Wednesday, June 28, 2017




Tejinder Narang

(The very concept of comparing profits of farmers through MSP is irrelevant because 92% of the produce is dispensed at market determined values.)

Highly analytical opinions have been ascribed to the current agitation of farmers for cereals, oilseeds, vegetables. Lower hike in MSP (Minimum Support Price)during last 3-4 years, has been cited as one of the major causes and the general public also believes it so. Then the reasoning of stocks limits, poor warehousing facilities, export bans, lack of food processing industry and free trading in commodity exchanges is given. The logic that higher production has led to price crash, is also endorsed as a reason for farmer’s woes. And last is the rationale of squeeze of cash for the acquisition of the produce.
Government of the day is being held liable for failure in “suitable” increase in MSP thus diminishing the profits of the farmers. This does not exemplify correct picture.. Except for wheat and paddy (of rice) -- MSP is a notional value for all other commodities. For wheat and paddy too, approximately 30% is the official procurement and the rest is traded in the market. There is no MSP for onions, potatoes and tomatoes. In short only 8% of the total agriculture produce (including horticulture) is supported by public procurement –the rest 92% sells at a market determined prices. That is why MP government futilely and wrongly attempted to suggest that all traders should buy agro commodities at MSP. After realizing its irrationality, the proposal now appears to be discarded.
For whatever reasons, draught or otherwise, India’s reliance on import of agro-commodities is rising every year. For example- import of wheat per annum is 3-5 million tons (mts), pulses 5-6(mts), edible oil 14 mts-- have become a new norm. Recently 0.5mts duty free raw sugar import are authorized and last year 0.5 mts of corn import was permitted.
 Import prices thus also have bearing on domestic values and volumes that are traded.
·         Market price of wheat may depend upon landed cost of Australian/Ukraine/Russian wheat .
·         Pulses will be dictated of Tur/Urad price of Myanmar/ Ethiopia/Tanzania; Chana values of Australia; Yellow Peas of Canada.
·         Soybean prices by quotes of CBOT or Brazil or Argentina ; Palm Oil offered in Indonesia/ Malaysia.
·         Sugar values by contracts in New York and London exchanges. Raw sugar which was 22 c/pound in November has today dropped to 13c/pound in New York exchange –or down by about $235/mt.
International volatility cannot be visualized and built into MSP or FRP( for sugar), especially when  imports are rendered imperative. Though the merits of fixation of MSP itself are debatable, the very concept of comparing profits of farmers through MSP is irrelevant because 92% of the produce is dispensed at market determined values.
Should we raise the tariffs to such a high value so that imports may be blocked!! No. Instead India needs to educate itself as to how exporting nations are able to produce cheaper and sell with a landed cost (including freight and handling expenses) + reasonable custom duty, still remain competitive with international volatility.
Realistically this means that we have macro (including infrastructural) and micro economic inefficiencies of production.  If the case is to raise the tariff –then it also implies that domestic inefficiencies are also being encouraged. To get out of the rut of vicious cycle of ascending imports, domestic output has to go up by technology induction both at the level of seeds and farming practices.
Other factors that are mentioned-- stocks limits, poor warehousing facilities, export bans, lack of food processing industry and free trading in commodity exchanges-- have all pressured prices downward. But these factors have always prevailed during last 60 years. All governments took decisions by knee jerk reaction to tame rising prices to control inflation. All governments targeted intermediaries/middle men directly or indirectly, but farmers seldom agitated.
Each government of the day claimed sufficiency of agro production and undertaken ad-hoc imports or allowed imports for the privates to narrow down supply-demand gap. The paradoxical situation is that though this government has been stating rising production of wheat and pulses but it simultaneously facilitated imports thus negating ideas of higher production by their own actions. Imports though filled the demand and kept inflation in check, acted contrary to the aspirations of the farmers of realization of promised 50% profit above the cost of production.
The only factor that is now emerging is the lack of informal financing. Dr Ashok Gulati in his article in this paper on 19th June2017 has given the ratio of institutional and non- institutional finance of the rural household of 2013 in the ratio of 56%to 44%.  It would not be wrong to conceive that about 50% is the component of informal financing in Indian farm economy. Pursuant to demonetization the cash crunch of the trade stands transferred to the farmers, implying that the farmer’s ability to sell to the middlemen dried up. This is the mega cause of the current farmer’s fatigue. As and when that cash comes back in circulation through the trade,  normalcy in the fatigue of funds will be restored.
All other actions of this Government have been consistent with past practices.