Last week, thousands of farmers protested against the collapse in crop prices and demanding loan waivers. How do you view these protests?
In the last couple of years, prices of most agriculture commodities during the harvest season have ruled lower than the minimum support prices (MSP)—there is no dispute regarding that. But if you look at the historical trend, it shows even in the past, prices have gone below MSP, but this time, the number of commodities whose prices are below MSP is very very large—pulses, oilseeds and coarse cereals like bajra and maize. The question is, why this year? Global prices are so depressed that today, wheat in the international market is selling at Rs1,100 per quintal and we have an MSP of Rs1,700. Similarly, soybean is selling for Rs2,600 per quintal in international market (the MSP is Rs3,050 per quintal). Now, in crops where there is no effective procurement, domestic prices are very close to international prices. Also, due to a stronger rupee, there is a significant transmission of low international prices to domestic prices. The bumper harvest of the past two years have also contributed to the low prices. I agree with the anger of the farmer, but at the same time, prices of non-MSP crops like vegetables and fruits are quite high.
So, low crop prices prompted the centre to reverse trade policies like allowing exports of pulses and raising import duties on oilseeds?
Precisely... the immediate measure that the centre could take were changes to trade policy. Three measures were taken very consciously to lift pulse prices—50% import duty on yellow peas as the landed price of imports were as low as Rs1,800 per quintal; opening exports of all varieties and removing the Essential Commodities Act. Whatever ammunition was there with the central government, we did it. (For the) same reason, we hiked the tariff on palm oil and soybean... if these measures do not result in an increase in farm harvest price, then I will say something is wrong with the markets.
Madhya Pradesh is implementing a scheme to compensate farmers when they sell at lower than MSP but farmers say trader cartels are bringing down mandi prices.
This situation is being monitored by the state government daily. The preliminary results for soybean show no evidence of collusion among traders or between farmers and traders. We have data for individual farmers who opted for the Bhavantar Bhugtan Yojana and those who did not sell under the scheme received a lower average price. But if such collusion is happening (in other crops) we have to address it. I maintain that things are going terribly wrong in the primary agriculture markets, and that is why we are repeatedly emphasizing to go for market reforms.
Recent studies have shown that, for instance in case of Karnataka, there is one big trader in one big market who dictates what will be the price. We need to reform agriculture markets in true spirit and invite organized capital so that those local collusions are broken. I am surprised—what is preventing state governments to allow direct purchase of produce by private players from farmers?
Some months back, farmers in Haryana were dumping potatoes by the roadside while consumers were paying Rs15 per kilo in Delhi. Isn’t there a large arbitrage opportunity there?
Yes, our agriculture markets are not integrated and they will not be integrated if we do not bring reforms. These kinds of differences in prices that you’re mentioning are a clear indicator that markets are fragmented. Onions were selling at less than Rs300 per quintal in June-July in Madhya Pradesh but what prevented traders to buy it and sell now (when retail prices are over Rs50 per kg)? Unless modern capital comes into agriculture marketing, unless people from outside a mandi start purchasing in that mandi, it is very difficult to break trader cartels and their tacit understandings. There are certain problems which cannot be addressed by fixing prices by the government. Farmers say you give us MSP we will be okay... are farmers in Punjab okay?
Do you see loan waivers as a solution to farm distress?
I am of the firm view that in the long run, loan waivers will be harmful for the sector as a whole compared to its benefits. The first reason is that the percentage of farmers who benefit from such waivers is very small and the share of farmers who take informal loans is very high. So, there is a lack of equity besides rewarding delinquency. Secondly, following large loan waivers in the past, the experience shows no positive impact on sectoral indicators or the condition of farmers. Then following such waivers, governments will find very little money for investments in, say, irrigation, and states’ fiscal resources are already under stress.
But farmers also have an immediate problem at hand. Many are forced to commit suicides for small loans.
Sometime back, we came out with an estimate that half of all farmers will remain in poverty if they do not have sources of income outside agriculture. If a farmer has just an acre of land or farms on a rain-fed patch without non-farm sources of income, it is going to be hard. So, when we talk about doubling farm incomes, an integral part of that is non-farm incomes from employment in services and manufacturing. We have to create those avenues. The economy will collapse if the government has to address (low) farmer incomes by making payments through public resources.
Coming back to agriculture marketing, the centre has not put in the political capital to reform markets the way it did with the goods and services tax (GST).
With GST rate on farm produce being zero, some states are using it to raise resources by raising mandi fees etc. In case of reforms, I have been pleading that if states do not free up their markets, we need to bring in agriculture marketing into the union list or concurrent list at least. But states are so sensitive that they will react strongly to this. We have met state ministers repeatedly but I feel dejected today that all these efforts are not leading to the right kind of reforms at the state level. If certain members of Parliament are concerned about the interest of farmers, they should raise this issue. Farmers were protesting in Delhi and I have to tell them—you identify what changes are in the hands of the centre and what is under states’ control. Now marketing, which is the crux of their problem, is to be done by states, but I have not seen any protests in state capitals for market reforms. It is sad that states have successfully diverted the anger of farmers towards the centre for many things for which they are responsible... I strongly believe that if market reforms are not done, to achieve the target of doubling farm incomes (by 2022) will be nearly impossible.