MSP will continue and be strengthened. Second, the government can also give in writing that the contract will be for the produce, not the land. Third, farmers can take disputes to district courts, if they like. Fourth, to add to these written assurances, the government can also commit to creating a fund of Rs 25,000 crores under the Price Stabilisation Scheme, which can be used to support market prices of specified commodities that take a dip of more than 10 per cent below MSP. This is akin to NAFED’s operations to support market prices of pulses and oilseeds, or the Cotton Corporation of India (CCI) for cotton prices, and can be extended to maize, sorghum, pearl millet, etc.

One major question in this approach is how to deal with the losses when these government-procured stocks are unloaded in the market, as they will invariably incur losses. And if stocks keep piling up, as is the case with wheat and rice today, how do we correct this imbalance in demand and supply? In that case, either limit the size of procurement or go for price deficiency payments to those who buy “put options” at MSP for specified quantities at the time of sowing. An expert committee will have to be set up to look into its operational guidelines. A further positive step will be to announce a diversification package for the Punjab-Haryana belt.

I must also say that repealing these farm laws would be like robbing more than 90 per cent of farmers — who never gained from the MSP system and who are largely small and marginal — of their rights. And asking for making MSP a statutory binding even on the private sector will turn out to be anti-farmer as much of the private trade will shun such a system, leading to chaos. It will be worse than repealing these laws.

Finally, one must remember that farmers always want a higher price for their produce, but higher food prices can also bring pains to poor consumers. The art of policymaking is to balance the interest of producers and consumers within reasonable financial resources.

This article first appeared in the print edition on December 30, 2020, under the title “Facts from the field”. Gulati is Infosys Chair Professor for Agriculture at ICRIER

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