Agriculture Produce Market Committees

It’s Time for a 10-Year-Plan that Says How Much Rice and Wheat Will Be Procured From Each State

Though there is no road map to reduce the production of wheat and rice, it is now possible to reduce India’s dependence on Punjab and Haryana for food security by procuring from non-traditional states.

Since the enactment of three agriculture legislations by the Centre in September, sections of the media have rightly or wrongly projected Punjab, and to a much lesser extent Haryana, as a villain.

This has led many to believe that Punjab farmers have been exploiting the minimum support price (MSP) procurement mechanism. And it doesn’t help that the state’s stubble burning is now seen as the primary contributor to Delhi’s pollution, while other factors are seen as only minor irritants.

It is ironic that Punjab’s success in increasing its production and productivity of wheat and rice and setting up a smooth procurement ecosystem is being increasingly ignored in favour of other political narratives. At the height of the COVID-19 induced lockdown and restrictions, Punjab showed light by procuring 127.14 lakh tonne (LMT) of wheat in April and May 2020.

The main reason, however, for Punjab’s diminishing importance for India’s food security is the setting up of robust procurement machinery in Madhya Pradesh (wheat) and Odisha, Chhattisgarh, Andhra Pradesh, Telangana, Tamil Nadu and West Bengal (rice).

At the height of the global food crisis in 2007-08, wheat procurement in India was 111.2 LMT only. At the time, India’s Union food secretary had to travel to states to plead with them to procure more so that wheat import could be kept to a minimum. MP procured just 57,000 MT and UP’s contribution was a minuscule 54,000 MT. Punjab and Haryana contributed 67.8 LMT (61%) and 33.5 LMT (30%) of wheat respectively.

Also Read: Punjab’s Challenge to the Centre Shows the Limitations of MSP As Agriculture Policy

In the case of rice also, Punjab was a star performer. In Kharif Marketing Season (KMS) 2007-08, the total procurement of rice in the country was 287.4 LMT, of which Punjab contributed 79.8 LMT (27.8%). Chhattisgarh and Odisha provided 27.4 LMT and 23.6 LMT respectively.

Since then, several states have performed admirably in putting into place efficient procurement machinery. In KMS 2019-20, Chhattisgarh procured 52.2 LMT of rice while Odisha contributed 47.6 LMT.

This massive increase in procurement in non-traditional states was prompted by the decision of the National Development Council in 2007 to approve the launch of the National Food Security Mission with the objective of producing an additional 25 MMT of food grains. This included 10 MMT of rice, 8 MMT of wheat, 4 MMT of pulses and 3 MMT of coarse cereals. This was to be achieved by the end of the 12th Five Year Plan in March 2017.

The state governments of MP, Odisha and Chhattisgarh ramped up their procurement operations by involving co-operatives, setting up a computerised database of farmers and paying the MSP directly into their bank accounts.

The results are for everyone to see. In 2020-21, the wheat procurement in MP was 129.35 LMT, more than Punjab’s 127.14 LMT. In 2017-18, MP’s yield of wheat was only 3 tonnes/ha against Punjab’s 5 tonnes/ha. As MP brings more area under irrigation, we can expect it to produce and procure even more wheat.

UP has been an inconsistent performer in wheat procurement. In 2018-19, it procured 53 LMT but this year it has procured only 35.77 LMT.

Newspaper reports suggest that wheat and paddy prices in UP and Bihar are lower than the MSP and therefore, some quantity of wheat produced in these states is reportedly being procured in Punjab and MP. In the ongoing KMS 2020-21, Punjab has procured 132 LMT of rice while its production is estimated to be just 114 LMT. Newspaper reports suggest that paddy is available in neighbouring states at Rs 800-1,000 per quintal while the MSP is Rs 1,888 per quintal.

Since the procurement operations are weak in UP and Bihar, it is not uncommon that traders buy wheat and paddy from farmers at lower rates and in collusion with APMC staff in Punjab and Haryana, it is shown as locally produced and procured at MSP. In Punjab, the state government has closed 4,000 paddy procurement centres in sub-yards. Distress sale is not a new phenomenon in Bihar and only 5,000 tonnes of wheat was procured in the April-June period this year. Rabi maize was sold at 40-50% less than the MSP in Bihar. It seems that the farmers have lost any hope of getting a fair price through procurement at the MSP. It is, therefore, no surprise that in the Lokniti-CSDS post-poll survey, agriculture was not mentioned as even one of the ten important issues in the Bihar assembly elections.

The farmers’ agitation in Punjab is primarily focused on the demand for continued procurement of wheat and paddy at the MSP. Even though the Union Ministry of Food has not issued any written orders confirming that procurement will continue, as in the past, from the APMCs. The Centre has refused to pay a rural development fee of 3% of the MSP in Punjab.

Farmers from Punjab stage a protest outside Krishi Bhawan after they walked out of a meeting with agriculture secretary over the new farm Bills, in New Delhi, October 14, 2020. Photo: PTI

The way forward

There is a consensus that there is a need to reduce paddy cultivation in water-stressed regions of Punjab, Haryana and western UP but there is no roadmap of how to address this formidable challenge. India has been exporting about 8 million MT of non-basmati rice every year, at a price which is generally lower than comparable Thai rice. The reason is higher than the required production of rice, even in water-stressed regions. Similarly, India has been producing more wheat than required but it cannot be exported as it is not competitive in the export market. As a result, there has been an accumulation of stock with the government.

Though the government has not come out with a road map to reduce the production of wheat and rice, it is now possible to reduce dependence on Punjab and Haryana for food security by procurement from non-traditional states. A ten-year plan indicating the targeted procurement of rice and wheat from each state can reduce uncertainty caused by excessive production and procurement.

An IFPRI study of Indian diets has found that households in the lowest deciles get much lower calories from proteins than recommended. So, there is a strong case to increase the production of protein-rich pulses by giving incentive to farmers to reduce the production of carbohydrate-rich wheat and rice.

The three recently enacted farm legislations – the Farmer’s Produce Trade and Commerce (Promotion and facilitation) Act, 2020, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 and the Essential Commodities (Amendment) Act, 2020 are unlikely to achieve the above objective.

Also Read: Why Governments Need to Advise Farmers on Alternative Cropping Patterns

Private buyers are not going to rush to Punjab and Haryana to purchase their requirement of wheat and (common) rice. They would much rather buy from states where the MSP mechanism is weak so that they can buy at a much lower price. Unfortunately, even Punjab’s amendment to the Farmer’s Produce Trade and Commerce (Promotion and facilitation) Act, 2020 seeks to only continue the existing MSP induced cropping pattern of wheat and rice.

So, the real solution to the MSP conundrum lies in making the cultivation of protein-rich crops more profitable. This may require direct income support to farmers to switch from wheat and paddy. It may also require direct benefit support to poor households to buy protein-rich pulses from the open market. Despite all the claims of success of Aadhaar, even the poorest households are not identified and their bank accounts are not mapped. As a result, it was not possible to give them money through DBT even during the COVID-19 pandemic.

One of the most effective ways to address protein deficiency in children is through the distribution of eggs under the mid-day meal scheme. There is no reason to force vegetarianism on young children from households where meat-eating is not a taboo.

Siraj Hussain is a former Union agriculture secretary. Jugal Mohapatra was chief secretary of Odisha and Union secretary of rural development.

Bharat Bandh Against Farm Bills: All You Need to Know

Farmers fear that the MSP regime will fall by the wayside and want it to be made a legal right.

Note: This article was originally published on September 18, 2020, and was republished on September 25, 2020, in light of the nationwide strike called against the farm Bills. It was also updated to include the passage of the Bills in the Rajya Sabha.

On September 18, Prime Minister Narendra Modi appealed to farmers across the country to ‘beware’ and not get swayed by ‘misinformation’ that they will not get fair prices for their crops.

Over the last few weeks, farmers – largely in the states of Haryana and Punjab – have been protesting three agriculture ordinances which were introduced in May this year and passed by the Lok Sabha on September 15 amidst opposition by several political parties, including Bhartiya Janata Party ally Shiromani Akali Dal (SAD). The Bills were also approved by the Rajya Sabha amidst protests from opposition parties on September 20 and 22.

The issue grabbed front page real estate when SAD leader Harsimrat Kaur Badal in a surprise move quit as Union minister for food processing industries describing the three agriculture Bills as ‘anti farmer’.

So, why has the issue of the three agriculture legislations become so contentious?

The three pieces of legislation are aimed at:

1) Amending the Essential Commodities Act to deregulate prices and quantity sold of certain commodities deemed essential,

2) Allowing and facilitating contract farming

3) Allowing private markets to be set up outside the physical boundaries of the ‘Agriculture Produce Market Committees’ (APMC) mandis.

Effectively, it is the third point that has irked farmers the most. The fear is that once the prevailing hegemony of the APMC collapses, private operators/traders/commission agents will dictate price (It is true that for most agricultural commodities in most states this is already the case, but we will come back to that).

Farmers and farmer leaders fear that once private markets are set up outside the APMCs, the APMC will have few buyers. This is because a key feature of the new legislation is that in the ‘trade areas’ – the new markets – no market fee, cess or levy shall be charged to the farmer or the trader. Under the old system, these charges could add up to a significant proportion of the transactions – as high as 8.5% in Punjab.

Farmers prepare meals during their ongoing protest outside the residence of former chief minister Parkash Singh Badal against three agriculture-related bills, at Badal village in Sri Muktsar Sahib, Friday, Sept. 18, 2020. Photo: PTI

So, the new legislation tilts the balance in favour of the private markets set up by traders. “It is not a level playing field,” says social scientist and politician Yogendra Yadav, who has also been a leader of farmer movements in the last few years.

“No one will go to the APMC if there are no taxes outside APMC. The traders will find it cheaper to buy outside. They might even pay farmers a proportion of their gains to lure them outside the APMCs and in two three years’ time the APMC structure will collapse.”

So, one of the fears, as articulated by Yadav, is that the new legislation paves the way for dismantling the APMC structure. “Yes, the apprehension is that this effort of the government is not to improve APMCs but to dismantle them,” Yadav said.

Once that happens, the fear is that the ‘open markets’ will operate as oligopolies where a bunch of traders come together to set a price no trader goes above.

Also read: Kejriwal Terms Three Farming-Related Bills ‘Anti-Farmer’, Says Party Will Vote Against Them in Parliament

The argument in favour of allowing private markets to flourish is that this will eventually benefit the farmers as it will mean that ‘free trade’ will take place and the market will move closer to the utopian perfect competition thus ensuring that the farmer gets a just price for her crop.

“These Bills will increase competition and promote private investment which will help in the development of farm infrastructure and generate employment,” agriculture minister Narendra Tomar said recently.

That argument seems quite tenuous if one looks at how the only state, Bihar, which has repealed the APMC act has performed. The state revoked the APMC act in 2006 citing the above made argument.

It has led to the virtual dismantling of the APMC structure in the state, with close to zero government procurement of crops that fall under the minimum support price regime (MSP).

Members of various farmers organisations hold a protest over agriculture related ordinances, in Patiala, Friday, Sept. 18, 2020. Photo: PTI

Bihar experiment

One of the methods by which the APMC, in theory, leads to better price for farmers is through a transparent auction mechanism where a bunch of traders bid on the farmer’s produce and the highest bidder buys the produce.

This system does not exist in the private mandis that have come up in Bihar often leading to low prices for farmers and extreme volatility between seasons. For instance, the price of maize in Bihar dropped from around Rs 2,200 a quintal last year to around 1,300 per quintal this year.

As agriculture and food policy expert Devinder Sharma has noted, evidence suggests that the Bihar experiment has not worked in favour of farmers. “The idea was to attract private sector investments in marketing infrastructure where efficient markets were expected to provide for better price discovery. Unfortunately, nothing like that happened,” he wrote in The Hindu Business Line earlier this year.

Another fear that farmer and farmer leaders have is that the new legislation will pave the way for reduction in the quantum of purchase under the MSP regime.

The concern is that even though the new legislation does not directly or indirectly suggest any changes to the MSP regime, it is just a precursor for things to come and that the government’s intention is to slowly but surely dismantle or drastically curtain procurement operations under the MSP regime.

Also read: Only Six Delhi Farmers Have Benefited From AAP’s Much-Touted Plan to Increase MSP

According to Yadav, this worry stems from the way the Narendra Modi led BJP government has acted since 2014.

“Look at the steps this government has taken – preventing states from providing bonus above MSP, then the Shanta Kumar committee report (which said that food subsidy Bill should be reduced and government procurement rationalised), the government saying that procurement of these quantities of wheat and rice is unsustainable. All of these are steps taken to move away from the MSP regime,” he said.

For now the Centre has assured farmers that the MSP regime is here to stay. “MSP will stay, I want to assure all of you,” agriculture minister Narendra Tomar said.

Another question that has been asked is that why the protests are largely confined to the states of Haryana and Punjab.

According to BJP ally Badal, who quit as union minister over the issue, this is not true. “Farmers are agitating not only in Punjab but also in Haryana, Rajasthan, UP, Maharashtra. There is opposition in south India,” she said.

Yadav also contends that there are protests in other states. “There are protests in other states too. For example, there are huge protests happening in Karnataka. There are protests in Madhya Pradesh too,” he said.

A Bharatiya Kisan union member protests against three ordinances passed by the Centre amid the COVID-19 pandemic, at Badal village, Sri Muktsar Sahib, Punjab, September 15, 2020. Photo: PTI

But, he does concede that the extent and kind of mobilisation seen in Punjab and Haryana has not been seen elsewhere. “Yes, in a sense, Punjab and Haryana are leading this movement but there is no doubt that this will now spread across the country.”

One reason why the protests are particularly vociferous in Punjab and Haryana is because of the organised nature of farmer unions and organisations in these two states which have significant mobilising powers and ground presence.

Another crucial factor is that state procurement at MSP is particularly strong in these two states. Between 85% and 90% of wheat and paddy that is sold in the markets in Punjab and Haryana is procured by government agencies.

This procurement also forms a major chunk of overall procurement in the country. For instance, in the rabi season this year, 51% of the wheat procured by government agencies was procured from Punjab and Haryana.

What is the way out?

Farmer organisations are saying that the way out is easy. “Just add a clause to the Bill that MSP will be made a legal right,” said Yadav.

This has been a long-standing demand which has even been suggested by the government’s own Commission for Agricultural Costs and Prices (CACP) as far back as 2018. The commission had said that most farmers are unable to sell at MSP and have to settle for prices which are well below the MSP and hence legislation should be put in place to ensure that farmers are not forced to sell below MSP.

In 2018, this Bill was even introduced in parliament as a private member Bill by then MP Raju Shetti. However, it did not come up for discussion.

So far the government has not responded to this demand of farmer organisations.