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Punjab farmers got 30% higher crop price than their Bihar counterparts due to MSP, says new study

Findings of University of Pennsylvania’s institute reveal that deregulation of markets helped traders more than cultivators; also, private players did not help in creating agriculture infrastructure
By Chetan Chauhan {Edited by Narender S Thakur}, New Delhi
UPDATED ON DEC 20, 2020 08:11 PM IST

The farmers in Punjab’s regulated agriculture markets got 30% more price for their produce than their counterparts in unregulated and partially regulated mandis in Bihar and Odisha in 2018-19, revealed a new study that termed minimum support price (MSP) as the only risk-management instrument for cultivators.

The study was conducted by the University of Pennsylvania Institute for the Advanced Study of India through surveys and research in collaboration with local research institutes to understand the dynamics of agriculture trading systems in the three states.

It comes at a time when the farmers from Punjab, Haryana and some other states are protesting against the central government’s three farm laws, demanding they be scrapped.

In Punjab, 90% of the farm produce is traded in markets regulated under the Agriculture Produce Marketing Committee (APMC) Act by licensed commission agents.

Bihar abolished the APMC Act in 2006 and traders and private players can buy produce directly from the farmers. Odisha has both the market system and farm gate procurement.

Shoumitro Chatterjee, co-author of the study, said in a tweet, “We found that the price gap between open market sales and public procurement was a significant 30% and deregulation of markets, as in Bihar, had helped traders, more than farmers as their access to farm produce improved.”

“The erstwhile APMC markets (now unregulated) in Bihar still remain the main produce selling venues that have a dilapidated infrastructure. On the other hand, the Punjab markets have better infrastructure and are within the reach of farmers,” he tweeted, clearly showing that private sector investment has not helped build agriculture infrastructure in Bihar on the expected lines.

The study said that only 5% and 11% mostly big farmers in Bihar and Odisha sell their produce to government agencies whereas in Punjab even the small and marginal farmers benefit from government procurement.

Nearly 80% Bihar and Odisha farmers are small and marginal, according to the agriculture ministry data.

“Inadequate procurement centres, delay in start of procurement and payments are the reasons most farmers in Bihar and Odisha prefer to sell their produce to the private players,” the study conducted in seven districts of the three states found.

Despite these constraints, the farmers prefer selling to government agencies because of the assured MSP. In Bihar, the farmers told the surveyors that they would like to sell maize, the flagship crop, to government because of the MSP but there are not enough procurement centres, it added.


‘Govt insurance scheme has poor penetration’

“The study clearly shows that the MSP is the only risk management instrument available to the farmers as crop insurance scheme of the government has poor acceptability and penetration,” Chatterjee said in a tweet.

Crop insurance was availed by less than 7% farmers in Bihar and Odisha while it was even less than 1% in Punjab. The reason for this is a cumbersome process to get claims and low insurance value of the produce.

Unlike Punjab, the farmer-trader relationship was weak in Bihar and Odisha where due to the absence of the mandi system the growers seldom sell their produce to the same dealer every year, it was revealed.

Contrary to the popular perception, there is transparency in the farmer payment system in Punjab due to online disbursement of money. The commission agents or arhtiyas can pay only up to Rs 10,000 in cash and the rest has to be transferred to the farmer’s bank account. The government transfers commission of agents directly into their bank accounts, as per the Central government’s mandi system reforms in 2018.

In Bihar and Odisha, there is no such transparency as unregulated small traders have replaced the licensed ones. “In Odisha, there were instances of cartelisation, collusion during the sale of chilly and farmers were forced to sell at lower prices,” the study said.

Former Union agriculture secretary Siraj Hussain said, ““It is a comprehensive study which summaries the ground reality. It clearly outlined that marketing challenges are more pronounced in Bihar where commission charged by middlemen for several crops in informal markets are much higher than in the regulated markets in Punjab and Odisha.”


‘Assured market needed
for crop diversification’

The study also underlined that as MSP could be a hindrance in the way of crop diversification as it provides price assurance for a given crop, with the farmers growing too much of wheat and paddy in Punjab and Haryana despite a high demand for cereals and pulses.

But diversification cannot be achieved through legal reforms as it requires several coordinated public investments on the ground, Chatterjee said.

R Ramakumar, a professor at the Tata Institute of Social Sciences, Mumbai, said if the government wants the farmers to diversify crops through the three laws, it would weaken the MSP system. “The government needs to sit with the farmers and assure them of compensation for the income loss due to diversification. This can be done through higher MSP for crop or through cash,” he said.

Punjab food and civil supplies minister Bharat Bhushan Ashu said the mandi system was well established and working well for decades. “For crop diversification, the farmers need assured market to sell their produce. The area under basmati (not covered under the MSP regime) saw a massive jump last year, but got reduced this time because the prices dropped. Though the government has declared MSP for 23 crops, there is no assured procurement for most,” he said.

Admitting the state was short of regulated markets, an official of the Odisha food and civil supplies department said they are continuously upgrading facilities so that more small and marginal farmers can sell their paddy under the MSP system.

Bihar agriculture minister Amrendra Pratap Singh said findings of the study are far from ground reality. “What is the basis of such findings? They (researchers) do not know the system. The MSP of paddy is Rs 1,868 per quintal and it is transferred directly to the farmers’ accounts. You cannot deposit less than the MSP in their account,” said Singh.

(With inputs from bureaus in Patna, Chandigarh and Bhubaneswar)

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