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An Expert Explains: Farm protests, big picture

The protest by thousands of farmers at Delhi’s borders have brought to focus a range of issues in agriculture in India. One of the country’s leading policy experts provides a primer on some important questions.

The three Acts passed by Parliament do not touch the sugar sector. In Punjab, sugar is grown only on 1.2% of gross cropped area. So they do not benefit from policies favouring sugarcane.

Are wheat and rice the only crops for which farmers receive MSP?

While the government declares MSP for 23 crops, only wheat and paddy (rice) are procured in large quantities as they are required to meet the requirement of PDS, which is about 65 million tonnes.

Is it only the farmers of Punjab and Haryana who benefit from procurement?

In 2019-20, Punjab procured 92.3% of its rice production. Haryana procured 89.2%, while Telangana procured 102% of its production. In the case of wheat, Punjab procured 72% of its production this year, while Haryana and MP procured 62% and 66% respectively.

Which other crops are protected by the government through various measures?

Since 2015-16, the government has been procuring larger quantities of pulses through National Agricultural Cooperative Marketing Federation of India (NAFED) and Small Farmers’ Agri-business Consortium (SFAC) for maintaining a buffer stock of 2 million tonnes. Cotton is procured by Cotton Corporation of India, while groundnut is procured in some states like Gujarat.

Some horticultural products are also procured in a sporadic manner, e.g., apples in J&K in 2019-20 and onion in Maharashtra almost every year.

Sugarcane is not procured by the government but its farmers are assured of Fair and Remunerative Price (FRP) paid by sugar mills. In some states, the government declares State Advised Price which is higher than the FRP.

Jute is another crop protected by the government even though it is not directly procured. Under Jute Packaging Material (JPM) Act, 1987, the Government has decided that 100% of food grains and 20% of sugar shall be mandatorily packed in diversified jute bags.

If horticulture and dairy are more profitable, why are farmers not giving up MSP crops and switching to these?

Milk producers and farmers growing fruits and vegetables are equally prone to fluctuation in market prices. Except for dairy cooperatives in Gujarat, the milk federations are funded by state governments through various means.

What are the subsidies given to agriculture in India?

Farmers in India are provided support on both the input and output side. On the input side, an average Indian farmer receives subsidies on fertilisers, seeds, farm machinery and equipment, electricity, logistics, etc. On the output side, the MSP regime offers support in states having robust procurement infrastructure. However, small and marginal farmers are able to get only a small amount of these subsidies.

A number of subsidies meant for agriculture also flow to businesses, e.g., grant given to food processing units and cold chain projects.

Then why is it said that Indian farmer are net taxed?

As per the ICRIER-OECD report, despite the plethora of schemes run to support and subsidise Indian farmers, because of regressive policies on the marketing side (both domestic and international trade policies) and the deficit of basic infrastructure for storage, transportation etc., Indian farmers suffered net losses and thus emerged to be net taxed despite receiving subsidies. Between 2014 and 2016, Indian farmers were on average net taxed to the tune of 6%.

What is the level of agricultural subsidies in other countries?

As per the same ICRIER-OECD report, while Indian farmers were net taxed (i.e., received negative support), farmers in the first world countries of Norway, Switzerland, Japan, Korea, United States, and Australia received the highest positive support. Even farmers in Indonesia received much higher positive support. Ukraine was another country like India that emerged to be taxing its farmers.

What are the subsidies enjoyed by the middle classes and the rich? Are other sectors of the economy also subsidised?

The Economic Survey of 2014-15 devoted a section to subsidies enjoyed by the middle classes. These include higher interest rates on savings, income tax exemptions, railways, electricity, LPG, gold, and aviation turbine fuel (ATF). Higher education in government institutions is highly subsidised. The government also provides protection to industry by way of productivity-linked incentive schemes, high import tariffs, and regulatory tweaks.

Why are farmers agitating when the government says the new laws will help them? And why are Punjab farmers at the forefront of the agitation?

The farmers of Punjab, Haryana and other states that have robust APMC mandis and an efficient system of procurement are more fearful of the three laws. They fear that these laws signal the beginning of the end of open-ended procurement of wheat and paddy. They fear that the success of these states in creating the infrastructure for procurement may now become the reason for withdrawal of support of the Centre.

Can farming be left entirely to market forces?

Farmers cannot be left entirely to the mercy of market forces. Farmers growing non-MSP crops, especially fruits and vegetables, have experienced huge volatility in prices over the years. The price deficiency payment scheme did not succeed in MP. So, direct income support is the only way to shield them from suffering huge losses. A predictable trade policy can also help in attracting private investment in the agriculture chain which can act as a shield against volatility. Option contracts through FPOs can also bring stability, but most farmers are not educated enough to deal with future markets, so they need support and guidance from the government.

Can procurement be abolished? What will happen to PDS then?

The procurement system in India serves two purposes — purchases on MSP supports farmers, and subsidised distribution of procured grains under PDS supports India’s economically vulnerable. As per recent National Family Health Survey (NFHS) data on malnourishment in India, malnutrition indicators for women and children have worsened over the years. With this in focus, the PDS system is likely to stay in the coming years. But the government will do well to prepare a 10-year roadmap of PDS to 2030 so that only the required quantities of wheat and rice are procured.

Is there a genuine fear of higher consumer prices due to changes in the Essential Commodities Act and the entry of large corporates in the food business through e-commerce and modern retail?

In case of high-value agricultural commodities in which India is in deficit or has only marginal surpluses (like pulses), there is a genuine fear of stocking by corporates, especially those which are in modern retail and e-commerce. The government must make it compulsory that they keep their stock in Warehousing Development and Regulatory Authority-registered warehouses only, so that the private stocks are known to the government.

What role should state governments play in getting farmers fair prices?

If India has to move away from procurement-based support, at present restricted to certain crops only, a more attractive income support scheme has to be conceived. However, it has to be coupled with much higher investment, both public and private, in agri-infrastructure. The Rashtriya Krishi Vikas Yojana (RKVY) incentivised the states, which increased their expenditure on agriculture. The Centre’s assistance for such states should be higher.

Several Decentralised Procurement (DCP) states like Odisha and Chhattisgarh claim that they incur losses in procurement operations and these are not fully reimbursed by the Centre. However, precise data on losses incurred by them is not in the public domain.

What should the government do over the next five years to make Indian agriculture more competitive?

Several states of India have already achieved productivity levels seen in developed countries. But there are also states that have low productivity. Focused research on crops grown in low-productivity states can deliver better seeds, which can withstand the challenge of higher temperature due to climate change. Drought-tolerant varieties of seeds are also needed for crops grown in rain-fed areas. Good quality seeds can enhance productivity by 15-20%. Recent successes in higher productivity vegetables and maize prove this.

In 2018, a working group of Niti Aayog, chaired by Dr Parmod Kumar, published a study, ‘Demand supply projections towards 2033’, which pointed out that India will still have surplus in wheat and rice. In coarse grains the domestic requirement will be largely met, but there will be a deficit of 5-7 million tonnes in pulses. A massive deficit of more than 50 million tonnes is projected for oilseeds. To meet this gap in oilseeds, India will need the best agricultural practices of Punjab and Haryana

 

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