Farmers have been agitating in Delhi seeking repeal of farm laws and have put their main demand to make MSP legal. It is crucial to appreciate the factors revolving around their demand and the predicament of the Government briefly explained as under:
1. Economic History of exploitation at mandies
Despite 55 years of APMCs, farmers are still receiving low share of the Consumer Rupee as indicated by RBI study covering mandis in 16 States, 16 food crops, 9400 farmers, traders, retailers. The farmers share in consumer rupee were 28% in potato, 33% in onion, 49% in rice, the MSP crop. Will MSP alone ensures farmers to realize greater share of consumer rupee is considered later. The food grain demand is also influenced by schemes such as National food security mission, where by offering food grains free or at low prices, demand for other MSP crops such as Ragi, Jowar, Bajra are affected, since consumers prefere eating free rice, wheat to paid millets.
2. Inefficiencies in APMCs
Even after 55 years of regulation in APMCs, farmers are not issued formal receipt by the buyers who issue ‘white slips’ with informal noting as under, without mention of price / quantity/ quality as under, with no transparency in price formation and payment.Further, due to interlocked markets farmers forced to sell to the same middlemen who has lent farmers at whatever price. Buyers at APMCs further exploit farmers at times of distress sales. Buyers realize substantial income from interest earnings from informal lending. Thus, unfair deductions, undercover sales, cartels, collusion, superfluous middlemen have continued denying competitive prices.
3. Can MSP be made legal?
In food deficit years, food self-sufficiency was achieved by green revolution technologies and schemes inter alia Grow more food, Intensive Agricultural Area Programme, offering Minimum Support Price (MSP). The Say’s Law of Markets (supply creates its own demand), operated since demand was more than supply, and farmers responded to MSP by cultivating rice, wheat which were also procured to meet the levy and buffer stock requirements. Currently, supply exceeds demand in MSP crops, including those without procurement, leading to market price fall.
The current GDP is around Rs. 140 lakh crores, Agricultural GDP is Rs. 19 lakh crores, value of food grains Rs. 11 lakh crores. Farmers offer around 50 % of food grains for sale at Rs. 5.5 lakh crores of which 50% are sold in APMCs at 2.75 lakh crores. Considering cost of procurement at 30%, the value of 23 MSP crops is approximately Rs. 3.6 lakh crores. The total tax and non-tax revenue for the Government is Rs. 23 lakh crores (GST 3, Income tax 8, Corporate Tax 7, non-tax revenue 5 lakh crores). Thus, MSP commitment of Rs. 3.6 lakh crores exceed the entire GST collected ! Around 70% of tax revenues are generated from urban areas. Unless the tax revenues increase substantially, legalizing MSP is the toughest. Therefore, in addition to institutional solution of MSP, market solution permitting buying / selling outside APMCs, benefits society due to new supply / value chains. Further, Nominal Protection Coefficient for agriculture being 0.87, farmers can realize 13% higher price in international markets with encouragement to exports.
4. Infringement on rights of farmers
Farmers’ right to sell their produce to whomever, wherever, whenever, whatever quantity cannot be infringed upon. The Elasticity of Price Transmission between APMCs and farm gate prices is impressive. Thus, buyers outside APMC will have to compete with APMC prices and vice versa to attract farmers’ produce.
5. No interference with State
Entry 26 enables States to regulate trade in agricultural commodities subject to entry 33 in the concurrent list, which deals with trade with food stuff, cereals. Doubling farm income can occur with such market reforms. Also, with Article 249, Centre can enact law in national interest of saving farmers from exploitation by middleman.
6.Multiple markets and competition
Allowing buyers outside APMC mandis in market promotes competition and halts exploitation. At present, while consumers are paying higher price, farmers are still receiving lower price due to inefficiencies and imperfections. Thus, setting markets right is crucial through the new laws. UMP (Unified Market Platform in Karnataka), E-NAM, resulted in increase of prices by 38%. This implies that current market prices are depressed by 38% due to lack of adequate competition and can set bench marks for APMC to offer competitive prices. Competition in procurement and distribution cost can also reduce from 30% to 15%.
7.Bihar’s impressive performance
Economic reforms in Bihar in 2005, removing APMC act, resulted in impressive agricultural and overall performance. Before 2005, Bihar economy grew at 5.3% while India’s economy grew at 6.8%. After 2005, Bihar economy grew at 11.7%, agriculture growth 4.7%, while India’s economy grew at 8.3% with agricultural growth at 3.6%.
8. Contract farming
Contract farming enabled farmers to offer produce at predetermined price and for market price above contractual price, farmer has liberty to sell at higher price. Small farmers have benefitted more than large farmers in contract farming as income derived per acre was the highest for small farmers (Experience of Baby corn and vegetables
Views expressed above are the author’s own.
END OF ARTICLE