Address it fast

From being thrown on the streets in Mandsaur to being protected by the police in Mumbai in the past few weeks, tomato has turned out to be the truly red-faced farm commodity in last few weeks.

Tomato has joined onion and pulses as the latest victim of price fluctuations that has left farmers and consumers fuming. While farmers were forced to sell tomato at less than Rs 5 per kg, consumers are compelled to buy it at Rs 100 per kg.

Price distortions of farm commodities are a continuing phenomenon, as farmers lack control over pricing their own produce. More shocking is the fact that at the receiving end are 30% of rural households who cultivate 82% of arable land in the country.

With most landholdings being less than one hectare, the capacity of small holders to bear loss on their produce is anything but suicidal. One farmer suicide every 40 minutes in the country reflects a systemic failure.

The crisis amplifies when a previous year high price for a particular crop entices farmers to expand cultivation of the said crop in the following year. Farmers in Andhra Pradesh were shocked when tomatoes fetched Rs 551 per quintal in June this year compared to Rs 3,015 per quintal during the same month last year.

Neither was there a drop in consumption of tomatoes nor was there an unexpected glut in the market. And, yet price plummeted like never before. Despite fertilisers and power subsidies, cost of cultivation has been on the increase each year. With farmers not making profit on their small produce (on an average farmers keep 25% produce for home consumption), about 52% of agricultural households are in debt.

Average household debt is Rs 47,000. This is unlikely to change as annual income of median farmers is merely Rs 20,000 or just Rs 1,666 per month as per Economic Survey of 2016. That the middlemen and traders are milking large share of the profit is no breaking news. Shocking is the fact that in addition to farmers and consumers bearing the brunt, the state too is at the receiving end of price distortions.

Having purchased 8.76 lakh tonnes of onion at a support price of Rs 8 per kg during last five weeks, the Madhya Pradesh State Cooperative Marketing Federation is now forced to sell the same at Rs 2 per kg via the public distribution system.

Price distortions have caught the government by surprise too. To avoid onion stocks from rotting over, the Madhya Pradesh State Civil Supplies Corporation could fetch only Rs 2-3 per kg in the open market.

One reason for the glut in onion had to do with the Federation purchasing it at a high price which encouraged the farmers from Maharashtra and Gujarat to unload their produce in Madhya Pradesh. However, the cumulative loss to the exchequer in this transaction alone is worth Rs 900 crore.

What is true for tomato and onion is equally true for other commodities including pulses. Having stocked two million tonnes of pulses during last two years, crash in market price of pulses has left the National Agricultural Cooperative Marketing Federation (Nafed) high and dry.

All this lends credence to the argument that farmers get no more than 25% of the price that consumers pay, and the minimum support price in the best of circumstances benefits only 6% farmers.

Under such conditions, does the government’s stated objective of doubling farmers’ income by 2022 hold any ground? Far from taking the price distortion issue head on, the Niti Aayog instead contends that without additional income from non-farm sources, farmers will not be able to cross income of Rs 18,000 per month even after the doubling efforts.

The condition demands a mix of soft and hard options to pull farmers out from the current distress. The soft options include liberalisation of contract farming, direct purchase by processors and bulk buyers, direct sale by farmers to end users etc.

The hard options include shifting of the workforce to non-agricultural occupations, an inclusion of supplementary sources of income, modernisation of farming and marketing practices, reforms in land lease and better price realisation.

It is clear that none of the options proposed by the Niti Aayog can rid agriculture from prevailing price distortions. If farmers are not assured of remunerative prices for their produce, their interest in farming will wane further.

Allow exports

A recent World Bank supported study on ‘Price Distortions in Indian Agriculture’ by the Indian Council for Research on International Economic Relations (ICRIER) suggests ‘a ban on export bans’ on agriculture commodities to help farmers.

The report draws reference to ‘lost opportunity’ on account of export restrictions on wheat during 2007-2011 subsequent to the lifting of the trade ban wheat exports had touched a high of $5 billion in 2012.

The question that begs an answer is whether or not exports directly benefit farmers? Exports do contribute to overall agriculture economics, but do not constitute direct benefit to farmers who are often at the mercy of the unending chain of middlemen.

Since farmers’ income is unlikely to be doubled under the business-as-usual scenario, farmers would need direct cash incentives, in addition to input subsidies, to stay in the business of farming.

Improving input efficiency (fertiliser and water) will help farmers’ make choice of crops to be grown. Crop advisories based on price trends of last few years, transit storage facilities at cluster level, and promotion of cooperative farming can enhance bargaining power of farmers.

(Sharma writes on development issues)