Agriculture Prices and Income Volatility

Syllabus: Prelims GS Paper I : Current Events of National and International Importance; Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.

Mains GS Paper III : Transport and Marketing of Agricultural Produce and Issues and Related Constraints; Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices.

Context

Recent reports mentioning the grievances to Agriculture Ministry related to the meager income and the difficulties being faced by the farmers.

Background

In the latest report by the Department of Administrative Reforms and Public Grievances’ (DARPG) related to Agriculture Ministry, 46% grievances pertained to low crop prices received by farmers. During harvest period, the market price of almost all produces was less than MSP, e.g. 6-13% less than MSP of soybean and 20-40% of groundnut in most of the markets.

In Brief

Over the last two decades India’s agricultural produce has been surplus, which is considered the root cause of low prices. Agriculture grew even during Covid-19, with kharif net sown area increasing by 21% in 2020 compared to last year.

Despite the support of Centre via MSP, the state capabilities are limited in terms of budgets, logistics and storage capabilities. Different states have different levels of capabilities; some like Punjab and Haryana have historically been in a better position to procure major crops (paddy and wheat), while others like Bihar, Odisha and states in the east have limited capabilities to procure. Because of this Punjab and Haryana farmers receive higher prices than farmers in states like Bihar.

Also, except paddy and wheat, there has been no proper procurement mechanism for pulses, oilseeds and other crops ever since the Green Revolution. This discriminatory policy hugely disincentivised growing of these crops by farmers, resulted in huge deficits and high import dependency. For example, India imports 70% domestic consumption of edible oils each year, incurring a cost to the exchequer to the extent of Rs 70,000 crore.

Government Measures

The government has announced minimum support prices (MSP) to cover at least 1.5 times the cost of production, and procure at the announced MSP if prices fall below MSP. The government announces MSP for 25 major agricultural commodities each year in both the crop seasons after taking into account recommendations of the Commission for Agricultural Costs and Prices (CACP).

To address the issue of procurement, the Centre has started the Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) in 2018, to ensure that farmers growing pulses and oilseeds get MSP as promised. It also takes care of differences in crops, state capabilities and local preferences and feasibilities, and gives flexibility to state governments to choose from different operational modalities to ensure MSP for each crop. PM-AASHA has three sub-schemes—price support scheme (PSS), price deficiency payment scheme (PDPS) and pilot of private procurement & stockist scheme (PPSS).

Under PSS direct procurement carry by the state/central government procurement agencies at MSP from farmers during harvest. In this scheme, Centre compensates to the states for any losses up to 25% of production.

Under PDPS, farmers are paid the difference between MSP and the modal price of the market, without actual procurement. It is an efficient method, as it eliminates all logistics costs relating to procurement, storage and offloading.

Under PPSS, private players can procure oilseeds at the state-mandated MSP during the notified period in select districts or APMC markets, for which they would be paid a service charge not exceeding 15% of the notified support price.

Conclusion

It’s time to ensure remunerative prices to farmers in the coming harvest season it will not only enhance farmers’ income, but also provide demand push for rural economy.

The PSS is in existence for over three decades for paddy and wheat, its implementation is poor for procuring pulses and oilseeds.

Actual procurement at MSP cannot reach more than 20% of peasantry even with augmented procurement of pulses and oilseeds through PSS and PPSS, so it cannot help raise farmer's incomes. In the long run, the only alternative is PDPS as it doesn’t require physical procurement and avoids logistics and storage expenditure, it is free from operational inefficiency and corruption, and 100% benefits reach the farmers.

Connecting the Article

Question for Prelims

Consider the following statements, with reference to the Commission for Agricultural Costs & Prices:

1. It is an autonomous body.
2. It decides the Minimum Support Price for agricultural crops.

Which of the following statements is/ are correct ?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Question for Mains

‘Despite several efforts by the government for farmers welfare, their condition is still in distress.’ Examine.