GS Advance Program for UPSC Mains 2025, Cohort - 1 Starts from 24th October 2024 Click Here for more information
Context
Agricultural policy should look to address the problem of severe price fluctuations
Cycle of boom and bust
There appears to be no end in sight to the cycle of boom and bust in the prices of agricultural goods
Example: Potato prices as low as under a rupee, farmers in distress
Last year: Red Chilli, tur dal and tomato
Cobweb phenomenon
The sharp swing in prices has been explained by the Cobweb phenomenon
- Farmers tend to increase the production of certain crops in response to their high prices during the previous season, which in turn leads to a supply glut (excess) that causes prices to crash
- The cycle repeats each passing year, with the lag between price and production causing a huge mismatch between supply and demand
Slowdown in economy
The present fall in potato prices comes against the backdrop of a slowdown in the rural economy.
Effects:
The Politics of populism
Given the humanitarian and political costs of agricultural distress, particularly in a year when many big States go to the polls, local governments could turn towards populism to satisfy their rural voter base
MSPs, loan waivers etc.
This could come in the form of fiscal measures such as farm loan waivers, a higher minimum support price for farm produce, or some combination of the two
Rural economy focused budget
- The next Union budget may well be focussed on the rural economy through fiscal measures
But permanent solution needed
- Such relief measures that temporarily ease the pain on farmers, however, will fail to make a significant difference to their lives in the long run
- Any permanent solution to the problem of agricultural distress will have to deal with the challenge of price fluctuations
The Reason for boom and bust cycles
The boom-and-bust cycle is the result of a broken supply chain that is over-regulated
No safeguard against price fluctuations
In the absence of a robust market for buying and selling forward-looking contracts, farmers are left to fend for themselves against severe fluctuations
Cartels dominate
In addition, the domination of the wholesale market by cartels prevents farmers from receiving a fair price even when their produce is sold at much higher rates to consumers
Structural changes needed not adhoc
The government must resolve to address these structural issues, and not limit itself to ad hoc policy measures in fire fighting mode. There is a need to give farmers not just a better, but also more stable, return on their crops.