Safety Net For Farmers: Why MP’s ‘Mukhyamantri Bhavantar Bhugtan Yojana’ Matters

The Union government has set a target to double the farmers’ incomes by year 2022, however, there has been a wave of agrarian unrest in the last two years, with farmers not getting enough returns on their agricultural investments. The general consensus is that unless the market access for the farmers improves, farmers’ incomes will not increase.

However, the Agriculture Produce Marketing Committees (APMCs) continue to have a stranglehold on farm produce pricing. Except in a few states which have made it easier for farmers to sell perishable commodities, market access remains a major issue. The e-National Agriculture Market has focused on mandi connectivity in its first year, but trading volumes aren’t exceptionally high with most states reluctant to take powers away from APMCs.

Indian farmers continue to use rear view mirror to drive forward. When there is a shortage of pulses, everyone grows pulses next year. Then the supply outpaces demand and the price collapses. If there is a drought, farmers don’t grow enough and consequently don’t earn enough. If there is a bumper harvest, like it happens for onions and tomatoes periodically, a large chunk of the crop is wasted with poor access to supply chain and storage facilities.

In the interim, the governments, both at the centre and in the states, are left holding the can. They can neither anger the annadata nor the urban voter. The prices for agricultural produces should always be in Goldilocks equilibrium in India - too hot and the urban voter and the media will create a ruckus. Too cold and the farmers will suffer and media will still create a ruckus. The flawed system of Minimum Support Price (MSP) is used to find this Goldilocks equilibrium across a range of commodities every year.

The MSP system leads to governments buying farmers’ produce at a minimum price, irrespective of whether there is a demand for that commodity or not, or whether the commodity can actually be stored for future use. In Madhya Pradesh, the state government purchased a million quintals of onions last year, of which three fourths were destroyed for want of proper storage facilities. The government had to make the purchase or the farmers would have had a bad year with onion crops booming after a good monsoon.

The ideal solution of course would be to have deep last mile supply chain investments and professional brokers buying from farmers and finding sellers in urban centers as an asynchronous process. This end state may take several years to reach. While this larger storage, processing, and marketing issue is resolved, states still have to find an efficient and cost-effective solution to deal with the recurring agrarian problems. On 29 August, the Shivraj Singh Chouhan government in Madhya Pradesh launched a new agricultural scheme named Mukhyamantri Bhavantar Bhugtan Yojana, which promises to be the second best palliative for the states’ farmers.

Under Bhavantar Bhugtan Yojana, literally the price difference payment scheme, government will pay farmers the difference between official MSP and the rate at which they sell their crops in mandis. This selling rate is often less than the MSP with farmers obliged to sell through the APMCs. The Madhya Pradesh government will now make good this difference, paying directly in the farmers’ bank account linked to Aadhaar. The farmers will have to register for this scheme in existing 3,000-odd agriculture cooperative institutes, which are currently involved in government procurement of wheat and paddy. The registration process will involve generating a registration reference number, and taking farmers’ details including Aadhaar linked bank account and contact information. The farmer will have to produce mandi receipts and use the registration reference for making a claim, while identifying and authenticating using Aadhaar. The claims once settled will be directly paid in the farmers’ bank accounts. In the interim, the farmers will get a claim reference number for tracking purposes.

The government will also fix a modal price - average of the price for the commodity in Madhya Pradesh and two other major states where the crop is grown, with readings taken over two months. The farmer will get the difference between the MSP and the higher of the modal price or own selling price in the account.

For the first year, the state government is introducing the scheme for eight crops mainly in the oilseeds and pulses category. These include groundnut, moong, maize, ramtil, soybean, til, tur, and urad. These commodities were chosen as the state government does not usually focus much on their procurement and farmers dealing in these tend to lose more if anything in the farming value chain goes amiss. Another reason for choosing these commodities was that the Union government fixes a MSP for them, so it is relatively easier to implement the program and calculate potential expenses upfront.

The selling period for these crops will be 16 October to 15 December this year, excluding tur for which the designated selling period will be 1 February to 30 April 2018. Depending on how this experiment goes - the farmer registrations will be open all of September - the state government will decide whether to extend the scheme to some of the Rabi season crops too. The government expects almost seven million farmers to register in the specified one month window.

Ramesh Chand, now a member of the government think tank NITI Aayog, had earlier chaired a panel, which had recommended such a pricing safety net. Pilots have earlier been conducted in Hinganghat in Maharashtra in 2015 and in Goa in 2009, but neither scaled up. Madhya Pradesh government will hence not have much experience to draw upon in implementing the scheme. But if this proves successful, it can be a good interim measure for the other states while the APMC acts are modified or partially scrapped.

This price difference payment mechanism is better than the government physically buying crops for three reasons. Firstly, the process is based on self-selection - farmers who genuinely find it difficult to get the right prices for their commodities can register in advance irrespective of whether they use the scheme or not. Secondly, the government will upfront know the potential quantum of claims and cash outflow, so it can plan better. As of now, the government has to scramble to make emergency financial assistance arrangements after a crisis has occurred. This post-facto action comes at a great political cost with no option for fiscal rectitude - the government can’t be seen trying to save money in the middle of a crisis. Thirdly, the government will no longer need to invest in any storage and crop handling facilities, thus resulting in lesser damage and wastage.

The program is still susceptible to the whims of the APMCs. If a farmer is not able to sell his produce at all, there will be no reference point to lodge a claim against. This is quite possible if APMC cartels refuse to buy - not unthinkable. There could be any number of micro or macro reasons for such behaviour - local factors like enmity with an individual, lack of mandi level storage and handling facility or if there is a bumper crop making purchase of every delta unit costlier for the traders.

Ultimately there is no substitute for creating strong local supply chain backbone, investing in storage, transportation and processing equipment and machinery. Until that is achieved, the Mukhyamantri Bhavantar Bhugtan Yojana, to some extent, will help stabilise the farm prices and introduce some level of fiscal certainty in the lives of participating farmers.

As Shivraj Singh Chouhan makes a bid to win the 2018 assembly election in Madhya Pradesh, mollifying the irate farmers in the state is a top priority for him. Stellar growth achieved in agriculture sector in the state under Chouhan has been slower in trickling down to farmers than expected. Chouhan government cut a sorry figure with the Mandsaur protests and resultant violence leading to six deaths in June 2017. The Mukhyamantri Bhavantar Bhugtan Yojana is partly a response to manage the aftermath of the Mandsaur protests.

This scheme is not a root cause solution, but it is a welcome stop gap arrangement in the complex and un-remunerative world of agriculture.