Challenge for small scale farmers -ForumIAS Blog

Context:

Government procurement at the minimum support prices is supposed to protect the farmers. But it mainly benefits the large traders.

Introduction:

The rising frequency of farmer’s agitations in different parts of the country like Tamil Nadu, Maharashtra, Madhya Pradesh and elsewhere and the high incidence of farmer’s suicides are symptoms of deep malaise in rural India.

What is Minimum Support Price?

Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops. Minimum Support Price is an important part of India’s agricultural price policy.
The MSP helps to incentivize the farmers and thus ensures adequate food grains production in the country. It supports the food security programme through Public Distribution System (PDS) and other programmes.

When the MSP is announced?

The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices(CACP), support prices generally affect farmer’s decision indirectly, regarding land allocation to crops, quantity of the crops to be produced etc. Objectives of MSP:

Government’s agricultural policy has three important components –the MSP, Buffer Stocks and issue of food grains through the PDS. MSP helps to procure adequate food grains through FCI, state agencies and cooperatives. MSP is price fixed by Government of India to protect the farmers against excessive fall in price during bumper production years.
It is a guarantee price for farmer’s produce from the government.
The objective of the MSP is to ensure remunerative prices to the growers by encouraging higher investment and production.
It also aims to bring a balanced realization of sufficient food production and consumption needs at the same ensuring adequate and affordable food grains to all the people.
Assure remunerative and relatively stable price environment for the farmers by inducing them to increase production and thereby augment the availability of food grains.
Evolve a production pattern in line with overall needs of the economy.

Who declares and who prepares MSP?

The Cabinet Committee on Economic Affairs (CCEA), Government of India, determines the Minimum Support price of various agricultural commodities in India based on the recommendations of the Commission for Agricultural Cost and Prices (CACP). How many commodities are covered under the MSP?

At present, the MSP covers 24 crops that includes seven cereals (paddy, wheat, barley, jowar, bajra, maize and ragi), five pulses (gram, arhar/ tur, moong, urad and lentil), eight oilseeds (groundnut, rapeseed/mustared, toria, soyabean, sunflower seed, sesamum, safflower seed, and nigerseed), copra, raw cotton, raw jute and Virginia flu cured (VFC) tobacco.
A counterpart of the MSP is the Market Intervention Scheme (MIS), under which the state government procures perishable commodities like vegetable items.

Impact of MSP:

Impact on Farmer’s:

MSP gives guarantee to the farmers about the price of crops.
MSP act as regulator of type of crops- i.e farmers tend to sow those crops which have higher MSPs
Higher MSP results in more income to farmers.
However, such higher MSP are politically motivated and populist in nature, therefore, in long run they harm farmers by depriving soil health, deteriorating ground water level
Lack of innovation and technological advancements in agricultural practices.
MSP have led to land degradation in certain areas like Punjab as farmers have adopted ecologically unsustainable practices due to subsidies provided.
Lower profits for farmers growing crops like pulses as MSP has been kept quiet low
For food grains like rice and wheat, government procurement at the minimum support price is supposed to protect the farmer. But it mainly benefits the large traders who sell grains to the government.
Small farmers typically do not have enough marketable surpluses to justify the cost of transporting the crop to government corporations in the towns.
Their crops usually sold to traders at rock bottom post-harvest prices in the village itself or the nearest mandi.

Impact on consumers:

Higher MSP for certain crops will result in scarcity of other crops, thus food inflation or non availability. This could pose a problem of food security.
Government insures adequate “issue prices” for various crops, however, due to high MSP and lower issue prices, the financial health of exchequer comes under strain.
MSP produces a distortion in the market and cause inflation
It also creates heartburn in consumer as they have to pay more price than global price for food.

Causes of agrarian crisis in India:

The fundamental root of the agrarian crisis is the intense population pressure on land.
Demographic pressure has pushed down the land and man ratio to less than 0.2 hectares of cultivable land per head of rural population. It has also progressively pushed down the size structure of landholdings.
Around 83% of rural households are either entirely landless or own less than 1 hectare of land.
Another 14% own less than 3 hectares of land.
Less than 0.25 of rural households own more than 10 hectares of land and a minuscule 0.01% own over 20 hectares.
Around 80% of rural households are landless or marginal farmer.
Land fragmentation is another reason for agrarian crisis.
Another reason for the crisis is the shortage of money available to farmers.
Landless or marginal farmers lack the resources to either buy or lease more land or invest in farm infrastructure like irrigation, power, farm machinery, etc to compensate for the scarcity of land.
The majority of small farmers are dependent on the rains. A weak monsoon or even a delayed monsoon means a significant loss of output.
The weak soil fertility, pests and plant diseases also affects agrarian economy.
Another cause is price risk. Even a good harvest can be bad news for the small farmer, placing them at the mercy of the trader.
The highly distorted and exploitative product market is the second most important factor responsible for the misery of the small farmer.
For food grains like rice and wheat, government procurement at the minimum support price is supposed to protect the farmer. But it mainly benefits the large traders who sell grains to the government. Small farmers typically do not have enough marketable surpluses to justify the cost of transporting the crop to government corporations in the towns.
Their crops usually sold to traders at rock bottom post-harvest prices in the village itself or the nearest mandi.
In case of crops other than rice and wheat, Agricultural Produce Market Committees (APMCs), which were supposed to protect the farmer, have had the opposite effect.
Farmers have to sell their produce through auctions in regulated markets controlled by cartels of licensed trader, whose licences give them oligopolistic market power. These cartels fix low purchase prices, extract large commissions, delay payment, etc.
Despite subsidies on power, fertilizers, etc, input costs have been rising faster than sale prices, further squeezing the meager income of the small farmers and driving them into debt.
About 52% of agricultural households are estimated to be in debt.
The rural youth, especially young, males, are migrating to the towns and cities for a better future.
Landless or marginal farmers lack the resources to either buy or lease more land or invest in farm infrastructure.

Solutions for agrarian crisis:

Increasing land scarcity and the marginalization of farmers cannot be easily reversed. But there is different ways of organizing agriculture to contain the adverse consequences of such marginalization.

Cooperative Farming can be adopted in order to tackle agrarian crisis in India.
Easy access to credit
The advantages of aggregating small farms into large, voluntary, cooperatives include greater capacity to undertake lumpy investment in irrigation and farm machinery, more efficient farming practices, greater bargaining power and better terms in the purchase or leasing of land, and sale of produce.
Checks and penalties against free riding, and group control over the fair distribution of returns.
The Radhakrishna Committee Report on Credit Related Issues under the Swarnjayanti Gram Swarozgar Yojana, among other, has analysed in detail the working of the highly successful Kudumbashree programme in Kerela and the Society for Elimination of Rural Poverty programme in Andhra Pradesh.
The Radhakrishna Committee has noted the existence of similar embryonic initiatives in other states such as Tamil Nadu, Orissa, Uttar Pradesh and several states in the North-East, among others.

Conclusion:

Although, Agriculture now accounts for less than 15% of gross domestic product (GDP), it is still the main source of livelihood for nearly half of our population. With over 1.3 billion mouths to feed, imports will not solve problem if there is a severe droughts and food shortage. In order to achieve desirable and fruitful results government need to maintain a flexible approach. There are many lessons of successful cooperative farming in India and abroad that will have to be learned for the institutional of our small farmer economy into cooperative farming system on a national scale to address the agrarian crisis. Although, the Indian government’s initiative of minimum support price scheme is a welcome step in this direction but the present system needs reforms for better efficiency. There have been suggestions like moving from price based support to income based support to farmers.