The entangled economics and politics of Indian agricultural concern

The roots of the ongoing peasant concern go back more than 50 years to the roots of the green revolution. After the devastating famines of 1965-66 and 1966-67, the government adopted a new approach to food grain production, distribution and pricing to achieve food self-sufficiency. Food grain farmers were given high-yielding varieties (HYV) seeds, subsidized water, electricity, fertilizer and guaranteed wage prices. Food Corporation of India (FCI) Minimum Support Price (MSP) for procuring rice and wheat (plus storage cost etc.) is much higher than the price offered by food grains. Public Distribution System (PDS).

This subsidy-based policy regime has been dramatically successful in achieving food self-sufficiency. Food grain production increased to 300 million tons. FCI collection is usually taken from PDS and foodstocks now exceed 90 million tons. However, this success came at great cost. Funding for food, fertilizer and electricity subsidies has become a long-term economic challenge and the distorted price signals are environmentally destructive in the northern wheat belt, especially in Punjab.

MSPs have been announced for 23 major crops, but this means very little, as the government only buys wheat and rice, and now there are also less pulses. This inclines relative prices in favor of wheat and rice, distorting crop practices in favor of these two crops, although production has now exceeded demand. In Punjab, in particular, traditionally high irrigated rice was not cultivated, farmers adopted wheat-rice crop rotation and developed under this MSP-protected regime. Meanwhile, water tables have deteriorated, high doses of chemical fertilizers and toxic pesticides have degraded the soil, and short intervals in the rice-wheat rotation have led to the problem of stubborn burning every October-November.

But the worst consequence is that farmers in Punjab, Haryana and western Uttar Pradesh have relied on this distorted, subsidized policy regime because no government has reformed the system. So, after the Narendra Modi government decided to introduce big-bang reforms in agriculture, the Opposition is rail-roading three laws through Parliament without the required vote split, these farmers are concerned. The three laws contain provisions that prevent civil courts from having any jurisdiction to resolve disputes or issue injunctions between two farmers and contract-farming companies. So farmers have no legal assistance beyond the executive authorities who report to their political bosses. It is not difficult to imagine how such a dispute resolution would work if a small farmer is confronted with a powerful organization, especially if that organization is politically connected. Thus, there was a deep lack of trust between the concerned farmers and the government, which had previously demanded a legitimate foundation for the MSPs. This concern is mainly followed by farmers in Punjab, Haryana and western UP, who have only token support from other farmers, as the former are the main beneficiaries of the subsidy-driven policy regime. They really threaten their livelihood if the regime is demolished. The decision of the Center to stay the implementation of the new agricultural laws and suspend it for 18 months can extend it, provide some space for planning and start a way forward.

The government can reduce price distortion by gradually shifting from procurement of wheat and rice to other MSP crops, especially coarse grains, pulses, oilseeds, etc. Multiplying the number of markets regulated by the Agricultural Product Marketing Committee can also effectively reduce the market power of politically connected merchant cartels. Investing in cold storages and other infrastructure for farmer-producing companies (FPOs) can diversify into other high-value crops. These steps, which do not require new laws, go a long way in eliminating policy distortions.

Farmers, for their part, can also do a lot to build FPOs with counterwilling power against the big contract-farming companies they fear. Agriculture is in deep crisis due to the predominance of small farms (see ‘Agricultural Crisis: The Challenge of the Small Farmer Economy’, Mint, 21 July 2017). Approximately 83% of rural households are completely landless or own less than 1 hectare of land. By itself, small farmers cannot earn a living from their small plots or cannot bear the multiple losses they face (climate, pests and diseases, price instability, lack of credit), let alone bargain with big companies. The only hope of their survival is to build FPOs so that they can collectively risk-proof themselves, secure bank credit and develop their own marketing companies to realize good prices.

The idea of ​​FPOs is not a pipe dream. Everyone knows the story of the co-operative Amul of Khera district milk producers. But there are also recent success stories (see my mint column quoted above). As Vallabhbhai Patel inspired the dairy farmers of Khera district 70 years ago, the leaders of the farmers camping at the gates of Delhi can motivate their fellow farmers to organize as FPOs.

Rupashi Khatri, Satadru Sikdar, Humanshu contributed to this column. The views expressed are personal.

Sudipto Mundil is a Distinguished Fellow of the National Council of Applied Economic Research.

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