Wednesday, 10 December 2014

Nurturing agriculture

The steep fall in global agricultural commodity prices, after a multi-year bull run, is good news for Indian consumers as it is likely to hasten the decline in domestic inflation. But policymakers cannot afford to ignore the flip side of this trend. The emerging global glut in cash crops such as cotton, rubber, maize and sugar, which has sent their prices down by 15 to 20 per cent in the last six months, risks the precipitation of a crisis in Indian agriculture.
With global demand evaporating, exports of agricultural commodities such as cotton, rubber, tea and maize have come to standstill in recent months. With export prospects turning bleak and domestic prices under pressure from cheap imports, producers are now saddled with excess stocks that they are hard-pressed to liquidate. Agri-processing companies in sectors such as sugar, after reporting significant losses this year, have run up large dues to their farmers and are now desperately seeking a bailout. These trends have also forced the domestic market prices of agricultural crops such as rubber, maize and cotton below their minimum support prices (MSPs) in recent months. This is likely to have a direct and immediate impact on rural incomes, which were buoyed over the last five years by greater crop productivity and better realisations, thanks to booming exports. Given that rising rural affluence was a key driver of economic prosperity during this period, this is a shift that could well upset the nascent economic recovery.
What is needed at this juncture is a directional shift in the Centre’s policy priorities — from shielding consumers from runaway inflation to ensuring that farmers receive a remunerative price for their produce. Here, merely continuing with the old policy fixes of the UPA such as hiking MSPs for crops, dispensing low-cost agricultural loans or slapping ad hoc barriers on imports are unlikely to yield results as global pressures will quickly put paid to them. Instead, the Centre must push ahead with structural reforms in agricultural markets. As for sugar, it is time mills were allowed the flexibility of altering their product mix between sugar and ethanol and moving to a transparent market-linked cane pricing system, where farmers get a profit share. Nudging States to relax the provisions of the anti-market APMC Act, thereby giving farmers direct access to bulk buyers, is also the need of the hour. Steps to evolve a regulated national spot market for agri-commodities that can set benchmark prices and introduce commodity options (this requires the passage of the amended Forward Contracts Regulation Act) will empower farmers with better price intelligence. Direct benefit transfers for fertiliser and other input subsidies will provide income support to farmers at times of need. Without such reform measures, the BJP’s election promise ensuring a ‘minimum’ 50 per cent profit to farmers on their agricultural produce, will have a hollow ring.

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