AFA DAILY READINGS- 28/01/2019
Overcoming farmers distress
[MAINS OPTIONAL – ECONOMICS]
There has been active discussion for different strategies on Farmers distress. Agrarian distress, in the present context, is mainly in terms of low agricultural prices and, consequently, poor farm incomes. Low productivity in agriculture and related supply side factors are equally important. An issue that is connected is the declining average size of farm holdings and the viability of this size for raising farm incomes.
Prices and incomes: Price plays an important role in affecting farmers income. During the Green Revolution, along with technology and associated packages, price factor was considered important.
- In the last two years, inflation in agriculture was much lower than overall inflation. The implicit price deflator for Gross Value Added (GVA) in agriculture was 1.1% while it was 3.2% for total GVA in 2017-18.
- Agriculture GVA growth was at 3.8% for both nominal prices and constant prices in 2018-19, giving the price deflator of 0%.
- The consumer price index (CPI) also shows that the rise in prices for agriculture was much lower than general inflation in recent years. Market prices for several agricultural commodities have been lower than those of minimum support prices (MSP).
- When output increases well beyond the market demand at a price remunerative to producers, market prices decline. And in the absence of an effective price support policy, farmers are faced with a loss in income, depending on how much the price decline is.
The ‘farm distress’ in recent years has been partly on account of this situation, as the loss of income is beyond the ability, particularly of small farmers, to absorb. In a strange way, it is the success in increasing production that has resulted in this adverse consequence.
A few schemes suggested to address the problem of managing declining output prices when output increases significantly.
- The scheme of ‘price deficiency compensation’ is one such mechanism which amounts to paying the difference between market price and the MSP.
- A ‘price deficiency’ scheme may compensate farmers when prices decrease below a certain specified level. However, market prices may continue to fall as supply exceeds ‘normal demand’. An alternative is the limited procurement scheme.
- An alternative suggested is the limited procurement scheme. Under this scheme, the government will procure the ‘excess’, leaving the normal production level to clear the market at a remunerative price. Thus, procurement will continue until the market price rises to touch the MSP.
- The suggested ‘limited procurement system’ will not work if the MSP is fixed at a level to which the market price will never rise.
- There are costs involved which will go up as production increases above the average level. The government can sell the procured grain in later years or use them in welfare programmes.
- Few more schemes are Rythu Bandhu Scheme (Telangana) and the Krushak Assistance for Livelihood and Income Augmentation (KALIA) scheme (Odisha). Basically, these schemes are income support schemes which will be in operation year after year.
- raising the MSP, price deficiency payments or income support schemes can only be a partial solution to the problem of providing remunerative returns to farmers.
- Agricultural markets have witnessed only limited reforms. They are characterised by inefficient physical operations, excessive crowding of intermediaries, and fragmented market chains.
- Farmers are deprived of a fair share of the price paid by final consumers.
- States have also not shown any urgency in reforming agricultural markets.
- Yields of several crops are lower in India when compared to several other countries. Technology can help to reduce ‘yield gaps’ and thus improve productivity.
- Government policies have been biased towards cereals particularly rice and wheat. There is a need to make a shift from rice and wheat-centric policies to millets, pulses, fruits, vegetables, livestock and fish.
Conclusion: The creation of a competitive, stable and unified national market is needed for farmers to get better prices. For better price for farmers, agriculture has to go beyond farming and develop a value chain comprising farming, wholesaling, warehousing, logistics, processing and retailing. To conclude, farmers’ distress is due to low prices and low productivity. The suggestions made such as limited procurement, measures to improve low productivity, and consolidation of land holdings to gain the benefits of size, can help in reducing agrarian distress. We need a long-term policy to tackle the situation.
Source: THE HINDU
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