Consensus key to seeding farm reform

But the panel tasked with suggesting reforms must work towards making the agri-markets efficient; that’s the only way farmers will get the right price for their produce.

The repeal of the farm laws and the government’s giving in to farmers’ demands is a blow to reform. Indeed, if there is something to be learnt from the 15-month agitation by farm unions, it is that consensus is critical for any major change and that confrontation is best avoided. The tenacious farmers have upped the ante and are demanding a legally guaranteed MSP for 23 crops. Although the government has assured them the current procurement of foodgrains, to comply with the Food Security Act, will continue, they want more. The procurement system is an inefficient one with the government buying more than it can sell and tonnes of grains rotting in warehouses. Legalising MSPs cannot solve the problem of distortions in cropping patterns and prices. Already, the MSP for 23 crops (horticulture is excluded) is overdone for paddy and wheat. Moreover, MSPs typically benefit a small fraction of big farmers, the larger majority loses out. A guarantee to buy more crops could strain the fisc in terms of the cost of purchase, storage and possible losses on the sales, without much of the benefits accruing to farmers. It is preferable to have a well-regulated income transfer mechanism.

But the panel tasked with suggesting reforms must work towards making the agri-markets efficient; that’s the only way farmers will get the right price for their produce. The farm laws were aimed at facilitating better price discovery that would lead to better realisations and enhance productivity. This was to be achieved through private investment in the supply chain—logistics, storage, processing, e-commerce and digital technologies. The laws were meant to make the agri-markets more efficient and less unpredictable so farmers would not lose out as they do today. Indeed, allowing farmers to directly sell their produce to institutional buyers such as big traders and retailers, if they so wanted, and building an electronic trading platform would have given them—and traders—a lot more flexibility to buy and sell crops. Besides, putting in place a national framework for farming agreements would have enabled and empowered farmers to transact with a range of buyers—exporters, wholesalers, agri-business firms—and assured them of good realisations. Of course, the new legislation would have virtually eliminated middlemen and the market would no longer have been the monopoly of traders. But the mandis with the arhatiyas in control need to make way for a modern and equitable system.

With the repeal of the laws, an opportunity to bring down costs and help farmers earn more, has been lost. After all, the ultimate objective is to raise farm incomes, by increasing the size of the farm holding, currently averaging 0.9 ha, and the low profitability for most crops. As agriculture expert Ashok Gulati has pointed out, unless there is diversification into high-value agriculture, the monthly income of an average agri-household which is roughly `13,500, cannot go up meaningfully.

The panel must suggest ways to boost output, productivity and prices; agriculture must move beyond the average annual growth 3.5%, that it has clocked over the last 15 years or so. Farmers must be persuaded to move away from growing rice and wheat motivated by MSP-based procurement, and, at some point, FCI’s stocks must be made manageable. Else, taxpayers will continue to foot a growing food and fertiliser subsidy bill and pay for direct transfers under PM Kisan. The government will need to persist with spends to support wages in the rural economy. The panel must be mindful of the harm the current system is doing to the environment with the groundwater table in the north-western states falling. Given agriculture supports 40% of the workforce, there can be no alternative to reform; it must be done through persuasion and not pushed through.