Context

A persistent slump in the commodities market despite substantial hikes in the official floor prices of major crops to  50 per cent above their production cost is among the issues the new government would need to address urgently.

Background

• Most of the commodities for which the government fixes minimum support prices (MSPs) are being traded at 10 to 30 per cent below these rates in the ongoing rabi marketing season.

• The situation in the last kharif season was no different. The only exceptions are wheat and rice in select areas where these  are procured by  official agencies and a few others like barley, tur (pigeonpea) and cotton, whose  demand outstrips supplies.

• Though pulses and oilseeds are also purchased in some areas by government-designated agencies, the quantities picked up by them are too meagre to impact the market.

• The government’s flagship price support scheme, PM-AASHA (Annadata Aay Sanrakshan Abhiyan), has remained virtually a non-starter.

• The losers in the process are the farmers who, it is feared, might resume their protests once the new government settles down in office.

Reasons for price meltdown

• The present commodity price meltdown can, indeed, be  attributed largely to factors such as consistent surplus production in the last couple of years, subdued global commodity prices and unfavourable domestic and external trade policies concerning agri-commodities.

• Besides, some imprudent moves such as offloading previously procured stocks and permitting imports while the domestic crops are still being marketed also seem to have contributed to it.

Flaws of PMAASHA –

• This aside, the PM-AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan) scheme has been marred by some basic flaws in all the three price support components:

• Physical procurement of stocks at MSPs, price deficiency payment of the kind tried out in Madhya Pradesh, and a few other states, and the participation of private  trade in the procurement and management of farm produce on a fixed-commission basis.

• The system of open-ended procurement of staple cereals, notably rice and wheat, has been in operation for decades and has served well to  run the world’s largest public distribution system but at a huge cost to  the exchequer.

• Open-ended procurement limited to few states – It has, however,  remained confined primarily to  parts of a handful of states  where the procurement infrastructure exists.

• Elsewhere,  even rice and wheat are traded at sub-MSP rates. Universalising this system to  cover all crops all over the country is unthinkable.

• Failure of price deficiency system – The price deficiency payment system, too,  has failed to  deliver the results because of a cumbersome registration procedure; mandatory sale through the regulated mandis dominated by  manipulative  middlemen; and capping total purchases at 25 per cent of production.

• Less participation by private traders – The third option of roping in private traders in price support operations has found no takers chiefly because the proposed commission of 15 per cent of the MSP for the operation involving buying, bagging, transporting, storing and disposing of the stocks is too meagre for the task.

Way Forward

• Apart from addressing these issues, several other measures may be needed to prop up agri-commodities prices.

• An export window as an outlet for surplus stocks is a must.

• This can be created by modifying import-export tariffs with an eye on boosting agri-exports.

• Besides, the farmers need to be incentivised to diversify their production by growing high-value crops, which could yield better returns without the government’s intervention.

• The overarching objective  of the policy regime has to  be  to  strike a balance between the farmers’  interests and inflation management