Background :-

The main policy instruments to support farmers in India include subsidised fertiliser, power, agri-credit and crop insurance on the input side, and minimum support prices for major crops on the output front. But a recent study done jointly by OECD and ICRIER estimated that trade and marketing policies of India have inflicted a huge negative price support to Indian farmers.

Trade policies of India negative impact :-

According to the OECD study the producer support estimate (PSE) for India works out to be a negative 14% of gross farm receipts for the period 2000-01 to 2016-17, primarily because of restrictive export policies (minimum export prices, export bans or export duties) and domestic marketing policies (due to Essential Commodities Act, APMC, etc).
India has a fragmented market and trade restrictions due to provisions and use Essential commodity act, stockholding limit and Agriculture produce marketing committee (APMC) act.

Phasing Out Pro-Consumer Bias

Protecting domestic prices from global trends has been a major factor behind India’s stringent agricultural trade policies.

Concerns:-
However, a recent ICRIER and World Bank study pointed out that global price trends, through multiple conduits, transmit into domestic markets.
The study concluded that bans and restrictions only defer the transmission. But global and domestic prices eventually converge in the medium to longer run. Thus, while farmers lose the timely opportunity to explore global markets, the main aim of restrictive policies, which is to protect domestic prices, is also not fully met. A gradual phasing out of consumer bias in trade policies will enable farmers to explore suitable opportunities in global markets.

Developing an Effective Policy on Stock Management

• An effective policy on stock management of food grains will eliminate overstocking situations and make these quantities available for exports ‘in the normal course.’
• In July 2012, the Centre approved the export of two million tonnes of wheat to dispose off excess stock and make space available for the forthcoming kharif crop. With a proper food management policy in place, excess stock can be utilised for immediate export and cases of distress exports can be avoided.
• Even the WTO recently asked India to expedite the overhaul of food grains inventory management so that the need for exports from public stockholding of these items can be obviated.
• India’s trade policy in agriculture has a pro-consumer bias which implicitly taxes farmers by placing export restrictions on different crops, said a joint study released by The World Bank and Delhi-based Indian Council for Research on International Economic Relations (ICRIER).

Marketing policies failure:-

• Marginal returns on subsidies are way below those from investments. The results show that expenditure incurred on agri-R&E (research and education), roads or education are 5 to 10 times more powerful in alleviating poverty or increasing agri-GDP than similar expenditure made on input subsidies.
• Over time a rapid increase in input subsidies has squeezed public investments in agriculture. Excessive input subsidies have caused large scale inefficiencies in the agri-system.
• For example, fertiliser subsidies, especially on urea, have led to an imbalanced use of soil nutrients.
• Subsidies on irrigation water have resulted in the inefficient use of scarce water.
• Highly subsidised power to agriculture has led to over-exploitation of ground water. Subsidies on interest rates on crop loans has diverted substantial amounts of agri-credit to non-agricultural usage.
• Although the new crop insurance scheme, PMFBY, has dramatically reduced the burden of premiums that are paid by farmers, its effective implementation and quick settlement of claims into farmers accounts remains a challenge.

Weak Producer – Consumer Linkages:

• There is a disconnect amongst what the Indian farmer produces and what the consumer demands. The farmer is not connected to aggregators, food processors and retail chains to help shape the nature of his produce.
• As a result, produce remains the same annually, largely dependent on farmers and is often driven by the government’s MSP program.

Weak Supplier Power:

• The farmer is barely empowered as a supplier. He continues to be small & marginal, inadequately resourced, ill-informed on markets and marketing, ill-equipped to manage risk, burdened with credit & debts and is dependent on traders to reach the buyers.
• Agriculture market is primarily governed by APMC act.
• The dominant role of middlemen among others is primarily responsible for farmers not realising a reasonable price for their produce, lowering farm income and profitability.

Way forward :-

• Developing a policy on processed and value-added food exports can help India capture the expanding global market.
• The Organisation for Economic Co-operation and Development (OECD) and the Food & Agriculture Organization’s (FAO) recent report forecast a declining global prices outlook for India’s major agriculture export commodities like rice, sugar and cotton among others. This, along with a need to increase agricultural exports, calls for a diversification of the country’s export basket.

Agriculture focused Export Oriented Units (EOUs):-

• Domestic policies like MSP, rather than the global demand-supply scenario, are driving farmers’ sowing decisions. A policy that focuses on developing Agricultural EOUs can help India overcome this trend and increase its export basket.
• These EOUs can focus on agricultural products that have a high demand in global markets, even if they are not consumed locally in large quantities. The successes of shrimp and beef exports are good examples on which to lay the foundation for such policies.

Supporting Pulses and Oilseeds Production:-
Domestic support, in the form of government procurement and reactive foreign trade policies, is required for oilseeds and pulses. Policy support will ensure a consistent increase in area sown and production, thereby reducing the country’s reliance on imports.

Developing Agricultural Infrastructure:-

• India lags in the area of agricultural infrastructure, an effective policy for which will enhance crop production and yields. Greater production will enhance exports. Increased production of oilseeds and pulses will help reduce the agricultural import bill.
• An infrastructure development policy along with crop production will also provide support to the processed and value-added food products industry (e.g. better cold-chain facilities).

Parting Thoughts :-

• Effective agricultural trade policy will ensure better incomes to Indian country’s farmers. They will also assist the government in achieving the goal of doubling farmer incomes by 2022.
• The smarter way to support agriculture and alleviate rural poverty would have been to invest in agriculture at a faster rate than the growth of subsidies.
• The present system of delivering subsidies through a price policy needs to be shifted to an income policy which would be well targeted and minimise leakages, something along the lines of the JAM trinity.

Investments need to be prioritised towards agri-R&D, roads and education :-

• Interestingly now at a global level the private sector is leading in agri-R&D. If India needs to access that technology, it needs to develop a proper IPR regime which is in the interest of farmers as well as investors.
• India has a lesson to learn from China in this aspect too. ChemChina, a PSU, has taken over Syngenta Corporation for $43 billion, which is a leading player in crop protection and seeds.

Comprehensive vision document to promote and establish direct linkages between growers and consumers:

• A policy framework that promotes structured, direct linkages between professional aggregators, food chain collaborators, food processors with large FPOs/Land Banks will reduce uncertainties drastically. This will ensure a fair share of the value created at the terminal end insuring the farmer from concentrated risk.
• ICRIER study recommended a host of policy reforms such as phasing out the built-in consumer bias, create space for private players to have access to integrated markets, and using income transfers to protect both poor consumers and small farmers. It also suggested creating a predictable and stable trade policy.

Committee on Doubling Farmers Income under the chairmanship of Ashok Dalwai has recommended :-

• Rolling out the model Agriculture Produce Marketing Committee (APMC) Act 2017 which would facilitate single-point levy of taxes
• Promote direct interface between farmers and end-users
• Give freedom to farmers to sell their produce to whomsoever and wherever they get better prices.