Dealing with surplus: Higher farm production demands new policies

When the National Democratic Alliance (NDA) government took charge four years ago, it had to deal with almost double-digit inflation, among many other macroeconomic challenges. A significant portion of this inflation was owing to high food prices, and as such, it would seem natural for this government to give priority to allaying the concerns of the consumers and try to contain food inflation. To this end, the government held off announcing sharp increases in minimum support prices for various agricultural commodities and tweaked the trade policy to ensure that there was enough agricultural produce to contain any sharp increase in retail prices. However, the growing farmer unrest across the country is making the government sit up and take notice of the plight of farmers, who complain of prices being so low that it is no longer remunerative to remain a farmer. In different parts of the country, farmers have come out and displayed their anger by throwing away their produce, be it milk or onions, because wholesale prices have crashed. The growing anger could have electoral repercussions, as witnessed in some by-election results. In response, the government has promised higher MSPs while many state governments have announced farm loan waivers.

However, using higher MSPs and loan waivers to address the present crisis in Indian agriculture betrays a lack of understanding of what is ailing farming in the country. Governments, both at the Centre and states, are applying tools that should be used when there is a shortage of production, which is certainly not the case now. Higher MSP promise provided farmers with the price signal to produce more of a particular commodity, complicating the situation further. There are many reasons why production, across a whole range of agricultural commodities, has been going up year on year. For one, there have been productivity gains, thanks to improvements in the quality of seeds available because of better plant breeding and genetics. Observers point to newer varieties of wheat and sugar that have resulted in India’s opening stock being higher with each passing year. Add to this the sustained improvements in scientific farming practices, such as high-density cultivation and use of drip irrigation, which have further bumped up the efficiency curve. Investments in associated infrastructure, such as better connectivity via roads and improved access to electricity, too, have helped in raising overall productivity. Lastly, in a more connected world, price signals appear to elicit a quicker response from the farmers.

The problem is that the government is still stuck with supply-side management measures such as imposing stock-holding limits and allowing easier imports. Government policies, often biased towards keeping consumer prices lower, have short-circuited the virtues of better price signals. For instance, not allowing exports or, indeed, allowing cheap imports, often produces a massive glut, which adds to increased domestic production and results in a price crash. The solution, therefore, does not lie in artificially providing price signals via higher MSPs but to work on improving market access for the farmers. The time has come to help farmers by facilitating long-term purchase agreements with agro companies that can set up warehouses and cold chains. Indian agriculturalists have shown they can withstand the vagaries of monsoon but there is no cure for bad policy choices.