MSP provides farmers with a price assurance — My Interview.
A day ahead of another round of talks between farmers and the Union government, agriculture expert Devinder Sharma tells The Indian Express how the current protests are being watched across the globe and how India can rebuild its agri economy by using assure price.
What is your take on the three farm laws that the Centre terms as a great reform in the field of agriculture?
These market-driven agricultural reforms have been prevalent in the United States for more than 6 to 7 decades. If the markets were so good I see no reason why American farmers should be saddled with a bankruptcy of USD 425 billion this year. The farm incomes have been on a steep decline, if adjusted for inflation, since the 1960s.
No wonder, despite massive farm subsidy support, the rate of suicide in rural America is 45 per cent higher than the urban areas. The point I want to emphasise is that the so-called ‘market efficiency’ in the US is actually built on massive federal support being provided year after year.
Not many people know that the US comes with a Farm Bill every five years. It makes budgetary provisions for subsidy and investment in agriculture for the next five years. For instance, the Farm Bill 2018, expiring in 2023, makes a provision for providing USD 867 billion in food and agriculture support for the next ten years. And yet, despite these Farm Bills, American farmers have been faced with a 50 per cent drop in net farm incomes since 2013 except for this year when an additional subsidy of USD 32 billion was given for the farm sector.
What about other rich countries?
Before every WTO Ministerial Conference the massive agricultural subsidies being provided by the rich countries become a bone of contention. The richest trading block — the Organisation for Economic Cooperation and Development (OECD) — continues too provide mammoth farm subsidies. Despite opposition from the developing countries, these rich countries have not done away with these subsidies because that is what sustains their agriculture, and not markets.
In 2018, OECD countries provided a subsidy support of USD 246 billion, with European countries alone providing USD 100 billion. On the other hand, China has emerged as the biggest farm subsidiser, providing USD 212 billion in 2016.
If all the ‘green box’ subsidies, which in WTO parlance means non-trade distorting subsidies, are withdrawn, a 2007 study had shown that agricultural exports from US, Canada and European Union would drop by 40 per cent. In other words, even the so-called competitiveness of farm exports of the developed countries hinges on subsidy support.
Even the Director General of the Washington-based International Food Policy Research Institute had made a similar policy prescription for India, suggesting: “Move up or move out”. It only tells us that the market reforms are built on moving small and marginal farmers out of agriculture. Considering that 86 per cent India farmers are small, owning less than 5 acres, what India needs are measures to make small farming viable.
Let me illustrate. Since the 1970s, 93 per cent of US small dairy farms have closed down, with 50 per cent or almost 35,000 licensed dairies pulling down the shutter since 2003 because milk prices declined, failing to even recover the cost of production. But instead of milk production declining, it has in fact gone up. Small dairy farmers were out, and corporates took over, setting up mega-dairies. The same is happening in the UK and Europe. The shape of things to come is already before us.
What support are farmers getting from our government compared to the US or other developed nations?
On an average, an American farmer gets a subsidy of USD 62,000 every year. Compared with this, an Indian farmer gets a paltry USD 282. If you take a look at the Producer Subsidy Equivalent (PSE) index, it gives you a clear idea as to how the rich country farmers continue to be subsidised. Besides, as I said earlier, there are numerous other ways farming is protected in developed countries, and farmers receive a number of other privileges too. For instance, Swiss farmers receive family allowance and also get rebate on petrol and diesel costs.
In India, we are made to believe that farmers receive huge subsidies and therefore have no reason to complain. This is a fallacy. Except for direct income support of Rs 6,000 per year by way of PM Kisan scheme, what Indian farmers receive are indirect subsidies on fertiliser, pesticides, and other inputs. These are in reality subsidies to the manufacturers, and also to the consumers by helping in keeping food prices low. Indian farmers need a safety net rather than making Indian agriculture completely dependent on the market.
Even when it comes to farm loan waivers, there is a clear-cut bias that prevails. While economists remain quiet when it comes to massive write-offs of bad debts of corporates by nationalised banks, which totals Rs 7.9-lakh crore between 2014 and 2019, a lot of hue and cry is made when bad farm loans are waived. Strangely, a former Chief Economic Advisor had even said that writing-off corporate NPAs leads to economic growth. But when farm loans are waived, they are blamed for credit indiscipline and upsetting the national balance sheet. That clearly shows we have socialism for corporates and capitalism for farmers.
Punjab’s farmers are at the forefront of farmers’ protests. Many have called Punjab’s farmers a pampered lot, claiming they have been enjoying huge subsidies. How do you see this?
Punjab is the food bowl of the country. Punjab’s farmers have helped make food security possible at an affordable price in India. They worked very hard to reach a productivity level 5.1 tonnes and 6.6 tonnes per hectare in wheat and paddy, respectively, which is among the top in the world. Therefore to call them lazy or pampered is a reflection of the contempt that the elite carries towards farmers.
It is wrong to treat farmers as a burden. Farmers have in fact subsidised the nation by keeping farm prices low. They have produced a record harvest year after year despite being denied the rightful price. Otherwise, I see no reason why Punjab, with such high productivity levels, should be a hotbed of farm suicides. A study had shown that 16,600 farmers and farm labourers committed suicide between 2000 and 2015. Every third farmer in Punjab is below poverty line.
If Punjab’s farmers are indeed pampered and enjoying huge subsidies, then why do 97 per cent of rural households continue to be in debt? That’s a question nobody wants to answer. We have deliberately kept agriculture impoverished over the decades by keeping farm incomes low.
When farmers are placing a demand for rightful income by the way of making MSP legal, what does this mean actually? And why is it being said that it will put an additional burden of Rs 17 lakh crores on the government exchequer?
MSP in reality is a saviour. It provides farmers with price assurance. Like you and me, they too want an assured income. What is wrong in that? Farmers are asking for making MSP a legal right for all the 23 crops for which MSP is announced every year. Basically what they are asking is to raise the benchmark on which trading takes place. This doesn’t mean that everything has to be procured by the government. Private trade too should purchase at MSP. But unfortunately, a fear psychosis is being created by saying that the government will need an additional Rs 17 lakh crore to procure everything.
Take the example of Kerala. It has fixed a floor price of 20 per cent above the production cost for 16 vegetables. It has also made a provision of Rs 35 crore for the purpose but hasn’t yet utilised a single penny out of it. The reason is simple. Market prices so far are prevailing higher than the floor price announced. The government will only enter when prices fall below the floor price.
This is exactly what will happen when MSP is legalised for 23 crops. It is only when prices fall below MSP that the government will be expected to intervene.
Government says that the three Acts will give real freedom to the farmer but farmers are not to buy this. Why?
The real ‘azadi’ for farmers will be when he knows that wherever and to whomsoever he sells his produce to, he knows that at least he will get a price equivalent to MSP. To make this possible, the challenge is to expand the existing network of 7,000 APMC regulated mandis to cover the entire country. We will need 42,000 regulated mandis if a mandi has to be provided in a five km radius.
Farmers need regulated markets closer to the farm. That will enable him to avoid distress sale and to seek real ‘price discovery’.
In the paddy marketing season that ended, unscrupulous traders from Bihar transported more than 50 lakh tonnes to Punjab. This was because in the absence of regulated markets and the failure of state to procure at MSP. Bihar farmers were forced to sell at Rs 1,000 to 1,200 per quintal in the local markets whereas in Punjab farmers at least got the MSP of Rs 1,888 per quintal. This only shows that if Bihar had not thrown away the APMC Act in 2006 and had instead set up a network of mandis as in Punjab, and also provided farmers with MSP, farm incomes would have been much higher.
Take another example of maize, where prices have ruled between Rs 700 and Rs 1,200 per quintal across the country against the procurement price of Rs 1,850 per quintal. This clearly shows that MSP is the real price discovery. In any case, let’s not forget that an OECD-ICRIER study had shown that in the 16 years period, between 2000 and 2016-17, India farmers suffered a loss of Rs 45-lakh crore of being denied the rightful price. Economic Survey 2016 had reported average farm incomes in 17 states of India, which means roughly half the country, to be only Rs 20,000 a year. This is at a time when only 6 per cent farmers were getting MSP and the remaining 94 per cent were dependent on markets.
The time has therefore come to ensure that trading does not take place below MSP. After all, how long can farmers suffer the consequences of distress sales and the resulting loss to their livelihoods?
This has to change, and change for the better. Agriculture is surely in dire need of reforms. But that does not mean borrowing blindly market-driven ideas from US/Europe where markets have failed to prop up farm incomes. What India needs is to build on its own requirements and capitalise on its strengths. To come out with a policy design that ensures an assured income to farmers by way of an assured price coupled with direct income support. In addition, there is a need to replicate the Amul dairy cooperative model for vegetables, fruits, pulses and oilseeds.
How is the agitation being viewed across the globe?
The iconic farmer movement is being closely watched across the globe. Even in developed countries, farmers are keen to know how India expands on the mechanism of MSP as a policy instrument to provide an assured income in the hands of farmers.
Source: ‘Farmers need assured income, even rich nations pump massive subsidies in agriculture’: Agri Expert Devinder Sharma. Indian Express. Dec 30, 2020.