The recent increases in minimum support prices have attracted two criticisms from two opposite sides. One is that this is less than what farmers deserve, the second is that this is populist and ignores larger macro side effects. The increase in fair remunerative price for sugarcane has also been criticised for not adequately addressing the woes of the sugar sector. Ramesh Chand, member, agriculture, NITI Aayog talks to Firstpost on both issues.
Excerpts from the conversation
While a lot of the criticism of the handsome increases in minimum support prices (MSP) is that it is below farmers’ expectations, isn’t it election-eve populism with little concern for second-order effects, much like the hikes during the United Progressive Alliance (UPA) tenure?
During the UPA time, market prices in many commodities were ruling above MSP; there was no need to give MSP hikes. Between 2007 and 2012, international prices were much higher than India’s. But now since international prices and domestic prices are depressed, the government needs to be proactive on MSP. It is at such times that intervention is needed. Over the last two years, the global food price index is 14 percent lower than before.
I also feel a 50 percent margin is quite big. But it’s not big if your investment is very small. For example, if you have a large size holding and are incurring total cost of Rs 10 lakh, an 18 percent margin gets you income of Rs 1.18 lakh. But if your investment is only Rs 1 lakh, a 50 percent margin gives an income of Rs 50,000. Since 85 percent of farmers in India have land below 2 hectares, that means their investment is very low, so there is some rationale for giving much higher margin on their investment.
So these are two reasons that justify this increase in MSP.
You have argued that MSP 50 percent above C2 is unreasonable and that 40 percent of C2 cost is actually income to farmer. Could you explain?
Yes, I had said there is no economic rationale to give margin on C2. Ask any farmer cultivating his own land how much income came from cultivation. He will say he got Rs 30,000 but spent Rs 20,000 on inputs and his income was Rs 10,000. He will never say rent on his land and the time he spent on cultivation should be deducted. So he considers own land and own family labour and own time – whatever return he gets on that as income. That applies to all businesses – if it is your own capital, whatever return you get on it is your income. That is not a cost.
Instead of self cultivation, a farmer can rent out land and earn more. The land has opportunity cost. Therefore, the price which a farmer gets must be higher than C2. But there is no rationale for giving margin over C2. Any margin. When you give 50 percent over A2 + FL, it will generally exceed C2, barring some exceptions.
Market prices of most crops are much below MSP. Is this going to lead to large-scale procurement by the government and is the procurement system up to this task?
It is a challenge. When we are able to implement MSP in paddy and wheat, compared to that it is much easier to implement MSP in the remaining crops because the production of notified crops, other than wheat and paddy, is half of the production of wheat and rice. The production of wheat and rice is 210 million tonnes – 245 million tonnes if you consider paddy. The total production of coarse grain, pulses, oilseeds is less than 100 million tonnes. And we are involving the states in procurement.
But if the entire machinery is focussed on 250 million tonnes, where is the bandwidth for others?
That is because it was not decided to cover the other crops. Initially, it was decided to procure wheat, then paddy (and later cotton). Those crops were considered of national importance, since they were either eaten or grown in every state. The remaining crops are not. Arhar is produced in a particular belt, ragi is produced in Karnataka, bajra is produced mainly in Rajasthan. These crops were considered less important from a food security point of view. Besides, for the last two-three years, the government has expanded procurement operations.
So we are likely to see large scale procurement?
I am not saying that. The method is to be decided. We are debating it. Procurement is one well-tried method, we have estimates of how much it will cost FCI, NAFED. We are constantly looking at how much it costs in pulses, in oilseeds. We are analysing all this.
After analysis, if you find it is not feasible for government to procure, then does the farmer have to be satisfied with mere announcement?
I am not saying it is not feasible. I am saying the government has not finalised whether to use procurement, whether to use procurement plus x method, procurement plus y method. Those options are being debated.
But government will have to step in because market prices are much lower?
The government has to step in. But it will not have to procure all 100 million tonnes. The price of many of those commodities is lower than MSP in producing states, not in consuming states. Today, for example, the price of mustard in Bengal will be not be as low as the price in Rajasthan, which is a producing state. There may not be any need for procurement there. Out of 100 million tonnes, only 75 percent is marketable surplus. Then even out of that, ultimate market arrivals – this is a guess – that will not be more than 40 million tonnes across the country. All farmers may not bring the entire 40 million tonnes just now, some may wait for prices to go higher.
The Commission on Agricultural Costs and Prices has proposed a law on right to guaranteed remunerative price.
It has already been tried in Maharashtra. Last year, they declared that any transaction to buy soyabean less than a particular price will be treated as illegal. So the private sector bought the best quality produce and then they stopped buying. You can’t ensure such things through legislation.
There has been a big hike in fair remunerative price (FRP) for sugarcane too. Again at a time when we need to reduce acreage under the crop and when there is a problem of huge arrears of mills. Is such a hike advisable and will it actually bring gains to farmers?
If states do not add their own state advised price (SAP), then this price is okay. When there is an increase in diesel prices, when overall inflation is 5.7 percent, when other government is increasing other prices, then to maintain parity, this kind of increase (which is lower than the average increase in other crops) is justified. And the distortion in sugarcane is occurring through the SAPs. State governments should realise how much burden the central government has to bear in terms of payment of arrears. They should not give those kind of hikes.
The MSP addresses concerns of farmers cultivating the 23 notified crops. But those cultivating fruits and vegetables, dairy farmers, are also in distress. How can the government help them?
Fruits and vegetable are not as universal as other crops. And in their case, quality variations are so high that you cannot anchor MSP to fair average quality. MSP is always for fair average quality. Go to the market today and you will find tomato selling from Rs 800 a quintal to Rs 30,00 a quintal. The government is promoting market mechanisms for tomato, onion, potato, Operation Green kind of intervention is being done. We are giving final touches to it.
There is a lot of concern over agrarian distress, but companies selling in rural areas – from tractors and automobiles to FMCG – are doing well, so there does not seem to be rural distress. Can you explain this dichotomy?
I find research on agrarian distress is very inadequate. Most researchers are arriving at this conclusion of agrarian distress by citing farmers suicides. We are just using this emotional indicator – the minute you talk of suicide, people will not like to enter into debate. I feel that is not the right approach. There is a need to view agrarian distress dispassionately.
We need to develop some proper indicator and then look at the causes of agrarian distress. Is it related to what is happening in agriculture or something that is happening outside agriculture? When you talk of agriculture and relate it to income, you don’t see any relationship between income of farmers in different states and suicides. Farmer income is so high in Punjab, but suicides are happening there. But we don’t hear of it in Bihar. Even in the Punjab, we are hearing of suicides from one-thirds of the districts. In another one-third, I have not heard of a single instance of suicide by a farmer because of farming. We need a good study on agrarian distress and also whether it is real or imagined. That is very important. Where it is hidden and where it is apparent. Agrarian distress is there in Bihar, but there is no talk about it.
You had done a study on this dichotomy.
I had argued that it is not proper to view rural India as only an agricultural economy. Now two-third of the economy of rural India is non agriculture and only one-third is agriculture. And the non agriculture income is not entirely going to non agriculturists. Even NSSO study shows 40 percent of income of farmers comes from non farm sources. Ultimately, like China, Japan or any small farm economy, we need to move in the direction of part-time farmers. We recognise that one or two acres will not give them income, they have to earn from other sources. In many cases it is already happening, but we have to move as a development strategy.
(The writer is a senior journalist and author. She tweets at @soorpanakha)
Updated Date: Jul 23, 2018 07:11 AM