Why rich and poor farmers demand MSP, government intervention in market

Agriculture not possible without government support, rue farmers 

By Richard Mahapatra, Raju Sajwan, Shagun
Published: Saturday 19 December 2020
Farmers have been protesting against the Centre's new farm laws since November 26 on Delhi borders. Photo: Twitter

His story aptly describes what it takes to be the world’s only producer. He is, after all, one of the hundreds of thousands of farmers camping on Delhi borders, demanding a complete repeal of the recently passed three farm laws. Like others, his fear is paramount: “The Union government will ultimately withdraw minimum support price to farmers’ produce.”

As he speaks to Down To Earth on a chilly December 2020 morning, two references — “government” and “support” — dominate the conversation.

“I am not a living and thriving farmer without the minimum support price. And the Union government’s support for my produce ensures that I negotiate the market in this fragile trade with fairness and power,” he said.

He is Sukhdeep Singh from Rajgarh village in Punjab’s Ludhiana district. The state is the mascot in the country’s journey for food self-sufficiency.

A farmer from Punjab qualifies as among the richest cultivators in the country. An average Indian farming household earns Rs 77,124 per annum; it is Rs 216,708 for a farmer from Punjab. A Punjabi farmer, therefore, is also an aspiration for millions of others in the country, over 80 per cent of them being small and marginal farmers.

This superlative is also a testament to what government support could mean to a producer. “I am only into wheat and paddy because the Union government assures price for these crops,” said Sukhdeep.

At least 95 per cent of Punjab farmers are covered under the Union government’s procurement system. Punjab is the only state in the country where farmers don’t need storage for their harvested crops. Such is the power of the assured purchase.

He fears his apprehension of the government withdrawing the support price and diluting the procurement system would come true: “How will I cultivate my crops?”

The agrarian economy is too dependent on government support. In the 1960s, Punjab had cropping intensity of 126 per cent. Currently, it is 200 per cent. Yield of wheat and paddy per hectare was just 1.2 tonnes. This has increased by four and five times respectively.

They can’t increase production anymore; but the input costs have been on the rise, making agricultural practises expensive. The only way farmers can earn more every year is through a hike in minimum support price, an assurance to buy produce and through plethora of subsidies starting from free electricity to fertilisers to cash income support that could bring down input costs.

Punjab farmers don’t have a lot of experience of how a private market system operates. If any of these is withdrawn, the agrarian economy would collapse, they said. This is an extraordinary case of a state hitting the plateau of production. Any support system here looks like deploying a life-enhancing ventilator. 

Expectedly, farmers from elsewhere in the country have been demanding the same level of government support to ensure survival. This involves the level of government’s price and purchase supports as in case of Punjab as well as neighbouring Haryana.

But for the majority of Indian farmers, this is a structural shift in trade: From private markets to government-controlled and facilitated ones. Ironically, the new laws aim to open up private markets for farmers. However, most of India’s farmers — outside Punjab and Haryana — have been selling their produce in open markets.

According to the Shanta Kumar committee report, 94 per cent farmers are dependent on private markets. But India has a meagre 8,900 markets that are regulated through various government agencies. And each village, at an average, has a market within a radius of 12 kilometres.

Such is the paucity of points of sale that every year, according to government’s own assessment, Rs 64,000 crore worth of marketable surplus agricultural products is wasted.

These unbearable terms of trade drove farmer Umesh from Banda in Uttar Pradesh (UP) to Delhi to join the ongoing protests. He belongs to the poorest farmers’ group in the country, but aspires to be like Sukhdeep.

“I need the government’s support so that a minimum support for my produce is ensured. We also need a market system like that in Punjab so that our produce can always be sold,” he said.

Coming from the chronically drought-stricken Bundelkhand region of UP, he knows paddy and wheat help him earn more, at least at the sustenance level.

“I don’t cultivate wheat or paddy as I cannot meet the water requirements needed to grow them. My staple coarse grain and pulses crops do sell, but I hardly get any minimum support price for them.”

Without government support, he said, the business of agriculture is not sustainable.

UP is the country’s largest producer of wheat. In terms of government procurement in MSP, however, it just contributes 11.5 per cent. Similarly, only five per cent of pulses produced by farmers like Umesh are procured at MSP by the Union government.

For farmers across different states, the government-fixed price is always a fair deal. A survey of 10,000 farmers in states including Punjab, Odisha and Bihar by the Center for the Advanced Study of India, University of Pennsylvania, showed that procurement by government agencies at MSP has invariably increased prices of produce significantly.

“Price for crops improved by 16 per cent in Bihar and 17.5 per cent in Odisha when farmers sold them to a public procurement agency,” the analysis found. This also explains the rising demand for government intervention in agricultural market systems.

“Historically, the government has supported agricultural practises. Food can’t be grown without the support from the government,” said Ramakumar, adding: “If developed countries did not have any subsidy, they would no longer be competitive in international agriculture market.” 

For instance, in the United States, the government support equals to 55 per cent of the value of production of commodities like sugar and corn. Similarly, in European Union, the name of the subsidy scheme under the common agricultural policy was changed to “rural development support scheme” by 2000.

Under this “single payment scheme”, farmers were given subsidy support based on the extent and type of land s/he possessed. Depending on the area and type of land, a farmer would get a direct payment into his bank account.

They are also entitled to a green payment depending on the number of trees they had in their farms.

A young farmer payment scheme for households that had farmers not more than 40 years was also introduced. Sachin Kumar Sharma, associate Professor, Centre for WTO Studies under Union ministry of commerce, said:

“Agriculture is difficult without government intervention. Government support is needed because there can be market failures even when the output is good. Market failure is more prominent in agriculture compared to other sectors as the former depends on variables such as weather conditions, lack of irrigation cycle, etc. No country can leave agriculture to the market. But that doesn’t mean markets have no role to play. Both need to co-exist.”

According to estimates, the total income of farmers in the European Union constituted considerable proportions — more than half of their income of direct payments. This was not a part of any export subsidy given.

“We can’t say how effective these support systems have been for effectiveness depends on different parameters. In India, we have achieved self-sufficiency in production, so input subsidies are very effective. But if we see from environmental or fiscal point of view, they are not very effective. But all governments want to support farmers,” said Sachin.

Sukhpal Singh, professor, Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad, said:

 “The issue is not that government has to procure everything. The theory of intervention in market shows that if you can control 15-20 per cent market, other players have to behave. This is called market salutary effect. You don’t need to put all your resources into wheat and paddy. Farmers need to do the same in other diversified crops as well to make the market come up to some minimum remunerative level of payment.”

ML Jat, principal scientist, International Maize and Wheat Improvement Centre, said:  “I think food can be grown without government support provided there is a good market. It’s not the issue of the government support or the subsidy, it’s that of return on investment. So, if there is no government support, the cost of production will be more. The consumer would have to pay for that. So, a government has to decide whether it wants to support the farmer or the consumer. There will be different models accordingly.”

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