It is said that our Policy framework has been based on the
premise that the Agriculture /farmers need to be “subsidized₁” while the
Industry must be “incentivized2”.
In reality, however the “Farmers have been subsidizing the
rest of us, indeed the economy” wrote M S Swaminathan in his report on Indian
Agriculture in 2006, 12 years ago. The
farmers are “Producers” who have almost nil control over the pricing of his/her
produce.
It must be said that the extant Agro-Policy stance has resulted
in many Agro-revolutions; namely, Green Revolution- Cereals and pulses, White
Revolution-Milk, Golden Revolution-fruits and vegetables and Blue Revolution-Fisheries
etc. We have managed to improve the nutrition level of citizens (per capita
basis) by many multiples, even as the population has grown four folds.
We have over the last 70 years travelled a long way from
being a “PL 480 dependent” economy; our Agro-exports are now ~$40Billions, same
as our centuries old, haloed Textile Industry.
The shrinking land holding sizes and poor investment in rural
areas has increased the farmer /rural folk distress. Almost 70% of the
households are landless or cultivate marginal holdings. We resort to frequent
“farm loan waivers” and subsidies that are not liked by many influential
sections of our society.
The unshackling of the “animal spirits” of our Farmers and
Agriculture has been held up by the fear of food inflation that forms a good
part of household expenses, particularly of the vocal and well organized urban
poor. The per capita NVA for 2011-12 at
current basic prices (base year 2011-12) is ₹ 1,01,313 for the urban areas and
₹ 40,772 for the rural areas," as per Finance Minister Arun Jaitley. The
differential is 2.5 times in favor of Urban areas now (It must be noted that
averages hide many issues).
The average surplus in rural India is ₹ 1413/month with ₹ 95/month
being the lowest in Andhra. (NAFIS 2016-17 –Aug 2018). And indebtedness is
₹1.03 Lakh per rural household. 82.5% of Income is accounted for by Expenditure.
The resulting savings rate of 17.5% is obviously inadequate to cover for
“business risks” of Agriculture and allied rural activities, leading to chronic
indebtedness and frequent need for “farm loan waivers.
Our Agro-economic policies need an urgent re-set/re-
orientation. Agriculture is also a “business” and this vital economic activity
must be adequately supported, “incentivized” to feed our burgeoning numbers.
The Price: Terms of Trade
Price is the central mechanism by which
the value transfer takes place between parties and is central to improving the
terms of trade and thereby social justice.
The GoI in June 2017, announced the Minimum Support Prices
(MSP) based on recommendations by National Commission on Farmers (NCF) headed
by M S Swaminathan; a Cost Plus formula. The Committee recommended the MSP be
A2 (direct –out-of-pocket) +FL (family’s labor) + C2 (Indirect costs) marked up
by 50%. However the GoI very quietly omitted the C2 and arrived at an MSP
marginally higher than the existing ones, not disturbing the Terms of Trade
(ToT) between Rural and urban economies.
Re-Set the Pricing Mechanisms
The cost
plus pricing (MSP) assumes that “all wheat” is same and therefore is
inefficient mode of value realization. No “businessman” worth his salt uses Cost
Plus to price his products, if he can.
The Amul model
of transferring value to its constituent dairy farmers is a golden example to
follow that was even recognized by our PM while inaugurating one of its
value-adding plants in Anand, Gujrat. The member dairy farmers receive 70%+ of
the street price of Milk thru price, bonuses and dividends. And the dairy
farmers of India have returned the favors by making India the largest Milk
–Producer in the World, for last 20 years.
Incidentally, this Amul Model has been followed by Kenyan
Tea Industry to become the largest exporter of Tea in the World, in a span of
25 years.
Surely, the core principle of remunerating the farmers in
relation to Street Price is transferrable to ALL agro-crops.
The Core Objective:
Let’s set up Agro-pricing mechanism that ensures farmers/ producers get at
least 50% of the “Street Price” in
the nearest A or B class town.
Differentiation: The current price setting mechanism does
not adequately account for the quality, grade or market conditions. Every
district from Kanyakumari to Kashmir must be producing different commodities,
as per its agro-climate and different grades /types /genus, and at different
times of the year; The Street Price
would vary /fluctuate accordingly, in the neighborhood areas.
Determining Street Prices:
Therefore, the District
Administrator (renamed DM or DC, to change the colonial –era mind-set of the
“collector”) heading a district level Agro-Experts and stakeholders’ committee
(with linkages to and taking inputs from CACP and Min of Agriculture, GoI &
Farmers’ Producer Organizations, and Supermarkets, NGOs etc.) in their monthly
meeting deliberate on the upcoming crops, grades and volumes in the benchmarked
A & B towns.
The committee then fixes the buying rate from Farmers for the next
month that is at least 50%-70% of “Street
Price” (SP). The CACP and the GoI
declare the seasonal (A2+FL+C2) costs. Let’s add only 25% (not 50%) to arrive
at the Cost+ price (called CP).
The District Committee sets the Buying Rate (Dist BR) for the month at greater of the two, for different
crops/produce and its grades, coming to Mandis that month.
The farmer’s recovery %age may be increased thru buying
price, bonuses and dividends etc. over time.
There must be a district level data publishing system and an
index can be developed to be the basis of a competition between districts.
Payments to Farmers:
Inordinate
delays in payments for the produce sold are major factor in Farmer distress, as
it forces him to borrow for consumption which is very difficult to service –
Farmer distress.
Let’s trade the 25% mark-up foregone as per MS Swaminathan
formula for this very important issue i.e. Payments: On-the-Spot payment.
All incoming produce must be bought at the “Dist BR” by ALL agents, Govt or Private,
on arrival. The Buyer will issue a Warehouse receipt that the farmer takes to
the Bank at the Mandi. Farmer gets the Credit (or cash) and the Buyers Working
Capital Limits/accounts are debited.
Having realized a good price and received cash, he is not
compelled to borrow for consumption. It may be noted that the cash- cycle of
farmers is more than 3 months, from buying inputs to receiving cash for
output. (This needs to be mitigated in
the Next Steps – FPOs and Advances
from buying agencies against contract to supply produce)
Buying Agencies:
Banks will
have an active role in this process. Banks will lend to all buying agents
including Govt agencies. The Collaterals will be stronger: The crops purchased (warehouse receipts) and
assets of the agents and guarantees from Govt agencies will be held by banks.
All Mandis (APMC) have many godowns and storage facilities
Banks will send a daily statement of purchases to the DA
office / Agri-committee, validating the purchase price being at or above “Dist.BP”
and associated control data.
Selling / Offloading:
The
stock-holding agencies and the marketing chain have 100% (SP less BR) mark-up
to manage their costs and profits. The Mandis may conduct weekly auctions to
which the local dealers and exporters can buy their needs. Such buyers, who are
market savvy, can also be financed by banks.
Now that the financing costs are to the Arhtiya /Agencies
account the ‘Velocity of Supply chain” will increase, prices will tend to rise.
The countervailing pressure by competing sellers will ensure some stability.
And, above all, wastage in Godowns will not be in the interest of market
agents. (Govt agencies may be given a corpus +Bank limits within which they
must operate profitably. And send monthly reports to DA –Committee and
controlling agencies.)
Investments in Rural Industries:
The market
pressures for usage of / conversion of all residues/by-products will rise to
contain overall costs of these market entities.
Policies to incentivize such usage /production will set in motion a
virtuous cycle for ago-processing industries and rural employment.
This will transmit strong signal back to buying agencies and
to farmers on the quantity and quality to be produced next season.
Now, Markets control the Export /import of agri-commodities
with the Govt agencies playing an oversight role and intervene in emergencies-
much like Market Regulators of any Industry.
_______________________________________________
Notes:
1 “Subsidy” along with “reservation” – the urban
middle classes feel that “we” are giving away as “dole” to lower classes what
is not their due.
2 Incentive is given to someone (obviously of
upper castes), who deserves it, and will return the favor in spades, with a positive
outcome.
