- What are the concerns?
- Four step Solution
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GS (M) Paper-3: “Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints; e-technology in the aid of farmers”
GS (M) Paper-3: “Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.”
GS (M) Paper-2: “Government policies and interventions for development in various sectors and issues arising out of their design and implementation.”
- Pulses have seen an average annual inflation rate of 12%—the highest among food crops—in the past 12 years.
- A bumper crop production in fiscal 2017 (40% jump in production) accompanied by six million tonnes of imports and the exports and stock restrictions, led to oversupply and price collapse.
What are the concerns?
- Inflation peaks whenever there is a production shortfall.
- Consumers worry about high prices of pulses and producers about low prices.
- The price fluctuation has been broad-based across the pulses when compared with earlier cycles of production.
- Except Gram, the study of five key pulses—tur, urad, gram, moong and masur—shows that they all display a “cobweb” phenomenon, wherein production responds to prices with a lag, causing a recurring cycle of rise and fall in output and prices.
- The sowing decisions of the farmers gets affected, that depends on the prices observed in the previous period.
- The over or under produce crops triggers the price cyclicality further.
- The production also responds more to global price trends than domestic, due to open trade and exposure to the forwards market.
- The vulnerable segments are geographically dispersed asset, the poor small farmers have limited access to knowledge and markets that further affects production.
- MSPs are announced but the procurement has been relatively weak and often, pulses are sold below the MSP and even below the cost of production.
- Only a fifth of the area under pulses has irrigation support that exposes production to the vagaries of the monsoon and amplifies the price cyclicality.
- Most farmers sell their products locally below MSP due to lack of transportation and the long distances to mandis.
Four step Solution:
- Effective MSP & Production
- The government should raise procurement of pulses under the MSP scheme to make it effective.
- The procurement infrastructure needs to improve and focus sharpened on raising awareness of and access to government agencies procuring crops.
- The price stabilization fund could be used to improve procurement infrastructure.
- The government can use future market signals to fix MSP values and make appropriate interventions before crises occur.
- The farmers can then make their decisions based on expected prices and not past prices.
- Flexible trade policy
- Flexibility in export policy with regards to permitting exports of the restricted pulses during times of excess production, will help provide some cushion.
- Developing irrigation buffer
- Buffer stocks can be created during years of excess production and used in times of shortfall.
- Promote water-conserving irrigation techniques such as drip irrigation & develop an irrigation buffer to raise the production.
- Well-regulated markets
- The government and regulators should increase the farmer’s awareness and information about future markets.
- Price stabilization measures should be a mix of government intervention and developing market-based mechanisms to protect against price risks.
- Developing the infrastructure and markets for agricultural products should be the priority of the government.
- The government should reduce the transportation costs of farmers by linking them to markets with better roads.
- To incentivize private sector participation, ad hoc restrictions on stocks should be avoided.
- Forward contracts help reduce the uncertainty of future market prices.
- Infrastructure should be improved by grading and storage facilities, and electronically linked warehouses.
- The regulator will also need to ensure that mechanisms to check unfair price speculation are in place.
- An efficient administrative and policy mechanism is one that has systems to deal with price shocks & exigency situations.
- More steps are required to be taken by government, to deal with this mixed problem of pricing & production keeping the farmers in mind.