G Chandrashekhar

Agri policies must shift focus to boosting demand

G Chandrashekhar | Updated on August 27, 2020 Published on August 27, 2020

Policymakers must address the gaps in the MSP regime. Genuine surplus management, equitable food distribitution and export competitiveness also need attention

In its Annual Report for 2019-2020, as far as agriculture is concerned, the RBI has provided policymakers a host of recommendations including crop diversification and a focus on food processing and agri exports.

While the report has emphasised the futility of continuing with the minimum support price (MSP) regime for specified agricultural crops, as this instrument of price incentive has proven to be costly, inefficient and distortive, the RBI has refrained from saying that the MSP should be given up.

Without a doubt, the MSP has become a ritualistic announcement season after season; and there is credence in the view that a majority of farmers are not even aware of the MSP announced by the government. Also, an MSP not announced well before start of the planting season is of little use to farmers.

Importantly, the MSP is government’s sovereign guarantee about the minimum price the grower will get. But in reality, farmers do not receive this price except perhaps in case of rice and wheat, and of late, pulses. Even in this, not all growers across the country benefit uniformly. Some growers in certain regions become beneficiaries while others are left to unfavourable market forces.

Procurement management

While it may be tempting to say that the MSP as a policy instrument should be abandoned, in reality it would be extremely difficult for the policymakers to give it up. So, we need to work towards making the MSP more useful and drawing maximum benefit from it. One such way for this is to strengthen the procurement mechanism to defend the MSP.

Official agencies that undertake procurement will face physical limitations in expanding their presence all over the country to cover a very large number of farmers. It would make sense to enlist the services of the private sector for procurement. For instance, well- capitalised professionally-managed warehousing companies may be invited to be part of the government’s procurement efforts.

The RBI report goes on to assert that India has now reached a stage in which surplus management has become a major challenge. This statement is only partially true, if at all. Yes, we are the world’s largest producer of milk and pulses and second largest in rice, wheat, sugar and cotton production. It is also true that we export 10 million tons of rice and varying quantities (5-8 million bales) of cotton annually.

It is a myth that we have a surplus in food commodities. Overflowing granaries should not be taken to mean otherwise. In a country where over 300 million people are said to live below the poverty line, overflowing granaries mean inadequate distribution of food. We claim to be self-sufficient in cereals without meeting the food needs of people.

The aspect that deserves priority attention is that food must reach people, for which we need to build and reinforce adequate infrastructure and leak-proof systems. If it is true that India enjoys genuine food surplus, our nutrition status ought not to be as bad as it is today. Pervasive under-nutrition (calorie and protein deficiency) is a matter of reality.

It is likely that low farm-gate prices — often below thr MSP — lull us into believing that we have reached self-sufficiency. The reality is, demand is weak. Incomes are not rising fast enough for enhanced consumption although the existing per capita availability itself is rather low. Our policies and programmes have been production-centric; we must pay attention to demand growth, too, across income categories.

Export competitiveness

Following a slew of agri market reforms announced by the government, the RBI wants focus turned to ‘agricultural exports that expose the Indian farmer to international terms of trade and technology’. Barring some categories of agricultural commodities like Basmati rice, spices, marine products, meat, raw cotton and so on, the intrinsic competitiveness of Indian agri exports is suspect.

Often, we export raw material at relatively low prices instead of value added products that can fetch far higher rates. Growth in our export earnings is driven largely by currency depreciation rather than by sustained increase in volume and by widening destination markets. Also, we have failed to leverage our free trade agreements to boost agri exports.

To capture and retain the export markets, our products must strive to become ‘globally competitive’. Global competitiveness can be defined as our ‘ability to produce globally acceptable quality at globally comparable cost’. This is the destination our agricultural commodities have to move towards.

With a legal framework for contract farming in place, export houses would now feel encouraged to tie-up with farmer producer organisations to produce crops for the export market.

An important point the RBI report has flagged is the need to de-emphasise water guzzlers in agriculture. In layman terms, it means we have to gradually move away from rice and sugarcane which consume a lot of water. (See Limits to pushing mono-cropping of cereals). It makes immense sense in a country that is admittedly facing a water crisis with alarming fall in water table and adverse effects of climate change.

The writer is a policy commentator and agribusiness specialist. Views are personal

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on August 27, 2020
This article is closed for comments.
Please Email the Editor