Dr Bharat Jhunjhunwala
The Government is making many efforts to improve the lot of our farmers. Majority of our people are now living in the cities. It is necessary to make available food items to them at reasonable prices. Otherwise they will throw out the Government. The Government wants to do this but is shortsighted. It is focused on making the food items available cheap to the urban consumer. The farmer is not on the Government’s radar. But this policy is counterproductive and even urban people are not amused. Tur Dal prices shot up from Rs 100 per kilo in 2014 to Rs 200 in 2015. The farmer should be happy. He would get high prices. But he continues to undertake suicides. The consumers and the farmers are both unhappy.
The middle class is vocal. This class determines the mood of the nation and policies of the Government. This class wants cheap food, period. It cares not for the farmers or for the food security of the country. Policies of the Government are made to keep food prices low so that this class is happy. Thus the Government makes the farmers suffer. The Government bans exports when domestic prices are low so that the prices do not increase due to exports. Say, the price of wheat in the domestic market is Rs 20 per kilo whereas it is Rs 40 per kilo in the international market. The prices in domestic markets will rise to Rs 40 per kilo if the Government allows exports. Therefore, the Government bans exports to keep domestic prices low. Such a ban was imposed on exports of cotton in 2012. The farmer suffered while the middle class made merry. On the flip side, the Government makes imports when domestic prices are high such as those of Tur Dal in 2015. The price of imported Dal was about Rs 80 against Rs 200 in the domestic market. Imports led to a reduction in the domestic prices. Once again, the farmer is deprived of the high prices in the domestic market and the middle class makes merry. The farmer suffers doubly. He suffers when production is more because exports are banned. He suffers again when the production is less because imports are made. In the result, the farmer has no interest in increasing production. This is the true reason of the periodic increase in prices in various agricultural commodities. Needless to say, this policy also hits at our food security.
There is no free lunch. We have to choose between the farmers and the middle class. There will be recurrent shortages and our farmers will commit suicides if we keep farm prices low as presently. There will be adequate supply and the middle class will have to pay more if we keep farm prices high. The Government has chosen to kill the farmers and serve the middle class by keeping farm prices low.
The Government policies allegedly made for the farmer’s welfare have to be assessed in this backdrop. The Government believes it is possible to keep both the farmers and the middle class happy. To this end the Government wants to increase priority sector lending for agriculture, improve agricultural marketing infrastructure such as building cold storages; and increase competition in procurement and retailing by bringing in the organized sector. These policies are welcome and they may indeed lead to some lowering of the farm prices but they will not lead to an increase in production. The prices lowered due to concessional finance, more cold storages and distribution by organized sector will be captured by the middle class. The farmer’s sale price will decline in tandem and he will continue to commit suicides.
The Government has established a Price Stabilization Fund, initially for onions and potatoes. State Government can get interest free loans from the Center to buy and store these commodities and later sell in the market to control prices. If at all, this will reduce the manipulation of the market by the traders. This will not help the farmer. The State Government will continue to buy potatoes from the farmer at low prices. The Government also looks down on future trading. Idea is that this encourages speculation. The reality is exactly the opposite. Say, future trading is allowed in Tur Dal. The farmer would know that the price for next year delivery is high. He can plan to grow more of this commodity. The problem is not in future trading. The problem is that the Government is not proactive. The Government must set up a price prediction and information center so that the farmers are informed of the probable price movements. For example, the production of all pulses had declined to 17.2 million tons in 2015 against 19.2 million tons in 2014. Our consumption is about 27 million tons per year. We have a running shortage that was clearly getting worse. The price of Tur Dal was Rs 100 per kilo in 2014. It could easily be predicted that the price will increase in 2015. The Government could have announced a Minimum Support Price of, say, Rs 130 per kilo and publicized it widely. The farmers could also be informed of the likely shortage of rainfall. The farmers would the have planted more pulses of drought resistant varieties and there would be no shortage this year. But it takes courage to increase the price of Tur Dal from Rs 100 to Rs 130. It is this reluctance to increase prices that has led to the price shooting up to R 200 a kilo.
The price of basic agricultural produce like rice and wheat is likely to decline in future because the demand for these commodities is not increasing much while production is increasing continuously due to the introduction of new technologies and expansion of the area under cultivation. This will continue to impact our farmers adversely. The way out is to help our farmers to diversify their crops. Netherlands is a huge supplier of tulips to entire Europe. We can similarly supply tulips, gladiolus and roses; and apples and potatoes to the world. We have been able to increase production of wheat and rice mainly because of the Minimum Support Price program. It is necessary bring high value export oriented crops under this program. The Metals and Minerals Trading Corporation of India, a Government company, imported Tur Dal last year. Instead it must be given the mandate of exporting high value agricultural produce.
(The author was formerly Professor of Economics at IIM Bengaluru)
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