COMMENT – Famers’ blues: The arithmetic is simple, economy not so

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Good monsoon, larger sowing area, bumper crops.

As on 30 July, 2020, actual rainfall received in the country is 447.1 mm against normal of 443.3 mm, a 1 per cent rise in two months of this year against the same period last year.

As per a report from the Central Water Commission (CWC), the live water storage available in 123 reservoirs in the country is 141 % of live storage of corresponding period of last year and 103% of storage of average of last ten years.

The kharif crops have been sown on a total of 882.18 lakh hectares (ha) against 774.38 lakh ha area during the corresponding period of last year, an increase in area coverage by 13.92% compared to last year in the country.

Farmers have sown rice on 266.60 lakh ha against 223.96 lakh ha area of last year, an increase of 19.04%. Pulses acreage has also increased by 19.26%, coarse cereals by 6.52%, oilseeds by 16.80 %, sugarcane by 1.13 % while under cotton area coverage increased by 11.29 %. Only jute and  mesta sowing area has decreased by 1.30% this kharif season.

As a result, a complacency seems to be gaining ground that the healthy kharif sowing preceded by a good winter crop harvest (rabi) will lift the country out of its pandemic blues to a purple patch.

Strong rabi showing

The rabi harvest was indeed exemplary despite the lockdown and a few hiccups. The extraordinary efforts made by government, procurement of wheat in Punjab, Haryana and Madhya Pradesh was more successful than expected.

The smooth availability of agricultural produce, including fruits and vegetables, has also added to the complacency of India’s elite influencers.

The reality, however, is not so rosy.

Farmers in Madhya Pradesh, India’s largest gram-producing state realised about Rs 700-800 less than the MSP of Rs 4,875 per quintal.

Similarly, fruits and vegetable farmers across the country suffered from a plunge in prices due bottlenecks in movement from villages to cities. Onion farmers in Nashik were barely able to recover their cost of cultivation.

Milk producers have also suffered greatly. It is believed over 80 per cent of the farmers had to sell their produce at reduced prices during the lockdown.

Hyped increase

The hyped increase of minimum support prices (MSP) of all foodgrains is also supposed to swell the farmers’ kitty. Despite the fact that the revised MSP will cost the national exchequer around Rs 1,75,000 crore in a full year, farmers are more often than not forced to sell their produce at costs much lower than MSPs.

The Commission for Agricultural Costs and Prices (CACP), which formulates and recommends MSP, categorises three types of cost of production: A2, A2+FL and C2. “A2” represents the actual cost of farming including seeds, fertilisers and hired labourers. “A2+FL” represents family labourers in addition to A2. And “C2” represents the cost of land rentals or interest on invested capital in addition to A2+FL.

The profitability of a farmer varies depending on the formula CACP chooses to follow. In 2006, the Swaminathan Commission recommended that MSP be decided on C2+50 per cent as it gives the farmer maximum returns on the investment. I

n 2014, the National Democratic Alliance (NDA) came to power promising that it would implement the Commission’s recommendation. However, it turns out that the government has considered A2+FL, and not C2, as the cost of production for calculating MSP. 

Moreover,  farmers will hardly see any gains of revised MSPs as they are already bearing the burden of increased input cost. The increasing fuel prices, rental cost of agricultural equipment and spike in fertliser prices are likely to diminish the gains of MSP in the kharif season. To be sure, the MSP strategy has helped mitigate farmers’ woes to some extent, but has failed to keep pace with the booming production of food grains.

Poor subsidy coverage

In fact, the government has now a plethora of schemes and strategies to ensure that farmers are protected from vagaries of the market.

Starting from setting up a price stabilisation fund to maintaining prices of certain products and insuring crops against weather uncertainties, the Union government and state governments have implemented close to 200 schemes that cover the complete agriculture cycle of a farmer.

But none of the schemes cover even 10 per cent of the country’s farmers. The MSP does not cover 94 per cent of the farmers and does not immediately translate into a profit for the farmers. 

With more produce, the market has become the most important point of intervention. This is where the government has been consistently failing. The amended Essential Services Act, where a farmer is free to sell the produce without middlemen, without mandis, directly to the buyers, is supposed to address this very crisis, but how it pans out in reality will be seen only after this kharif harvest.

Farmers with bumper crops need markets to trade, that too at a price that at least earns return on their investments. That is the reason why farmers often dread a good monsoon.

Be it a drought or a more-than-normal monsoon, if you can’t sell your produce at a profit after paying off the high-interest loans, it is not a sustainable trade.

This is where the economy gets far more complicated than simple arithmetic.  

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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