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1.Retrench India’s farm economy to sustain it (Live Mint)

2.Threat to India’s small dairy farmers (Down to Earth)

 

1.Retrench India’s farm economy to sustain it (Live Mint)

Synoptic line: It throws light on the fact that our agriculture policy needs to focus on improving productivity instead of price support. (GS paper III)

Overview

  • Indian state has often played in the agricultural sector. Its policies have created artificial incentives that are unsustainable, an inefficient drain on public funds, or both. Madhya Pradesh is now attempting to address some of this with a policy that is aimed at reducing the distortionary impact of the prevailing procurement regime.

Looking for the reforms

  • The Bhavantar Bhugtan Yojana launched by Madhya Pradesh govt. will replace government procurement with compensatory payments when market prices are below the MSP. It is being implemented as a pilot scheme for eight crops.
  • The hope is that this will sidestep the implementation shortcomings of the procurement system. These extend from the lack of government storage facilities and supply chain logistics to the fact that despite the government declaring MSPs for 25 crops, it largely procures only rice and wheat. Second, it will be less distortionary, freeing up space for the market to set rates.
  • There may very well be improvements when it comes to the first benefit. But it is unlikely that compensatory payments will not be distortionary. The knowledge that the government will make up the shortfall will incentivise traders to set rates well below the MSP.
  • Then there is the fact that the scheme has a two-month window, which means that the rush to sell in that period will also push prices down.

Need of agriculture reforms

  • Truly transformative agricultural reforms will require work on three levels. The first level is the one most often in the public eye. The unfortunate mandi system has come in for a fair heap of justified abuse here. With the 2003 and 2017 versions of the model Agricultural Produce Market Committee (APMC) Act, successive administrations have attempted to liberalize this system, providing for private markets and integrated state markets as a step towards a national market facilitated by the National Agriculture Market (eNAM).
  • Teething troubles aside, the problem with this is that it still operates within the mandi  What is needed is for the government to get out of the business altogether and that is only possible with a switch from the public distribution system to direct benefit transfers.
  • This, however, will affect only farmer remuneration. Improving farmer efficiency and productivity requires a second level of reforms aimed at inputs. The Pradhan Mantri Krishi Sinchayee Yojana aims to extend irrigation cover to all forms and maximize water-use efficiency over a period of five years with an outlay of Rs50,000 crore.
  • In a water-stressed yet groundwater-dependent country like India, this is only possible with comprehensive rural electrification, allowing for techniques such as drip irrigation. The other major reform needed here is access to formal credit. The current dependence on informal credit leaves farmers beholden to middlemen and traders who are often the credit suppliers, thus undercutting the former’s bargaining power.
  • The third level of reforms are the most politically unpalatable. Independent India has a long and unfortunate tradition of romanticizing the rural economy and those who participate in it. For a sustainably healthy agricultural economy, there is one prerequisite above all: The number of people participating in it must be drastically reduced and the entire endeavour must be corporatized to the extent possible.
  • There is no feasible way to make such a fragmented agricultural economy workable. Relaxing the rules for foreign direct investment in retail to improve agricultural logistics is well and good, for instance but taking advantage of improved supply chains effectively requires scale. So does accessing credit, rationalizing crop rotation and inputs, and weathering seasonal risks.
  • Measures such as enabling large-scale contract farming and corporate farming will help here but the only genuine solution is job creation in non-agricultural sectors, a long-haul target. Rolling back the tradition of marginal farming will in turn allow for the dismantling of the MSP system—instituted in the 1960s to facilitate the Green Revolution and long past its sell-by date.

Way ahead

  • The agricultural sector is one of the handful where inelastic demand for the products, the deleterious public effects of supply shocks and inherent risks for suppliers mandate a government role. Save New Zealand a low population, high gross domestic product per capita state no country has successfully managed to do without it.
  • The trick is to limit that role to the essential, improve its efficiency and allow the market to operate unfettered to the largest extent possible. That will require expending more political capital than any government has been willing to do so far.

Question– What type of reforms are needed in MSP regime to make it truly responsive to Indian demands?

2.Threat to India’s small dairy farmers (Down to Earth)

Synoptic line: It throws light on the impending crisis for the milk sector in India. (GS paper III)

Overview

  • India’s ongoing milk crisis has been pushing small dairy farmers out of business and helping dairy multinationals to expand at their expense, finds a new report. It argues that localised and people-driven milk markets based on agro-ecological livestock culture would be on its way out due to current milk crisis.

Impending crisis

  • Recently, a report titled ’The milk crisis in India: The story behind the numbers’, has documented a link between global development in dairy industries and slowing down of local small-scale dairy business.
  • The global slump in skimmed milk powder (SMP) prices since 2015, according to the report, is a result of China and Russia stopping import of SMP. It created glut in the EU and sent ripples in the global market.
  • The situation worsened after April 2015 when the EU scrapped its milk quota, which regulates the production of milk and control its overproduction. The increase in production of milk in these countries has affected export of SMP from India.
  • The export from India during fiscal year 2014-15 reduced to 30,000 tonnes as compared to 130,000 tonnes the year before.
  • The Indian dairy companies had attempted to dispose of SMP stocks in domestic market after recombining it with butter fat and converting it back to liquid milk. It led to slump in procurement price of milk in domestic market.
  • Less money from milk is pushing small dairy farmers in debt. While this trend is global, Indian farmers have not received any support from the government even as their counterparts in the EU and USA have.

How it will impact customer and producer

  • The decision of private dairies and cooperatives to dispose SMP in the domestic market led to a price war, resulting in a further fall of prices and even lower procurement price.
  • While cheaper milk brought temporary relief to the consumers, the quality of milk available is poorer. The milk made from SMP has lower nutritional value as compared to fresh milk. Fresh milk is richer in vitamins and minerals than SMP. Moreover, a consumer is not able to determine the age of milk.

Impact on poor farmer

  • It pushed small dairy farmers out of the market but helped big corporations and cooperatives to expand their business. Small dairy farmers are the backbone of India’s milk production.
  • Our international counterparts such as the USA, EU and New Zealand have strategies in place to address the issue of plenty of low-priced milk in the market. They have started capturing the world market through investment, mergers and partnership across the globe.
  • The local and small dairy farmers became contract-based workers for big corporations. They have now become more vulnerable as they are now part of ecologically unsustainable production strategies.

Way ahead

  • Government must intervene to prevent the looming crisis by empowering the small farmers by the way of milk intensification benefits.
  • Moreover, Government must encourage and provide incentives to form farmer’s association and milk cooperatives as such organised dairy processors like Vijaya Dairy in Telangana, Vishakha Dairy in Vishakapatnam, Kalahasthi Cooperative in Andhra Pradesh which are procuring and selling locally showed resilience in the market slowdown.

Question– What are the problems for India’s milk sector? What steps can be taken by the govt. in this regard?