Indian farmers have had a rough time during the last decade. Farmers in India are poor inspite of high food price inflation. Food inflation is caused when there is a supply issue (failed monsoons, natural calamities, famine, crop destruction), when food produces perish due to bad weather, when there is damage while storing or during transport, due to centralised hoarding and black marketing by distributors. This causes an artificial scarcity of produce in the market. In these cases there is a food price inflation and customers pay more for food produce but farmers get no benefit from the price hike.
Whether there is an inflation or not farmers get only a fixed value for their produce which is called Minimum Support Price (MSP), which is fixed by the government, and a small bonus sometimes. The MSP does not allow for big margins. The condition is the same even when the procurement is made by private sales middlemen. So majority of the profit goes into the hands of the middlemen or processing or distribution companies and retailers. Farmers don’t get any benefit for the market price movements.
Many farmers avail loans and take credits for many things like buying seeds, fertilizers and irrigation equipments. Prices of seeds and fertilizers remain high even during drought conditions. By the time the crop is ready for harvest the farmer has to pay his debts. Most farmers don’t have the facility to store the produce after the harvest. He takes his produce to the Agricultural Produce Marketing Committee mandi. Here the farmers face transportation problems. The procurement infrastructure is much scattered and farmers do not have resources to bring their produce to mandis even when they are within 100 km from their villages. The farmers have to pay a transportation fee.
In the mandi the farmers are compelled to sell their produce to a specified buyer. The person in the mandi quotes a random price which is not acceptable by the farmer. Even in the government controlled auction centres officials and buyers conspire together secretly. Market is flooded with the produce and all the warehouses are full. The farmer is not able to do anything and he sells it at the price quoted by the commission agent in the mandi. Middlemen abuse farmers by buying their produce at low prices. Layer upon layer of middlemen mediate between the farmer and the consumer. The more the middlemen, the greater is the arbitrage and wider the gap between the price paid to the farmer and what the consumer pays.
Agricultural Produce Marketing Committee prohibits the farmers from dealing directly with buyers and asks them to sell to licensed middlemen. The aim was to give India’s farming community a fair and consistent price for their produce. But over the years, the system has created several layers of intermediaries, lengthening the supply chain and increasing the opportunity for cartels to form, which in turn drive prices down for farmers and up for consumers.
Government announces MSP to insure farmers against any sharp fall in farm prices. The MSP is announced by the Government of India at the beginning of the sowing season on the basis of the recommendations of Commission for Agricultural Costs and Prices. The MSP is fixed by the government to protect the farmers against excessive falls in price during bumper production periods. At such times the supply is high and the demand is low. The farmers can always sell their produce at MSP. If the market price is above MSP then they can sell it at market price. If the market price falls below the MSP during bumper production then government agencies should purchase the produce at announced MSP. Only a few food grains are procured by the Government of India and hence fixing MSP for various agricultural produces has no meaning.
The food grains which come to the mandi are first made available to the private traders. Only when there is no buyer left to buy the produce the Food Corporation of India buys the grains at the MSP. MSP was started as a safety net for farmers through a guarantee that if their produce is left unsold in the market, it will be bought by the government. The procurement price is the price which the government pays when it buys food grains which is needed to maintain buffer stock or for Public Distribution System. Once the government has purchased the required quantity the left over produce can be sold only at MSP.
The MSP is always less than or equal to the government declared procurement price. Also the procurement price is always lower than the market price. MSP is announced before sowing the crop and procurement price is announced before harvesting the crop. MSP was introduced around 60 years back and now it fails to safeguard the farmers. Moreover government announces MSP for 25 crops only. 86% of farmers don’t come under MSP protection. MSP is not provided for fruits and vegetables.
Farmers are crying out for attention. The farmers are the majority voters in India but the government is not paying any attention to them. Only when the farmers are given pricing power farming will become a sustainable sector. What a farmer wants is a fair price for his produce. Who will fix it – the farmer or the government?