Global prices are not to blame for India's farm crisis

Paddy prices in Uttar Pradesh have fallen 5-10 per cent over the past year

It has been a bad season for farmers with unseasonal rains destroying almost a third of their crop of wheat, mustard and pulses, but what is casting a bigger pall of gloom and leaving farmers anxious about their future is the unprecedented slump in food prices.

Paddy prices in the wholesale markets of Uttar Pradesh have fallen 5-10 per cent over the past year, with western parts of the state bearing most of the brunt. In some places like Hathras and Mathura, the situation is even worse with prices having fallen over 50 per cent.

The longer the prices stay subdued, the more difficult farmers are going to find to extricate themselves from the distress caused by dwindling income and worsening debt. Anecdotal evidence suggests many farmers are already finding it difficult to repay even minor loans of up to Rs 50,000.

There is little disagreement about what is causing the slump. While globally too farm prices have been weak, its impact on India has been largely limited, say experts. Except for cotton, sugar, maize and paddy-products which are exported from the country in large quantities-the fall in prices has been mainly due to domestic reasons. Experts say besides over-supply caused by lower exports, it is the muted increase in the minimum support price that has triggered the downslide. For both paddy and wheat, MSPs have increased by less than 5 per cent in the 2014-15 crop season that started in June. A lower MSP keeps the overall farm market subdued as it often acts as a benchmark for traders dealing in other commodities as well.

With exports suffering, there is going to be enough grain in the domestic market. Data from Agriculture Produce Export Development Authority shows that between April and February 2014-15, India's agriculture exports dropped almost 3 per cent to about Rs 1.20 lakh crore over the same period last year.

Exports have fallen for basmati rice, fresh fruits, wheat, guar gum and cotton. Cotton exports, according to government estimates, have dropped by as much as 46.60 per cent in value terms in 2014-15 (April to February). Much of this has been because of the fall in global prices.

There appears to be little potential for boosting exports amid expectations of bumper production globally of wheat and rice this year. Going by Food and Agriculture Organisation's estimates, global wheat output in 2014-15 is expected to hit a record 728.2 million tonnes, the highest since 2010-11, while production of rice is estimated to be around 494.4 million tonnes, which is just 2 million tonnes short of the 2013-14 output. Global sugar production is also expected to be robust at 184-185 million tonnes, against an expected requirement of 182.5 million tonnes.

With exports remaining tepid, what is worrying experts the most is the glut in the sugar industry as it means mills would find it even harder to clear their dues to farmers for sugarcane. Already arrears are running high in several states, including Maharashtra.

PK Joshi, director, South Asia of International Food Policy Research Institute, says at present the impact of the global slump has been limited only to those commodities of which India is a prominent exporter like cotton and sugar, other crops whose quality has suffered due to unseasonal storms will only be hit gradually. "In wheat and rice, the quality of the crop has suffered due to the recent rains and hailstorm which will deter exporters and could add on to the problem in rural areas," says Joshi.

However, he says appropriate measures from the government like import duties could insulate domestic farmers from the global turmoil.

"I think India is fairly insulated from global agriculture commodity markets as it is a marginal player and there does not seem to be a direct correlation between the current distress in rural India and the fall in world farm commodity prices," says Gokul Patnaik, chairman of Global AgriSystem, an agri-business consulting group.

Joshi too agrees. Just as in 2008 when India did not feel the full impact of the global spike in prices, this time too the government will manage to cushion the blow from the slump in prices.