Moneycontrol
Jul 13, 2017 07:03 PM IST | Source: Moneycontrol.com

Farmer agitations aside, here's why govt's 7-point agriculture strategy is an eyewash

The strategy for doubling income looks good on paper but in reality it is only halving farming cost.

Farmer agitations aside, here's why govt's 7-point agriculture strategy is an eyewash
Farmers

Shishir Asthana

Moneycontrol Research

Now that the farmer agitations in some major states, most recently in Madhya Pradesh and Maharashtra, have quietened down, the central government has reverted to cruise mode as far as its agriculture policy is concerned.

The government has reiterated its stand of doubling farmers’ income by 2022 with its seven-point strategy. HRD minister Prakash Javdekar has been quoted as saying that the government is emphasising on raising the farmers’ income rather than the past practice of increasing the agricultural output. The minister specified that the government is working on a 7-point strategy to double farmers’ income.

The government’s big focus will be on irrigation with large budgets, with the aim of ‘per drop, more crop’; provision of quality seeds and nutrients based on soil health of each field; large investments in warehousing and cold chains to prevent post-harvest crop losses and promotion of value addition through food processing.

Farm Crisis: Why Bumper Harvests Are Becoming Painful For Indian Farmers

The creation of a national farm market, removing distortions and e-platforms across 585 stations; introduction of a new crop insurance scheme to mitigate risks at affordable cost and promotion of ancillary activities like poultry, beekeeping and fisheries, are all part of the strategy.

In short, the government is talking about setting up an infrastructure or platform which it hopes will bring down the farmer's cost of operations, improve his yield per acre and enable him earn alternate income through other revenue streams. As far as marketing products are concerned, the government has opened up the market by creating e-platforms across 585 stations.

But even though there seems to be a comprehensive approach to farming, the government still seems to be missing the point.

If one looks at the farming sector, almost everyone in the chain is making money apart from the farmer. Seeds, fertilisers and pesticides companies along with service providers like logistics, banks, financiers and the traders; everyone is normally richer at the end of a season but the farmer is rarely benefits.

The approach adopted by the government does not ensure the one thing that the farmer needs: stability of price. Irrespective of what the farmer grows, his output is always timed with that of a farmer planting a similar crop. Supply is always in surges which cause price disruptions. But demand is staggered.

A trader takes advantage of this mismatch by buying when the crop arrives and prices are depressed, and sells it when normalcy returns. Setting up an e-platform does not completely address this mismatch as the buyers at the other end of the e-platform will be an institutional buyer or a trader who already have a good relationship with the local trader.

There is not much appreciation that the farmer can expect through this approach. Lower cost of inputs and improving yield will only result in higher supplies.

The main problem of the farmer is not being addressed by the government, which is of not getting a good price for his produce.

What a farmer needs is visibility of the price at which he will sell. He knows various ways of cutting costs and in any case there is enough help provided by government agricultural colleges, seed, fertiliser and pesticide companies to improve his yield.

The issue is clearly highlighted in this blog, where the author has pointed out that policies of the government are pro-farmer till the crop is sowed but becomes pro-consumer by depressing prices by the time crop reaches the market.

What the farmer wants from the government is commitment on the price. Many economies have moved towards subsidising the output rather than the inputs. In other words, they ensure a minimum price for the produce. Subsidising inputs helps the companies that are providing the raw material, while subsidising the output will directly benefit the farmer.

Take the case of sugarcane where a farmer is assured of the cane price at which the sugar mill will lift his output. As a result, a sugarcane farmer reaps the highest gross returns per hectare at Rs 82,800, the next best is the cotton farmer who earns Rs 29,100 per hectare. Yields of other crop are far lower and fall further as their price is market determined.

The Indian government unfortunately uses Minimum Selling Price (MSP) for pricing some crops, which does not take into account the actual cost that is involved. A paper published by the Commission of Agriculture Costs and Prices on pricing policy of MSPs noted that it is not rooted in ‘cost plus’ pricing principle, though cost of production is certainly one of the important factors that go into the determination of MSPs.

There are other factors such as overall demand and supply of the commodity under consideration, domestic and international prices, inter-crop price parity, terms of trade between agriculture and non-agriculture, and likely implications of MSPs on consumers of that product, which are all given as parts of the terms of reference of the Commission.

In addition, the Commission also keeps in view the need for rational utilization of water, land, and other production resources while recommending MSPs. The worst thing is that the data has a lag of two to three years.

Little purpose will be served to the farming community if such a model of pricing is used. Rather, the realistic cost of production and a margin of 50 percent as suggested by the MS Swaminathan report should be implemented immediately.

The seven-point strategy of doubling income looks good on paper but in reality it is halving farming cost and is an eyewash.
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