Lower Prices For Farm Produce:  Market Forces Teach Congress A Lesson  

A couple of days ago, there were at least three similar tweets by so-called farmers who said they sold 1,500 kg of garlic at Rs 3,000. The tweet, one of which drew Congress president Rahul Gandhi’s attention, said they ended up with a net payment of Rs 2,000 after paying Rs 1,000 as freight.

The tweets went on to further say that the production cost of garlic was Rs 40,000 – though it did not say if it was per acre or for whatever their land holding is. The issue here is that the Congress and its supporters tried to take people for a ride, not realising that prices for any commodity traded in any terminal market can be checked online. In their eagerness to blame the ruling Bharatiya Janata Party at the Centre, they failed to realise that it could boomerang on them.

First, let us make this clear. Agriculture is a concurrent subject, which means both the Union and state governments have a role to play in formulating policies or implementing them. However, when it comes to mandis or local agricultural markets better known as agricultural produce marketing committees (APMC), the state governments supervise and control them.

Towards this, let us consider this example relating to the National Spot Exchange Limited (NSEL), which had to shut in 2013 down due to irregularities. NSEL was an online spot market for agricultural produce that would help trading across the country.

Now, how can an agricultural product produced in, say, Karnataka be sold in Punjab? To solve this puzzle, the United Progressive Alliance (UPA) government in 2007 came out with a gazette order.

The order, amending Section 27 of the Forward Contracts (Regulation) Act, 1952 exempted one-day forward contracts of NSEL from its the provisions of the 1952 Act. However, the gazette order said that NSEL trading would be subject to regulation by authorities regulating spot trade in areas where such trading took place.

In this case, the UPA government allowed online spot trading of agricultural products across the country by terming them as one-day forwards with the contracts mandatorily having to be settled by evening. Why we point to this is that spot trading of agricultural produce is controlled by the state governments.

This makes it clear that it is the state government that has to manage, supervise or take action in cases where farmers get lower prices. Also, the state government will have to step in to regulate any cartel being formed by traders.

A study by the Agricultural Development and Rural Transformation Centre at the Institute for Social and Economic Change in Bangalore on onion prices surging to Rs 100 a kg in 2011 found that traders had formed a cartel to push up the rates. Similarly, traders can form a cartel to hammer out prices and this is where the state governments come into play.

Be that as it may, Congress and its supporters, without realising these facts, have dug a hole for themselves. A search online on garlic prices shows that on 26 December, some consignments in four markets of Madhya Pradesh fetched as low as Rs 100 a quintal.

These markets were Neemuch, Dewas, Shajapur and Narsinghgarh. In Nimbahera market in Rajasthan’s Chittorgarh district, garlic consignments fetched as low as Rs 150 a quintal.

On 27 December, Neemuch and Shajapur saw garlic being traded for as low as Rs 100 a quintal, while things looked better in Rajasthan. Isn’t Congress in power in these states and shouldn’t its governments take steps to check the low prices to farmers?

Including 27 December, Shajapur APMC in Madhya Pradesh has been witnessing garlic getting prices as low as Rs 100 a quintal for five continuous sessions. A closer look at the price trend since 1 December shows that barring 19 December, the price at which most trades took place - known as modal price, has dropped to Rs 500 and below since 14 December.

The plunge in prices also brought back memories of the riots triggered at Mandsaur in Madhya Pradesh in June last year. Farmers resorted to violence after onion prices crashed, resulting in police firing at the violent mob. Six farmers were killed in the firing.

After the violence, the Madhya Pradesh government came forward and bought all the onion produced by the state farmers at Rs 800 a quintal. A look at data last December shows that prices had ruled above Rs 1,000 a quintal.

The situation now is different. Since 13 December, prices have dropped at the Mandsaur APMC. The modal price has been hovering between Rs 450 and Rs 350. Surprisingly, not a whisper of a protest.

In Madhya Pradesh, Rajasthan and Chhattisgarh, the Congress had painted the Bharatiya Janata Party, which is ruling at the Centre and was in power before the recent elections to these states, as anti-farmer. The party had promised loan waivers and better realisation for farmers’ produce.

The ousted Shivraj Singh Chouhan government in Madhya Pradesh had come up with schemes like Bhavantar Bhugtan Yojana, which ensured farmers were paid a fair price if their produce fetched a lower price. The Congress government, headed by Kamal Nath, has not said it would discontinue but is yet to take action.

The reason for garlic prices to crash is that there is a production glut. Last year, garlic fetched a very good price. At this point of time, the modal price ranged Rs 1,000-Rs 1,500 a quintal. This resulted in many farmers opting to grow the pungent crop only to face the stark reality of prices crashing due to oversupply this year.

In some cases, farmers even pluck unmatured garlic and rush to market to gain from higher prices. This also results in their produce being offered a low price.

A similar scenario is playing out in onion too. In Chhattisgarh, the Congress party promised to pay Rs 2,500 a quintal as minimum support price (MSP) for paddy if it comes to power. Till now, no such announcement has come.

In Raipur APMC, even fine variety paddy is not fetching anything above Rs 1,600 a quintal, lower than the MSP of Rs 1,750 announced by the Centre.

The fact is that the Congress should realise the ground realities with regard to agriculture. The country is facing a glut in quite a few commodities starting from rice to pulses to oilseeds to vegetables.

It is sheer economics at play when a glut results in lower prices. There can be a support system but everything has its own limit.

The Centre might have announced MSP but the fact is that such a support price is not statutory or mandatory. MSP primarily come into play in procurement of food grain as the Union government has to maintain buffer stocks so that the country can face any food emergency. Unless and until farmers are given the mandated MSP, they will not come forward to sell it to government agencies in charge of procurement.

As regards other crops, a price lower than MSP is a signal for the government to look at market intervention. Such interventions have happened in the case of maize (corn), pigeon pea (arhar), groundnut, cotton and copra but not frequently.

Therefore, it is only befitting of the Congress to realise that it should not play politics when the demand-supply scenario plays out in the market. It shouldn’t try to politicise the fall in prices, lest it finds itself in a situation as now.