Problems of plenty

Record farm output unlikely to help farmers

The latest production estimates released by the agriculture ministry indicate a remarkable across-the-board rebound in the farm sector in 2016-17 and stand in stark contrast to the previous two years, which witnessed back-to-back droughts. The output of foodgrain is reckoned to have swelled by over 8 per cent while that of pulses by 35 per cent and oilseeds by 25 per cent. The production of horticultural and livestock products, too, has scaled new heights. Horticultural output has, in fact, outstripped that of foodgrain for the fifth year in a row. There are two clear takeaways. One, these numbers signal that the agriculture sector’s growth, projected by the Central Statistics Office at 4.1 per cent, might be an underestimate — it could be close to 6 per cent. Moreover, they also discount the notion that demonetisation impacted agriculture adversely, although that does not mean that farmers have not faced any hardships due to it.

However, the effect of a bountiful harvest on prices of agricultural commodities, overall inflation and farm incomes is less straightforward. The prices of almost all commodities, barring staple cereals, have plunged to depths where they have begun to hurt the interests of the growers. The meltdown has been particularly notable in the case of pulses, most of which are selling at below the minimum support prices (MSPs), making them non-remunerative for farmers. Though vegetables are not covered under the MSP mechanism, their prices, too, have plummeted to levels where profitability has been eroded. Onions, for instance, are being traded in the main producing areas at rates well below their production cost. It would not be surprising if the growers cut down onion plantings in the next season and the output dips significantly to trigger another price spike. On the whole, therefore, while the surpluses-driven decline in agricultural prices might have brought food inflation down to the Reserve Bank of India’s comfort zone, it has deprived farmers of the potential gain. The final scenario, thus, is hardly conducive to raising farmers’ income and, as a consequence, sustaining agricultural growth or keeping food inflation under check. 

This, in turn, raises some concerns for policy. For instance, it seems bizarre that the government continues to encourage the import of several farm commodities despite the improvement in domestic production and fall in prices. Imports of pulses, which have already exceeded 6 million tonnes, against the normal 3-4 million tonnes a year, are still continuing. Huge quantities of wheat are also being shipped in, even though the domestic production is anticipated to be at an all-time high and the government is holding far in excess of the stipulated buffer stocking norms. Distress sales of even wheat cannot, therefore, be ruled out when the new crop hits the market in about a month, especially in areas where procurement agencies do not operate. This apart, the policymakers seem to be unmindful of the new-found need to liberalise the export of some farm products to stave off the free fall in prices. What is worse, even the ban on the futures trading of key farm goods and limits on stocks allowed to be held by traders – the panic-driven actions taken at the times of a supply crunch – are continuing. Such regressive curbs should go immediately.