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The assured prices behind India's agricultural boom

These new laws seek to offer farmers more avenues to sell their produce beyond those designated by the government. (File photo)Premium
These new laws seek to offer farmers more avenues to sell their produce beyond those designated by the government. (File photo)

Amid a bumper wheat crop, India’s farmers sold more wheat to the government than ever before. Government procurement has only grown in recent years, making farmers wary of any attempt to dial back the role of the state in the farm sector

This rabi marketing season has seen the highest procurement of wheat by government agencies in history. At 43 million tonnes, this is 33% higher than the average for the past five rabi seasons. It underscores the prime role played by the government in procurement of farm produce. This becomes important in the context of the three farm laws that were introduced last year but whose implementation was put on hold amid ongoing farmer unrest.

These new laws seek to offer farmers more avenues to sell their produce beyond those designated by the government. The concern is it could mean the government, which offers a price guarantee for 23 main crops, reduces its presence as a buyer. Further, without a price floor coded into law, private players with greater pricing power could end up dictating terms to farmers.

A price floor was a key demand of the ongoing farmer agitation, which started in mid-November 2020, almost coinciding with the start of the rabi sowing season. The protests, while national in scope, are spearheaded by farmer collectives from Punjab and Haryana. These are agrarian states where farmers have historically benefited the most from government procurement.

The rabi sowing season in 2020 was sandwiched between two deadly waves of the covid-19 pandemic. Agriculture being less affected by the pandemic, and two successive years of good monsoons, drove the record sowing of wheat: 34.6 million hectares, or 14% more than the average of the previous five years. Seven of the top eight wheat-producing states, led by Madhya Pradesh, sowed more land for wheat. This led to India recording its highest-ever wheat produce in a full season.

Procurement Boom

The rabi wheat crop is typically harvested in April and May. On the back of increased sowing in the 2020 rabi sowing season, wheat production for the full 2020-21 season jumped to a record high of 109.2 million tonnes.

This trickled down to procurement. The Rabi marketing season lasts from April to June, which turned out to be the exact period in 2021 when the devastating second wave of covid-19 peaked in India. Yet, the procurement of wheat, led by state agencies, has been robust across several states. Of the 109.2 million tonnes produced, 43.3 million tonnes, or 40%, was procured by government agencies. The proportion of wheat procured by government agencies has increased steadily over the past five years, from 31% in 2016-17, pointing to the rising importance of wheat procurement over time.

Regional Skew

Just seven states accounted for about 95% of India’s wheat production in 2020-21. Uttar Pradesh saw the highest production of wheat at 33.4 million tonnes, followed by Madhya Pradesh (20.7 million tonnes) and Punjab (17.9 million tonnes). However, in terms of procurement, Punjab is the leader at 13.2 million tonnes (73.5% of production), followed by Madhya Pradesh at 12.8 million tonnes (62% of production).

Among these seven states, the share of wheat production procured by the government varies widely. It ranges from 4.5% (Gujarat) to 73.5% (Punjab). Uttar Pradesh is a key state at the lower end, where the government procured just 5.6 million tonnes (17% of production). Reports had emerged last year of farmers in Uttar Pradesh being compelled to sell wheat to traders in mandis at below the government-determined minimum support price (MSP). But the procurement in the state last year was a significant improvement over the 3.7 million tonnes in the year-ago period.

Farmer Count

Overall, more farmers are using the government procurement facility to sell wheat than before. This rabi marketing season (2021-22), as of 1 June, 4.9 million farmers sold wheat to the government at MSP. This is a 13% increase over 2020-21 and is more than twice the number that used this facility in 2016-17. Additionally, 12.5 million farmers sold paddy to the government during the full kharif season in 2019-20. While the overwhelming majority of the estimated 100 million agricultural households still don't sell to government agencies, the ranks of those who do are growing.

The record procurement of wheat this year points to the fact that government procurement of foodgrains remains pivotal to the agrarian economy in several states, especially in a year of surplus production. In wheat, some states are on the verge of a wheat-production boom. Madhya Pradesh, which has recently committed large tracts of land to sowing of wheat, currently has very low productivity. On its current trajectory, it has the potential to become India’s largest wheat-producing state. Assured offtake at assured prices, as the current MSP regime promises, remains a key driver of this boom.

(howindialives.com is a database and search engine for public data)

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