Can govt really pay the farmer much better prices promised in the Budget?

Niti Aayog is evaluating several models; how effective they will turn out to be is another question

How will the government implement its Budget promise to pay farmers one and a half times the cost of their production for all crops? Approving desk thumps greeted the announcement, but MPs from the National Democratic Alliance may not have been aware of the challenges embedded in this commitment. Although the Centre routinely announces a minimum support price (MSP) for at least 23 crops, the procurement infrastructure exists only for wheat and rice via the Food Corporation of India (FCI).

Replicating this cumbersome process for all crops at short notice is impossible. So how will the government make good on this key promise for rural regeneration as the general elections draw near?

Several models are currently under consideration, and Niti Aayog, the government’s think tank, is expected to form a panel soon to analyse them.

The best known is the Madhya Pradesh’s Price Deficiency Payment Scheme (Bhawaantar Bhugtan Yojana). The scheme, which was launched after massive rural agitations in the state in June 2017 that led to killing of six farmers in police firing in Mandsaur district in western Madhya Pradesh, ensures a minimum price to all registered farmers beyond the state-mandated MSP.

The return, however, is capped up to a certain limit, called the modal or model price. The modal price is determined by averaging the price prevailing in nearby mandis during the months in which the programme runs.

The money is paid directly into the bank account of all registered farmers within a specified period of the produce being sold in the mandis. So far, state officials estimate that Rs 15 billion has been distributed among over 1.1 million farmers.  The scheme, which was launched in 2017 kharif season for eight crops, has been extended to cover the 2018 rabi season.

farmers graph

In Haryana, a similar scheme called Bhawaantar Bharpai Yojana was launched on January 1, but only for perishable commodities such as onion, potato and tomatoes.

How well has the Madhya Pradesh model worked? One problem is the manner in which artiyas (traders) sought to game the system by forming cartels to suppress prices. This only aggravated the distress among those who hadn’t registered for the scheme.

Also, the benefits have been uneven. In a recent article in the Indian Express, agriculture economist Ashok Gulati and former agriculture secretary Siraj Hussain wrote that only 32 per cent of urad (black gram) production and 19 per cent of soybean enjoyed the yojana’s benefits.

But the productivity gains — certainly for urad — appear to be dramatic. Data shows that between October and December 2017, urad arrivals in  mandis across Madhya Pradesh was around 672,918 tonnes, over four times more than the arrival same period last year.

Total urad production in the state during 2017 was around 1.8 million tonnes, almost 70 per cent more than in 2016. This implies that in 2017, not only did urad productivity in Madhya Pradesh hit a new record of almost 990 kg per hectare, from 906 kg per hectare in 2016, but the total market arrivals as a percentage of production also increased to 38 per cent compared to 18.28 per cent in 2016.

Clearly, Madhya Pradesh’s urad farmers had achieved something unprecedented. Scientists said in ideal conditions, urad production can reach 1.2 tonnes per hectare, so the 2017 jump in yield isn’t unusual. “Such high levels of productivity have been achieved in our test fields,” said NP Singh, director of Indian Institute of Pulses Research (IIPR).

For soybean, the story is open to doubt. Data showed that between October and December 2017, the total arrival in the state mandis was around 2.16 million tonnes, around 30 per cent more than in the previous year. But the area sown under soybean in 2017 was around 500,000 hectares less than in 2016, and production was also lower.  

Farmers point out that soybean prices should have been on the higher side due to low production; instead, prices started falling as soon as the scheme’s sale window opened in October and, interestingly, jumped sharply after 1 January 2018, when the Bhawaantar Bhugtan Yojana closed.

This anomaly has fuelled speculation that traders might have milked the scheme by buying the crop at low prices and then seeking to clear inventories by not pushing up prices. “Traders have simply misused the scheme to make super-normal profits,” G S Kaushal, a former director of agriculture in Madhya Pradesh, told Business Standard.

There have been divergent views on the Madhya Pradesh model in the Union agriculture ministry, too. One section alleges that it suppresses market sentiment and restricts the spirit of competitiveness, and potential profitability.

Another model that the Centre is considering is giving state governments freedom to intervene when prices fall, with the Centre bearing a proportion of the expenditure (up to 40 per cent of MSP). The state will be responsible for procurement, storage and disposal of farm commodities except wheat and rice (which remains under FCI).

Called the Market Assurance Scheme (MAS), it will amalgamate all the existing such programmes run by the Centre and enable quicker intervention by states. An initial corpus of Rs 5 billion is being proposed.

Critics say the model offloads the entire burden of assisting farmers to the states. But Mahendra Dev, vice-chairman of Indira Gandhi Institute of Development Research, said the option of giving states the freedom to purchase any commodity it wants to help farmers during distress and having the Centre participate in some manner allows for quick interventions.

The third model is the Telangana government’s experiment of giving farmers a cash input ahead of the sowing season based on land holding. This approach, however, is essentially an input subsidy scheme, which does not assure income, which the other models seek to achieve.

Different states are also exploring their own options. Maharashtra, for instance, is trying to make the Agriculture Produce Market Committe more accountable towards the realisation of the MSP, but only for products of “fair and average quality,” whatever that might mean.  

Karnataka is providing an interest subvention over and above what the Centre provides, while Odisha has started procuring millet for midday meals for children. Uttar Pradesh, too, is working on an action plan for doubling farmers’ income.  But are any of these truly effective? Over to Niti Aayog.