Kochi: An economist and vice-chairman of the Kerala plan panel has asked for government help, in the form of support prices, for cash crops “exposed to world market fluctuations”. A government agency should buy crops such as rubber, pepper, coffee, cardamom and coconut, and various government bodies such as the rubber, spices, coffee and tea boards should act as marketing organizations, said Prabhat Patnaik, in a recent note to minister of state for commerce Jairam Ramesh.
“No matter how rundown the procurement system that exists in the country may have got over time, no similar mechanism exists for cash crops, which are now exposed to world market fluctuations,” Patnaik said in the note. In its draft report, the Rangachary committee that looked into the problems of the plantation sector, has suggested a price stabilization fund that will do just this—insulate planters from volatility in the international commodities trade.
Kerala’s example with pepper suggests that schemes such as the one put forth by Patnaik could work.
Protective shield: The panel wants five-year procurement contracts, based on the average of global prices of the commodities.
Two years back, the Kerala State Co-operative Marketing Federation stepped in to procure pepper directly from farmers at Rs75 a kg when the prices fell to around Rs50-55. It procured nearly 5,000 tonnes, waited for prices to rise, and sold it in small quantities at prices as high as Rs100 a kg. It is still left with nearly 800 tonnes of the crop it acquired.
According to A.K. Varma, managing director, Kerala State Co-operative Marketing Federation, the transparent and scientific manner of procurement instilled confidence in pepper growers. And despite the storage costs and interest paid to banks, the federation will not make any loss, Varma said. It is willing to take up such initiatives in future, he added.
Indian Rubber Growers Association general secretary and National Agricultural Cooperative Marketing Federation of India Ltd (Nafed) director Siby Monipilly said such procurement schemes help in creating confidence among the growers and encourage them to continue cultivation.
In his note, Patnaik said various insurance schemes have been tried from time to time to protect the farmers, but they have not succeeded. Growers show enthusiasm for such schemes when prices are low, but lose interest when prices rise. According to Patnaik, forward markets generally destabilize the prices as they are ruled by speculators. What is needed is a price-support scheme for cash crops, he said in his note.
Unlike forward contracts in commodity markets, the procurement contract entails actual purchases. Besides, it covers the cost of production and is not driven by speculation.
The price support scheme, said Patnaik, should be based on the average of global prices for the commodity over a five-year period. In some cases, he added, the government will have to raise import tariffs or introduce export subsidies to protect the farmers.
Patnaik also said in his note that the government could enter into a five-year contract with growers to procure crops; the growers, he added, could sell a specified amount each year. The contracts should be voluntary, enforceable through some suitable machinery, and not entail any obligation to buy or sell anything in excess of the pre-contracted amount.
He claimed that such procurement contracts arrangements would protect the interest of the buying agencies too: the losses they make in years when the world price is lower than the purchase price would be offset by the gains in some other years when world prices rule higher.
Nafed’s Monippilly said rubber growers are generally aware of the global prices, but this is not the case with growers of other commodities such as pepper, cardamom and coconut. Leading pepper trader Kishor Shamji, who was also the former president of the India Pepper and Spice Trade Association, India’s first pepper futures exchange, said that while the pepper procurement scheme in 2005 in Kerala was a success, such schemes cannot solve the problem. He asked for a control in imports.