Budget 2015: There is nothing for farmers to cheer about

 

When Finance Minister Arun Jaitley mentioned raising agriculture income as the first among the four challenging tasks before the government, I expected him to spell out some mechanism to pull out farmers from the terrible economic distress that continues to prevail in the farming sector. I am sure, like me, farmers too would be disappointed at being left high and dry.

At a time when agricultural production has dropped because of a shortfall in monsoon and the National Sample Survey Organisation (NSSO)  2014 has estimated the average monthly farm family income that a household drives from farming alone at a paltry Rs 3,078, the need for a bailout package for farmers was absolutely essential. But once again, the Finance Minister failed to see the crying need of the farm sector

Except for raising the farm loan limit from Rs 8 lakh crore (announced in 2014 budget) to Rs 8.5 lakh crore this year, and promising to create a national agriculture market, there is nothing to bring cheer for the beleaguered farming community. As I have said earlier, and also having told the Finance Minister, the Rs 8.5 lakh crore farm credit actually does not benefit farmers as much as it does to the agribusiness industry. 

Almost 94 per cent of the farm credit, available at a subvention interest rate of 4 per cent, goes to the agribusiness industry like seed, pesticides, and farm machinery manufacturers. It should therefore be called as agribusiness credit and not farm credit. 

The national agricultural market, which was detailed in last year’s Economic Survey, is aimed at taking farmers out of the preview of the APMC Act. In other words, it is simply an effort to render the APMC mandis redundant thereby leaving farmers at the mercy of the private traders. Considering that only 8 per cent farmers get the benefit of procurement prices, 92 per cent farmers are in any case dependent on the markets. If the markets were so helpful in providing a higher price for farmers produce I am sure the farm economy would have on its own been looking up. But the fact that markets have failed the farmer is written all over, and any move to strength a national agriculture market network therefore is not in the interest of the farming community.

I had expected the Finance Minister to announce a nationwide programme to create a network of mandisthrough the country, and extend the provision of procurement prices to all the States. However, providing some outlays for micro-irrigation and organic farming in northeastern States, and also the Pradhan mantra krish sinchai yojna is welcome. Food processing also gets push.  

It is not the lack of improved technology or an access to markets that is behind the prevailing crisis. It is the declining farm incomes over the years that pushed agriculture into a deep pit. But unfortunately, the economic debate has never gone beyond the growth rate in agriculture. The focus has remained on growth, and not on agrarian distress. #   

Why Jaitley's budget has failed to bring our farmers cheer. IndiaTogether. Feb 28, 2015 

http://indiatogether.org/union-budget-2015-arun-jaitley-provisions-for-agriculture-and-farmers-economy

Onion Price Rise: Bring Onions Under the Essential Commodities Act

Increasing onion prices had sent the experts, economists and the journalists looking for answers. For the past few days we have seen a flurry of activity, beginning with the media playing up the issue of rising prices of fruits and vegetables, and trying to create a fear psychosis among the people in the wake of a deficient monsoon that stares ahead. The Govt went into a tizzy examining various suggestions coming from economists and the bureaucrats, and finally the Finance Minister Arun Jaitley took the right decision. He directed the State Governments to crackdown on hoarders and speculators.

The State Governments need to be empowered by first bringing onions and potatoes under the Essential Commodities Act.

But the onion crisis came in handy for some economists to use the crisis situation to push what they have been trying to do for nearly a decade now. Remove fruits and vegetables from the APMC Act was on the top of the agenda, followed by lowering the import tariffs on fruits, vegetables, milk and chicken legs as the plausible solution for bringing down the prices. At a many a TV shows I encounter economists, who have probably never been to a crop field, seeking immediate imports of fruits and vegetables. And when I question the need saying India had a record foodgrain production in 2013-14, and also that of vegetables and fruits, many of them just continued to harangue the public of their ignorance.

A news report in Times of India (Despite record onion yield, prices shoot up. June 20, 2014. http://bit.ly/1qkf0Fy) says in 2013-14 India harvested 19.3 million tonnes of onions, which is 19 per cent higher than the previous crop. Even discounting the crop damage resulting from unseasonal rains and hailstorms, and knowing that the area under onion cultivation had soared by over 400 per cent in Gujarat and by about 15-20 per cent across the country, there is no reason why prices should have doubled in a week's time. In April and May 2014, onion price inflation was in the negative when it came under monitoring for estimating the Wholesale Price Index (WPI). Only a trader-agent nexus could drive the prices high in the next fortnight. And that's exactly what happened.

Economists merrily joined the speculation exercise. Not questioning the strong cartels that operate, their entire emphasis was to use the opportunity to allow cheaper imports. Some even went to the extent of wanting the Govt to allow onion imports to meet the expected shortfall. Others forced the Govt to raise the Minimum Export Price for onions, which I feel is a classic example of food mismanagement. Such ad hoc decisions only destroy the markets for the Indian exporters. Others of course pushed for more food processing, not telling that the prices of processed onions would be several times higher making it still a bigger burden on the poor as well and the middle class.

Nevertheless, I have always maintained that taming food inflation only requires a strong political will. It doesn't require more than a month to bring down the prices. All you need is to exercise a danda.

An interesting field report in The Economic Times (Onion Price Rise: Nashik Farmers Put Blame on Hoarders. June 20, 2014. http://bit.ly/1lNOoHz) says it all. "Amid apprehension of onion prices sky rocketing to Rs 100 per kg by October, farmers from India's largest onion fields in Nashik allege that traders are hoarding over 20 lakh tonnes of stocks in anticipation of rising demand during monsoon that will push the prices higher. According to the farmers, all these traders are part time politicians and they indulged in hoarding last year as well."

A year back, in my blog post Let's Chop the Onion Cartel (Aug 23, 2013. http://devinder-sharma.blogspot.in/2013/08/lets-chop-onion-cartel.html) I had said: "No political party wants to ruffle the traders with any stringent action. Traders hold the strings to the political purse, and a crackdown against hoarding and speculation would mean chopping off the financial cord." APMC has been monopolised by a handful of big wholesale traders who control almost all aspects of the onion trade or for that matter the entire vegetable trade. The answer however does not lie in dismantling APMC but reforming it.

Regarding de-listing fruits and vegetables from the APMC Act. After Rahul Gandhi had in January directed Congress Chief Ministers to remove vegetables/fruits from APMC Act, Haryana, Himachal Pradesh and Uttarakhand have followed his directive. It will be interesting to know whether vegetable and fruit prices have come down in these States.

Further reading: 
1. The Onion Story: It was all planned. 
http://devinder-sharma.blogspot.in/2013/08/the-onion-story-it-was-all-planned.html

2. What a Stupid Idea. Dehydrated onions is not what Indians need.
http://devinder-sharma.blogspot.in/2013/10/what-stupid-idea-sir-ji-chopped-and.html

How to kill farmers

At the AICC meeting in New Delhi, Rahul Gandhi made a mention of how he had asked his Congress chief ministers to exempt fruits and vegetables from the Agriculture Produce Market Committee (APMC) Act.  As per his directive, most Cong chief ministers had already removed fruits and vegetables, which have contributed much to raging food inflation, from the APMC Act by January 15. But has it helped reduce food inflation?

The prices had already come down in December much before Rahul Gandhi’s directive could make a difference. But what is more important is to understand whether the APMC Act is the villain of the story or whether the fault lies somewhere else. Let’s take a deeper look.

A day after Parliament approved FDI in multi-brand retail in Dec 2012, a newspaper report highlighted how the big retail was exploiting both the farmers as well as the consumers. The wholesale cash-n-carry Bharti-Walmart enterprise was buying baby corn from contract growers in Punjab at Rs 8 per kg, selling it in wholesale at Rs 100/kg and finally the consumers were paying Rs 200/kg. In other words, a farmer got only 4 per cent of the end price the consumer paid.

Take the case of paddy in Bihar, which is the only State to have repealed the Agriculture Produce Marketing Committee (APMC) Act way back in 2006. It had freed farmers from what many pro-reform economists call as an ‘archaic provisions of a socialist era’ thereby allowing farmers the freedom to sell their produce to whomsoever they like. Against the procurement price of Rs 1,310 per quintal that Punjab farmers got this year, Bihar farmers have somehow managed to sell paddy at something around Rs 800-900 per quintal. This is nothing but a distress price, a classic example of ruthless exploitation by the private trade.

Ironically, the Commission for Agricultural Costs and Prices (CACP) which is supposed to ensure remunerative prices to farmers lists Bihar as the top ‘market-friendly’ State as far as agriculture is concerned. Punjab, which has a network of mandis and provides an assured price to farmers year after year, is at the bottom of the chart. At a time when being market-friendly is the new mantra, CACP is asking the Punjab government to disband the APMC Act and allow markets to operate freely. In other words, it wants Punjab farmers to go the Bihar way.

What probably Rahul Gandhi has never been told is that only about 30 per cent of India’s farmers get the benefit of procurement prices. Rest 70 per cent farmers are in any case dependent upon the markets. If the markets were so helpful for these 70 per cent farmers, encouraging entrepreneurship and thereby improving livelihoods, I am sure by now the farmers in the food bowl of the country – Punjab and Haryana – would have demanded repeal of the APMC Act.

But it didn’t happen. The reason is obvious. APMC Act, despite all its flaws, provides an assured price and market to farmers. It is primarily for this reason that Punjab farmers are refusing to diversify from wheat and rice cultivation in the absence of an assured price mechanism for other crops. Madhya Pradesh this year is expected to take over Punjab in wheat production, not because of leaving farmers to the tyranny of the markets but providing them with a bonus above the procurement price.

I am amused when some economists blame APMC for the monopolistic market structure that restricts the entry of free trade and competition thereby denying farmers an economic price for his produce. This is completely wrong an assumption. Under the APMC Act, farmers bring produce to the designated mandis where the private trade is first allowed to make purchases. It’s only when there are no private buyers left that the Food Corporation of India (FCI) or the State procurement agencies step in to lift whatever is available at the minimum support price.

This is what irks the private trade. It doesn’t want to pay the minimum support price to farmers. If it can get paddy at Rs 800-900 per quintal in Bihar for instance why should it shell out Rs 1,310 per quintal to Punjab farmers? While I say this, the Gurgaon Chambers of Commerce and Industry have already asked the Haryana government to remove the APMC Act completely which will allow them to procure cheaper raw materials for the industry.

To say that market structures do not permit the entry of new players who want to set up cold chains and invest in other infrastructures is all bunkum. In seven years after repealing the APMC Act Bihar has seen any revolution in agricultural marketing. Farmers have been left in the lurch. Nor is the private trade interested to make investments. In fact, the industry wants to exploit the already existing supply networks in the frontline agricultural states like Punjab and Haryana.

Prior to the Green Revolution, and before the Agricultural Prices Commission was set up, farmers were free to sell their produce to anyone who offered them good prices. It was known to be an exploitative system wherein the trade squeezed the profit margin of farmers at the time of harvest. It was only when procurement prices were introduced that farmers got an assured price for their produce, and that is what encouraged them to produce more. An assured price and an assured market formed the very foundations of the Green Revolution. Procurement prices help farmers realise a fair and better price for their produce. This system needs to be improved and strengthened, not dismantled. 

There is no denying that over time some aberrations have cropped up in the way the mandis (as the public grain markets in India are known) operate. The APMC laws have the provisions to effectively regulate these mandis. But rarely has the government ever stepped in, and in fact it is because of the political cover to the powerful middlemen coterie that the entire mess has generated. For instance, why do the State Governments make a political appointee as the chairman of the APMC committee? 

But to take away horticultural produce from the purview of the mandis, and that too after the 2005 amendment in the APMC Act had allowed the private buyers to bypass the mandis and purchase wheat and rice directly from the farmers, is primarily aimed at killing the procurement system. This is the first step. More will soon follow. In other words, knowingly or unknowingly Rahul Gandhi is very cleverly suggesting destruction of the very foundations of food self-sufficiency built so assiduously over the past four decades. #

An abridged version appeared in The Hindustan Times, Jan 20, 2014.

Leaving farmers to reap the bitter harvest bit.ly/1bcyvWW 

Read also: Cartels cause runaway inflation. DNA Mumbai, Dec 30, 2013.

dnai.in/bXsg 

Cartels cause runaway food inflation. Break cartels if you want to honestly address inflation.

A typical organised vegetable and fruit market in India.  

Several years back, the late Nobel laureate Norman Borlaug had shared an interesting insight into the way Nobel prizes are awarded. At the peak of the solidarity movement in Poland, when Lech Walesa was leading a popular workers’ uprising, the Nobel prize committee decided to find out whether Lech Walesa deserved a Nobel Peace prize or not.

Borlaug told me that he was asked to lead a small team to Poland. After visiting a number of places, and meeting a cross-section of the stake-holders and others, he realized that the workers’ solidarity movement was actually fighting for cheaper food prices. But at no stage Walesa and other leaders of the popular movement showed any concern for the millions of farmers who were being asked to produce cheaper food for the workers. “What would happen to the livelihoods of those millions who produce food? If these farmers were expected to produce cheap food year after year, how would they and their families survive?”

For this reason alone, Borlaug said that Walesa didn’t deserve a Nobel Prize. But despite his team’s recommendation, the fact remains that Walesa was bestowed with Nobel Peace Prize.

Now you will ask me what has Lech Walesa’s Nobel Prize to do with the rising food inflation in India. Well, there is a strong correlation. There is hardly a day when I don’t find newspaper articles and comments on the need to do with the procurement prices to farmers. Corporate economists and free market lobbyists have been repeatedly telling us on the dire need to do away with the MSP for cereals like wheat and rice. The Commission for Agricultural Costs and Prices (CACP) too has been vociferously demanding the dismantling of the price support system for farmers, and letting the markets reign. 

So when the RBI governor Raghuram Rajan blamed the Agricultural Produce Market Committee (APMC) Act for the rising food prices, I wasn’t surprised. Unable to control the runaway inflation, propped up more by the rising food prices, the easier option is to shift the onus to the little understood role agricultural markets play in providing an assured price support to farmers.

At 7.2 per cent, the wholesale price index rose to its highest in the past 14 months ending November. The increase in inflation is being attributed mainly to the 15 per cent rise in food prices. Prices of vegetables had earlier shot up by 18.4 per cent in September, and the sharpest rise was seen in onion which had jumped by 323 per cent on a yearly basis. No sooner had the prices of onions come down the prices of eggs and meat has shot up. For the average consumers, rising food inflation is a more cruel form of indirect taxation.

Every year, the CACP recommends a minimum support price for about 24 crops. Out of these, primarily two cereal crops – wheat and rice – are procured by the Food Corporation of India (FCI) and on its behalf by some State agencies. This serves two purposes. First, the foodgrains that are procured by FCI serve as a buffer stock against any emergency and at the same time helps in meeting the food security needs of the poor. Whatever grain that comes into the mandis is first made available to the private trade to buy. It’s only when there are no buyers left that the FCI steps in to purchase it at the support price announced by the government, which in reality becomes an assured price for farmers.

What is little known is that only 30 per cent of the Indian farmers get the benefit of procurement prices. These are the farmers who have a marketable surplus which they are able to bring it to the nearest mandi. It is only in Punjab, Haryana, and parts of Uttar Pradesh, Maharashtra, Andhra Pradesh and Tamil Nadu (and now of course Madhya Pradesh) that a strong network of mandis operates. In the remaining 70 per cent of the country, farmers have to depend upon the private trade. And it is in these areas that farmers are ruthlessly exploited. For instance, while the paddy farmers in Punjab get an MSP of Rs 1310 per quintal, his counterpart in Bihar, where the private trade dominates, is able to sell at a distress price of around Rs 800 per quintal. Withdrawing price support for Punjab farmers will automatically bring them down to the level of Bihar farmers.  

A second explanation is that it is primarily because the farmer is not able to sell his produce directly to the trader (and routes it through the APMC mandi) that he doesn’t get a better price. This is an absurd argument considering that 70 per cent farmers have no access to mandisand therefore do not fall under the APMC Act. Isn’t it time to ascertain why the prices of cereals/vegetable/fruits are ruling high in areas where the farmers do not get the benefit of procurement prices? And as I said earlier, 70 per cent farmers are outside the ambit of the procurement system.

Not only vegetables, prices of egg and milk have also been on upswing. More recently, prices of eggs has shot up in Mumbai market to about Rs 60 per dozen. Milk prices too have been steadily rising. Since APMC Act has nothing to do with eggs and milk, why are the prices rising? The organized retail units like Reliance Fresh, Big Bazaar, Metro are allowed to purchase directly from farmers. Why these retail chains were unable to supply onions for instance at a cheaper price? Similarly, if I may be allowed to cite an example of a non-food sector, why are the air fares of airlines going up. You click three times on an air route and ticket price goes up. It is cheaper to fly to Bangkok and Kuwait than to go from Delhi to Goa.

The answer is simple. Whether it is food, egg prices or airline tickets, prices are being freely manipulated by strong cartels. In case of onions too, a very powerful cartel of a handful of traders had made a killing when there was only a 4.8 per cent shortfall in production. The APMC too is riddled with cartels. As past experience shows, even organized retail chains form cartels. Replacing one set of middlemen therefore with another is not the answer. The answer lies in breaking these cartels. 

Source: Cartels cause runaway inflation. DNA Mumbai, Dec 30, 2013.

dnai.in/bXsg 

Why food prices go up before the elections?

Sudden spike in onion prices for no apparent reason? 

It has come as a rude shock. After the unimaginable drubbing in the State elections, Congress party now realizes the folly it made in not controlling food inflation. Sonia Gandhi has admitted that rising inflation has been instrumental in building peoples’ anger against the ruling party.

They had taken it rather casually. Remember Agriculture Minister Sharad Pawar expressing his helplessness at rising prices. He said he didn’t know why the onion prices were rising. Instead of initiating tough measures, Delhi Chief Minister Sheila Dixit had pleaded with folded hands before hoarders and black marketeers not to raise the prices at the time of elections. Prime Minister Manmohan Singh had very conveniently blamed the global economic for the spirally prices in India. 

Onion prices were on boil. So were the prices of other seasonal vegetables. Ginger and Garlic selling for Rs 100 per kg, Peas at Rs 120/kg, Cauliflower at Rs 80/kg and even spinach sold at Rs 60 per kg. In fact, no other vegetable was available in the market for less than Rs 40/kg. Such high price prevailed when the monsoon rains had been more than bountiful, and there was no shortfall in production, defied all economic logic.

Let us not forget, prior to elections onion prices had remained abnormally high for several months – from July to mid-November, and had started receding just when the election process had begun. The question that needs to be therefore asked is that why inflation invariably spikes before elections? 

In early December, onion prices had crashed. According to a report in Economic Times (Dec 13, 2013) prices had halved to Rs 13/kg in three weeks in western markets. The report says that prices had stubbornly refused to come down before the assembly elections even when the supply was marginally low. If you have followed my earlier blogs, I had been saying that production fell by only 4 per cent whereas prices had gone up by 600 per cent in various markets. 

Well, the answer is not difficult to find. Over the years, the wholesale and retail trade in fruits and vegetables has monopolized the entire supply chain. Right from procuring vegetables from the farmers to making it available at your doorsteps through a network of hawkers is now an organized business. As I have been saying, these traders or arhtiyas have now turned into money bags for the political parties. No wonder, these wholesale and retail traders are affiliated to one political party or the other. For instance, the Azadpur mandi traders association in Delhi is aligned to the ruling Congress party. In Punjab, on the other hand the traders associations predominantly back the ruling SAD-BJP combine.

It is primarily for this reason that the major political parties had opposed bringing the parties under the Right to Information (RTI) Act. It is therefore a matter of convenience for both the political parties as well as the traders association. While the government remains conspicuously indifferent by not initiating any strong action against hoarding and manipulative trade practices, the trade goes for a killing. This understanding helps the political parties to meet a considerable part of the heavy electoral expenses.

Otherwise I see no reason why the vegetable prices should zoom prior to every elections. Onion prices were no exception. An investigation by a newspaper showed how the trade made a neat Rs 150-crore in just four days when prices peaked at Rs 4,500/quintal on Aug 13.  A sting operation by another TV channel exposed traders hoarding huge stocks in Madhya Pradesh. Even when the prices were touching the sky, the Agriculture Produce Marketing Committee (APMC) in Nasik had acknowledged that more than 2.5 lakh tonnes of onion were available with farmers in 66 villages of Lasalgaon. 

Subsequently, another expose by NewsX TV channel had shown that farmers had got as low as 0.50 paise per kg in Maharashtra while the price consumer paid was Rs 100/kg. Who benefited from such a massive manipulation? Your guess is as good as mine. 

Read it's Hindi version in Rajasthan Patrika, Dec 14, 2013.
http://epaper.patrika.com/c/2064129

Let's chop the onion cartel

Every time onion prices hit the roof, or for that matter, whenever food inflation inches upwards, it is amusing to see economists invariably pointing to supply-demand constraints and the urgent need, therefore, to modernise the supply chain. And that has always left me wondering why economists can never see beyond the fundamental prescription enshrined in the economic textbooks. It doesn’t always hold true.

The onion crisis is no different. At a time when the electronic media was screaming at the top of its voice, I heard many an economist, who had probably never been to a crop field, repeating ad nauseam what they had been taught in their classrooms.

Onion prices had hit a two-and-a-half year high in August at the back of fears of a drop in production in key areas because of drought last year, and in some areas, the heavy rains turning to be a spoilsport. The emphasis, therefore, was on the need to streamline the supply chain, with some newspapers even suggesting irradiating the vegetables to extend its shelf-life.

From a maximum of Rs 10 per kg in June, onion prices had shot up to Rs 70-80 per kg in a few weeks, finally stabilising at Rs 50-60 when the government announced a slew of measures, including imports and quantitative restrictions on exports. Although Union Agriculture Minister Sharad Pawar had said that prices would remain high until October when the new crop comes in, strangely the wholesale prices began to soften to coincide with the announcement of import-export measures.

This is not the first time the onion trade has played truant. In December 2010, onion prices were on fire. Even prior to that, onion prices had flared up for three years in a row between the months of September to December. And I had always maintained that barring some seasonal variation, there was no reason for onion prices to soar by 400-500 percent. Even this year, the production shortfall has been anticipated at a mere 4 percent and the prices have gone up by as much as 600 percent on an average. How can this stupendous price hike be attributed to supply-demand constraints?

For several years now, I have been saying that the extreme volatility in onion prices (and also that of other vegetables/ fruits) is the handiwork of a cartel that operates in the wholesale trade. A handful of trading families have cornered the entire trading activities, thereby very conveniently manipulating the market. Large-scale hoarding of onions goes on unchecked.

The reason is obvious. No political party wants to ruffle the traders with any stringent action. Traders hold the strings to the political purse, and a crackdown against hoarding and speculation would mean chopping off the financial cord.

It is not that cartelisation operates only in agriculture. Take the case of airlines. You click three times on a flight route on the Internet, and the ticket price goes up. Private airlines have charged as high as Rs 25,000 for a one-way ticket between Mumbai and New Delhi, taking advantage of cancelled flights that day. Now look at the prices of eggs. If supply-demand is the mantra, then how come prices of eggs are almost uniform throughout the country? How come the demand for eggs remains the same in New Delhi and Bathinda, for instance? It is because a handful of people/companies decide the egg price for the day.

I can go on with such illustrations. Often the blame is rested on the Agriculture Produce Market Committee (APMC) Act, which regulates the agricultural markets. But there is no APMC Act for the airline industry. And look how conveniently they have unbundled the prices to even charge for a seat preference.

In agriculture, organised retail players such as Reliance Fresh, Easy Day, Big Bazaar, Spencer’s and others who buy the produce directly from farmers, too, have failed to pass on the price benefit to consumers. Replacing one set of middlemen with another, therefore, is not the answer.

Source: Tehelka Issue 35, Vol 10. Aug 31, 2013

http://www.tehelka.com/lets-chop-the-onion-cartel/