Editorial 1 : A Political Hike
Context: The magnitude of increase cannot be justified by economic reasons alone
Introduction
- The Government has hiked the minimum support price (MSP) of wheat to be sown in the coming 2023-24 rabi season by Rs 150 to Rs 2,275 per quintal. That’s the highest spike since the same level of increases in the two consecutive crop years of 2006-07 and 2007-08 during the previous United Progressive Alliance (UPA) regime.
Minimum Support Price (MSP)
- The Minimum Support Price (MSP) for a commodity refers to the price at which the government is obligated to purchase the produce from farmers in the event that the market price falls below this threshold.
- Government announces MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
- It is based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), which considers various factors such as cost of production, demand and supply, market price trends, inter-crop price parity, etc.
- While recommending MSPs, the CACP looks at the following factors:
- The demand and supply of a commodity;
- Its cost of production;
- The market price trends (both domestic and international);
- Inter-crop price parity;
- The terms of trade between agriculture and non-agriculture (that is, the ratio of prices of farm inputs and farm outputs);
- A minimum of 50 per cent as the margin over the cost of production; and
- The likely implications of an MSP on consumers of that product.
Importance of MSP
- When the farmers are fully assured about the guaranteed price or MSP for their crops with assured markets to sell their produce, they are always keen to make higher investments with the benefit of getting higher returns.
- Minimum Support Price (MSP) takes care of price fluctuations that have a direct effect on the farmers and their products, along with market imperfections, as rising and falling prices make the market work accordingly.
Recent Hike
- The latest procurement price raise has both a political and economic dimension. Politically, this is the last one before the 2024 Lok Sabha elections and ahead of next month’s state assembly polls, with wheat a key rabi crop in Madhya Pradesh and Rajasthan.
- As far as economics goes, the current MSP rise has been largely prompted by wheat stocks in government warehouses, at 239.95 lakh tonnes on October 1, hovering just over the required normative minimum of 205.2 lakh tonnes for this date. There are also worries over the prospects for the new crop, given that water levels in the country’s major reservoirs are only 82.4 per cent of last year’s and 94.4 per cent of the 10-year average for this date.
- Moreover, a strengthening El Niño, which is projected to continue through the winter and spring till May, could affect rainfall during the rabi season. Winter rains, at least a couple of spells, provide moisture as well as help sustain low temperatures that the wheat crop requires. The Government obviously wants to take no chances in an overall tight supply situation, especially in the run-up to national elections.
Still, Hike not justified
- But that does not justify the magnitude of MSP hike granted, for two reasons.
- First, wheat is a default crop option for farmers with access to irrigation in much of northern and central India. They don’t need any special incentive, over and above assured government procurement, for growing it. Wheat accounts for almost half of the country’s total area under all rabi crops. If acreage goes up further this time, it will hardly be courtesy of a Rs 150/quintal higher purchase price.
- Secondly, if tight supplies are a concern, the government can import. European Union export prices for wheat have fallen from $360 to below $250 per tonne in the last one year. Russian wheat is available cheaper at $230-235 per tonne. Even after adding ocean freight, insurance and other costs, imports would be viable, at least on government account, for building its own stocks.
Way forward
- The Shanta Kumar Committee was set up in 2014 to review the Food Corporation of India (FCI) and suggest reforms. The committee recommended a shift from price-based to income-based support for farmers.
Editorial 2 : Agents of Prosperity
Context: In the past two years, Eastern UP has emerged as a hub of vegetable and fruit exports. Progressive farmers have associated with FPOs of the region and become agents of change.
Introduction
- The government has sought to fulfil its vision of enhancing farmers’ income by adopting a multi-pronged strategy — enhancing productivity, reducing costs, improving marketability, crop diversification, risk mitigation and adopting climate resilient technologies.
- Fragmented holdings are one of the major challenges faced by this sector. They prevent economies of scale and discourage investment in agriculture. In recent years, Farmer Producers’ Organisations (or Companies) have countered this challenge.
Farmers Producers Organizations
- An FPO is a collective of farmers who have holdings or work in a geographical cluster. It can be registered under the Companies Act or as a cooperative under the Societies Registration Act.
- FPOs have demonstrated their potential to trigger cluster-based farming, bringing in economies of scale in input management facilitating agri-extension, enabling technology adoption, providing quality assurance and helping farmers market their produce.
Government’s initiatives
- The Centre’s scheme to form and promote 10,000 FPOs envisages collaboration amongst farmers in activities like input management. Such cooperation can enhance the capacities of agriculturists, help in value addition and facilitate the creation of links with markets.
- The Uttar Pradesh government has constituted a dedicated FPO cell to handhold these outfits. The objective is to ensure convergence of schemes, address compliance issues and provide continuous support to FPOs so that they become agents of prosperity in the rural economy.
- The FPO Shakti portal has been launched to provide a platform to all active FPOs in UP. It is a one-stop solution for grievance redressal, forging business partnerships and fostering convergence.
- The Centre has constituted the Agriculture Infrastructure Fund to provide interest subvention of 3 per cent for credit extended to develop post-harvest infrastructure. This incentive is available to FPOs. The UP government provides an additional 3 per cent subvention to FPOs and agriculture entrepreneurs, thus reducing the overall interest on such loans to around 3 per cent.
Government efforts yielding results
- FPOs are playing a pivotal role in crop diversification and value addition. UP’s FPO portal shows 1,316 of these outfits are involved in cereals, 378 are in the business of horticulture products, 338 are involved with pulses, 231 with oilseeds, 48 work on millet products, 101 focus on medicinal and aromatic crops and 170 in sugarcane-based products.
- Hundred FPOs have established seed processing units in UP. Several of these units sell their seeds in the open market; others have signed MOUs with state and National Seed Corporations for buy-back arrangements.
- Climate resilient strategies like direct seeding of rice are being channelised through FPOs.
- FPOs are becoming engines for innovations When the UP government introduced its flagship scheme, One District One Product, Siddharthnagar district was tasked with farming Kalanamak rice. An FPO has spearheaded this initiative. Several of these outfits are working to improve nutrition by developing the value chain of high-nutrient agri-products like millets, mushrooms, moringa and fortified cereals.
- In Rampur, the FPO collaborated with the district administration for the “Aahaar Se Upchar Tak” campaign to supply nutrition-rich products to anganwadi kendras. Their efforts led to an improvement in nutritive outcomes in the area.
Issues faced by FPOs
- According to a study by the National Bank for Agriculture and Rural Development (NABARD) in 2015, only 15% of farmers in India are aware of FPOs. This lack of awareness can lead to low participation in FPOs and a lack of trust in their ability to deliver results.
- A study by the National Council of Farmer Cooperatives in 2018, found that only 30% of FPOs in India have access to credit. This lack of financial resources can limit the ability of FPOs to invest in infrastructure and other resources.
- A study by the Confederation of Indian Industry in 2019, found that only 40% of FPOs in India have qualified managers. This lack of management skills can lead to poor decision-making and a lack of coordination, which can hinder the organization's effectiveness.
- Only 20% of FPOs in India have access to basic infrastructure, such as storage facilities, transportation, and processing facilities.
Way forward
- Many FPOs lack technical skills, inadequate professional management, weak financials, inadequate access to credit, lack of risk mitigation mechanism, and inadequate access to market and infrastructure.
- They need a lot of data on markets and prices and other information and competency in information technology.
- The above issues such as working capital, marketing, infrastructure have to be addressed while scaling up FPOs.
- Getting credit is the biggest problem. Banks must have structured products for lending to FPOs.
- They have to be linked with input companies, technical service providers, marketing/processing companies, retailers, etc.