The flashpoint between the agitating farmers and the central government is essentially rooted in the mismatch between the supply and demand for the wheat crop in India. The genesis of the current state of affairs stems from policies initiated over half a century ago when India was critically short in foodgrains and had to rely upon imports under PL-480 as aid from the US.
India set up a massive Public Distribution System (PDS) for supplying wheat (and later rice) to the urban consumers (and other vulnerable sections of the population in rural areas, at a later stage) by issuing ration cards that entitled them to a fixed quantum at controlled prices. To feed the PDS, potential surplus producing states (notably, Punjab and Haryana) were cordoned off from the rest of the country under a quasi monopolistic buying by the central government through the Food Corporation of India (FCI) at a farmer remunerative price, labelled as the minimum support price (MSP). Concurrently, high yielding varieties of seeds were produced and popularised by the state agencies along with pushing the use of tube wells and fertilisers with subsidies for electricity and some fertilisers.
The result was a resounding success for the production and procurement of rice (common varieties) and wheat. India has become consistently surplus in their production, which was the focus of the PDS and government policy. Over the long period of government monopoly through the FCI, several agencies and administrative orders have emerged whose justification has become tenuous under free market/trade conditions, due to significant technological advancements in post harvest grain handling as also greater awareness of and information to the farmers. Understandably, the costs associated with this institutional arrangement are noted as cuts in the legitimate earnings of the farmers.
On the supply side, crop rotations have changed in the surplus growing regions. Punjab and Haryana, for example, are now geared for a rice-wheat cycle with the wheat acreage in the former being well above 90 per cent of the total cultivable land in the rabi season. Correspondingly, rice accounts for 80 per cent of the total cultivable land in the kharif season, approximately one-fourth of this being under basmati rice. Controlled irrigation and general improvements in farming practices along with investments have made this rice-wheat rotation by far the most value creating crop cycle. Better varieties of rice (that is, superior basmati etc) in the kharif season that have lower yield, lower water and nutrient requirement but are exportable and highly priced, could possibly be better crop options in the region. The major problem comes in the rabi season wherein the only superior alternative to wheat in the rice-wheat rotation are vegetables and higher qualities of wheat (such as durum varieties that are exportable). The chances of success here, however, are lower. Some exportable wheat can be isolated even today by better selection of disease-free grains at the procurement level and by exporting processed foods made with wheat.
Before examining the relative merits of government handling vis a vis private sector engagement, it would be important to examine the current scenario of costs, quantities and their future projections. The current cost incurred by the FCI in terms of commissions/market fee and labour and gunny bags cost is an additional 12 -13 per cent of the procurement price. The losses due to poor storage and secondary transport are additional. Even with slow reforms, this mark-up can be halved.
Under the current procurement policy, the advantages of producing high-quality grains have been ignored. Since the origin of the policy was to feed the PDS system in periods of shortages, the considerations of maximising yield and lowering cost of production dictated the production and procurement decisions. These, unfortunately, were not the best products for export. The critical concern about keeping prices low for the middle classes in India has, thus, impaired the healthy growth of the agriculture sector. Physical quotas and controls on exports came in the way of increasing production of basmati and higher quality of rice. Also, there was no initiative for identifying high-quality wheat strains for increasing their production for local and foreign markets.
The only way forward is to shift production from normal rice to basmati and other exportable varieties and to give a boost to wheat for substituting rice via sooji, rava and noodles. A boost for infrastructure to increase the production of vegetables in the wheat belt and its transport to southern India, the Middle East and the Far East are the other options for the healthy growth of agriculture. The harsh reality of irrigated agriculture is that a wheat-rice rotation emerges as the highest and safest earning option, making agriculture settle at a low level equilibrium. It cannot be supplanted by pulses, oilseeds etc. Only potatoes and vegetables are more income generating.
The government needs to reduce the institutional costs and move towards a more remunerative cropping pattern. This the government is attempting to do by bringing in the private sector. This may not be a sufficient solution, but why is the farmer so much against it?
The picture becomes murkier when we look at the political push and pull. The central government is touting that they are dismantling movement restrictions and allowing the farmers to sell to whoever gives higher prices. Sadly, when wheat is surplus at the current prices and the government itself is distributing it virtually free, how are prices going to be higher than whatever the government is looking to pay? Currently, the so-called support price is politically influenced. With the advent of large corporate players, farmers apprehend that the corporate players will influence the government not to raise the MSPs adequately in their own interest. The farmer-state government-central government power equation is likely to be polarised into a farmer/state government versus corporate sector tussle, wherein the peasants’ lobby will be hopelessly powerless.
The central government needs to be seen as the agency that will ensure stable and remunerative MSP for rice, wheat as also for the prices of their superior variants along with the alternate crops. It must make transparent efforts to push exports consistently and not follow the stop-go policy emanating from price controls for the Indian consumer market.
This article first appeared in the print edition on December 9, 2020 under the title ‘Fields of the future’. Kundu is Senior Fellow, World Resources Institute. Sidhu is a Management Consultant based in Mumbai