Farmer fair price, MRPs could be new way forward

Marketing boards of each state could seek recommendations from an empowered body to decide on FFP for key vegetables to begin with

There is a need for new thinking in the management of prices of agricultural produce beyond the minimum support price and the tweaking of import/export prices/permits, which also is limited to some commodities and not entirely satisfactory in outcomes. Every manufacturer has the right to ask for a reasonable return. However, farmers are the lone category of producers who are being made to feel as if a favour is being done to them by buying their produce. Similarly, there are no maximum retail prices (MRP) for these items or those that are made known in the public domain; consumers never know if they are being charged fairly in relation to what the farmer was paid for it.  

Perishability-led vulnerability

Perishability of farm produce makes farmers vulnerable to market pressures. In the absence of an institutional mechanism to assess supplies on a real-time basis, markets tend to be driven by rumours and sentiments, which could be controlled by vested interests. This adds to the pressure and anxiety of farmers. Farmers anxious to realise cash end up selling at unremunerative prices, as was seen with onions recently. However, price crashes offer speculators an opportunity to garner stocks with the hope of profiteering a few weeks later when stability returns, as most items can be stored for a few weeks or longer. There is no reference minimum price for most items that can be expected by farmers, leaving them to fend for themselves. This allows the markets to work detrimental to the interest of farmers. 

Unregulated price volatility

Data from nhrdf.org shows modal wholesale prices of onion in Mumbai doubled in 12 days from Rs 2,525 per quintal on August 1, 2013, to Rs 5,150 on August 12, 2013, causing panic among consumers. A steeper spike was observed in 2015, tripling in a month from Rs 2,100/quintal on July 22, 2015, to Rs 6,100/quintal on August 25, 2015. In June-October 2013, inter-day price changes in excess of 10 per cent were noted on eight occasions, including three that were in excess of 20 per cent. Auction pricing is not regulated by norms to prevent such volatility, resulting in unjustified price hikes in the name of free market, the benefits of which largely accrue to middlemen and much less to farmers. Even stock exchanges have daily price circuit filters to avoid sudden market crashes and surges, driven by not-so-very-fundamental reasons. Rules and regulations of the exchanges state the situations warranting any change in price filters. Financial markets are far better regulated than those dealing in agri-commodities that impact the lives of millions of consumers and farmers. As much seriousness as was given to a technical glitch at the National Stock Exchange for one hour, which warranted an inquiry by the ministry, the same needs to be shown to check if farmers gained proportionately, when there is a surge in farm produce prices.

FAIR AND SQUARE When farmers are assured of an honest price, they would be better placed to handle market pressure.

Farmer fair price

A suggestion being put forth is to develop a mechanism that determines a farmer fair price (FFP) for all essential non-minimum support price items to begin with, based on cost of production and reasonable return at the beginning of every harvest season depending on various factors. All negotiations/auctions with farmers should begin at FFP as the base price for FAQ grade. The Maharashtra government is believed to be working on a Bill to criminalise procurement at prices below the MSP. Supported by such a law, the efforts of farmer producer organisations (FPO), serving to unite farmers, could help enforcement of FFP. The mechanism of working could be designed by each of the state marketing boards in consultation with farmer bodies, market thinkers, researchers on agricultural markets and trade organisations. This will obviate the need for state procurements for price stabilisation.

Auction price band

At the consumer end, a similar model of FFP plus cost plus returns-based formula can be formulated for determining auction price bands in major markets in every consumption location. By defining norms and regulations for determining auction price band (APB) within a certain range, market sentiments would not be permitted to drive disproportionate price distortions. Norms for determining APB could include safeguards to check undue profiteering at any point of time. Drawing inspiration from our financial markets, agricultural markets can be better regulated to protect the interests of consumers and farmers.

Implementation 

The marketing boards of each state could form an empowered body; based on its recommendations, the board could announce FFP for key vegetables to begin with, on a pilot basis. Similarly, for all consuming markets in various cities and towns, permissible auction price bands linked to the FFPs could be announced by the board. Electronic National Agricultural Markets (e-NAM) managed by the Small Farmers’ Agribusiness Consortium (SFAC), could provide thought leadership for bringing about the change on a national basis.

Initiatives to strengthen market intelligence techniques could be more rigorous, continuous and institutionalised as part of the state marketing boards, to provide planting advisory to avoid excess or short acreage. Creating a market surveillance cell under each marketing board would also be helpful.

As the farmer is assured of a fair price, he or she would be better placed to handle market pressures. Fixing auction price bands in consumption markets would assure the consumer that the price being paid has a reference to what the farmer receives and is not being exploited by some unknown forces. By plugging both ends of the supply chain, the scope for abnormal profiteering is restricted; this would help restrain speculative interests from engineering sharp spikes.

FFP can also relieve the financial burden associated with price intervention schemes of the government. Hence, this would be a sustainable way to protect the interests of farmers and consumers. The share of consumer rupee to the farmer is only spoken of in seminars to sensationalise the plight of farmers. It is time a practical enforceable mechanism, as suggested, is operationalised.

The author is an agribusiness specialist