Tackling agri price volatility
The politics have suddenly become hotter as chillies proved to be not so hot in the market. Not just chillies, prices falling at a significant pace...
Market can inflict underserved losses on the farmer, even when he had applied modern technology and produced efficiently. This is more so now. Presently market-led production is the key to an efficient production system. Better prices and larger surpluses would come to the producers who understand the market better and produce what the customers want.
But, market movements are not determined by demand and supply factors. Prices are speculative in character. The exploitative character of markets reduces the farmer to a mere victim. Instead, farmer should be the king of agricultural markets
The politics have suddenly become hotter as chillies proved to be not so hot in the market. Not just chillies, prices falling at a significant pace much to the distress of peasantry has become an ubiquitous phenomenon with turmeric, pulses and any other agricultural commodities not spared by the volatility of prices in agricultural markets.
Beyond the immediate political reaction, an honest reappraisal of policy instruments is required to mitigate the suffering of farmers due to price crash. No other commodity in the market suffers such an amplitude of fluctuation in prices.
Someone with even preliminary understanding of how agricultural markets function will not perceive this problem as one induced by demand-supply mismatch. The unprecedented price fall in a day or two does not in any way explain the demand-supply theory.
We will witness neither a second green revolution nor much progress in dry land farming unless farmers get assured and remunerative prices for their produce.
Price stabilisation fund
The recommendation of M S Swaminathan-led National Commission on Farmers to set up a Market Price Stabilisation Fund jointly by Central and State governments and financial institutions to protect farmers during periods of violent fluctuations in prices remains unheeded. Such a fund can be set up by either from the market surpluses or through an exclusively created fund for this purpose.
More planning is required in agricultural production to prevent glut in the market. There were instances where the farmers had gone in for certain crops when the market was not deep enough to absorb increased production, leading to collapse of prices.
To prevent such a situation, land use may have to reflect the market needs more closely. But, present approach of fire-fighting the price volatility should give way to more scientific and structural approach to tackle the recurring problem of crash in prices of agricultural commodities in the markets dominated by the traders in collusion with corrupt market officials.
External trade liberalisation in agricultural products has significantly contributed to price volatility. Our farmers are vulnerable to international price fluctuations. This means prices often bear no relation to state level or national output trends.
Sharp fluctuations in crop prices over the years mislead farmers who normally tend to sow crops based on possibility of prices.
As recommended by the Jayati Ghosh-led committee appointed in united Andhra Pradesh, the government should introduce a system of variable tariffs and, if necessary, place quantitative restrictions on certain agricultural commodities, in order to ensure stable import prices that protect domestic cultivators and their livelihoods.
Even the MS Swaminathan committee also recommended introduction of quantitative restrictions on imports of farm commodities which constitute the backbone of the livelihood security.
The marketing of agricultural produce has become one of the critical areas where the farmers are exploited. Farmer-centric marketing should be promoted for ensuring remunerative prices to the farmers. Markets are heavily loaded against the small producers. Cartels and trader networks manipulate these and rig prices systematically.
Even the efforts to link producers and consumers were ineffective as Rythu Bazaars are often controlled not by farmers but by traders, from whose control they must be released.As farmers do not have adequate storage facilities of their own and existing storage facilities are difficult to access because of lack of information or resources, farmers are forced to sell their produce to traders at cheaper prices.
Traders, middlemen and officials of marketing department join hands to bring down market prices during the peak harvest season only for the prices to often shoot up in the subsequent days, which does not benefit farmers.
The existing market yards need to be increased, strengthened and their functioning has to be improved. Each mandal should have a market and depending upon the need, purchasing centers may be created for a group of five to six villages. Market committees must be managed by the farmers themselves. Funds collected as market fees from the farmers should be utilised exclusively to improve the requirements in the market yards. Markets should be modernised by utilising the information technology.
In fact, the amplitude of fluctuation of agricultural prices in India before trade liberalisation had been relatively much less compared to international markets precisely because of the system of State procurement at least for certain commodities. The system of State procurement is aimed at ensuring income security for farmers and prices stability for the consumers too. But, instead of strengthening it, the procurement has been systematically eroded.
As the Jayati Ghosh committee recommended, the capacity of procurement agencies for procuring agricultural commodities needs to be assessed well in advance of the harvest, and appropriate arrangements should be made to enhance the capacities of the procurement agencies.
Efforts to augment the incomes of farmers are essential as agricultural commodities often witness price volatility. Such efforts can include emphasis on allied sectors like live stock, dairy, fisheries, forestry etc., that would greatly insulate farmers from sharp fall in agricultural prices. Besides, rural processing and value addition will be essential to ensure suitable prices and prevention of post-harvest losses. Suitable low-cost processing machines need to be popularised in rural areas.
Reform the markets
Market can inflict underserved losses on the farmer, even when he had applied modern technology and produced efficiently. This is more so now. Presently market-led production is the key to an efficient production system. Better prices and larger surpluses would come to the producers who understand the market better and produce what the customers want. But, market movements are not determined by demand and supply factors. Prices are speculative in character.
The exploitative character of markets reduces the farmer to a mere victim. Instead, farmer should be the king of agricultural markets.
The agricultural markets suffer from many malaises such as, distress sales immediately after harvest, absence of grading and packaging at the farm level and inter-locking of credit and commodity markets. There is a need to have more transparency in the auction systems for curbing the manipulations of prices by the traders.
As the National Commission on Farmers observed, “In an agrarian economy like India, the fluctuations and the levels of prices of farm produce have considerable impact on the growth of production, the inter-sectoral distribution of income and the purchasing power with the majority of the rural population, which to a large extent determines the growth trajectory of many industries. The Government has, therefore, to constantly watch and intervene, when necessary, in the matters concerning agriculture marketing.”