Removing the roots of farmers’ distress

Removing the roots of farmers’ distress

News: The article forwards some suggestions for addressing the problem of farm distress.

Facts:

• Agrarian distress is mainly a result of low agricultural prices and poor farm incomes.The CPI shows that the rise in prices for agriculture was much lower than general inflation in recent years.
• Market prices for several agricultural commodities have been lower than those of minimum support prices (MSP).
• Low productivity in agriculture (due to declining average size of farm holdings) and related supply side factors are equally distressing for farmers.
• More than 60% of irrigation water is consumed by two crops: rice and sugar cane. India uses upto three times the water used to produce one tonne of grain in countries such as Brazil, China and the U.S.
• The average size of farm holdings declined from 2.3 hectares in 1970-71 to 1.08 hectares in 2015-16. The share of small and marginal farmers increased from 70% in 1980-81 to 86% in 2015-16.

Solutions:

• When output increases well beyond the market demand, market prices decline. Hence, it is the success in increasing production that has resulted in this adverse consequence.
• ‘Price deficiency compensation’ is an income support scheme (eg. Rythu Bandhu Scheme of Telangana and KALIA scheme of Odisha) which amounts to paying the difference between market price and the MSP.
• One more method is the ‘open procurement system’ as followed in the case of rice and wheat, where procurement is open ended at the MSP.
• A third option is ‘limited procurement’. Under this scheme, government will procure the ‘excess’ not all the produce, leaving the normal production to enter the market at a remunerative price. Thus, procurement will continue until the market price rises to touch the MSP.
• The government can sell the procured grain in later years or use them in welfare programmes.
• Technology can help to reduce lacunae in productivity and ‘yield gaps’ in agriculture.
• Fragmentation of land could be addressed by policies that promote compulsory consolidation of land holdings alongside land development activities.
• A sustainable solution is market reforms to enable better price discovery combined with long-term trade policies favourable to exports.

Raising the MSP, price deficiency payments or income support schemes can only be a partial solution to the problem of providing remunerative returns to farmers. The creation of a competitive, stable and unified national market is needed for farmers to get better prices.