MP’s Bhavantar policy for farmers set to become a national template
The scheme, rolled out in 2017, may work for a larger political programme as it could be cheaper than procurement, and could also stem anger when markets crash.india Updated: Jan 24, 2018 07:27 IST
Madhya Pradesh is experimenting with a scheme to directly pay the state’s farmers for market losses in eight notified commodities, mainly oilseeds and pulses, a policy that’s never been tried before in the country.
It’s an attempt to intervene in markets, which are mostly opaque, when rates for farm produce fall below federally set floor prices.
The scheme could be a template for a larger national programme for two reasons. It can stem politically damaging rural anger when markets crash. At the same time, it can be far less expensive for the state than the other available option: procurement. The challenge is to ensure scheming traders don’t benefit from it at the cost of farmers.
The Mukhya Mantri Bhavantar (literally deficit price) Bhugtaan Yojana or chief minister’s deficit-price payment scheme, rolled out in October 2017, marks a new shift in the way the government rescues farmers.
Under current policy, the central government sets minimum support prices or MSPs — supposed to act as a floor price to avoid distress sales — for 23 crops but it largely benefits only wheat and rice growers because only these commodities are procured by the government on a large scale at the set price.
Broken markets, layers of intermediaries and colluding traders often mean farmers face volatile swings in prices. Currently, they are getting negative returns in many crops, according to Ashok Gulati and Siraj Hussain, who are Infosys chair professor and senior fellow respectively at the New Delhi-based think-tank Icrier.
Their calculations show that for summer-sown crops in 2017, net margins for farmers were -30.6% for urad (black gram), -13% for maize, -25.7% for arhar (pigeon pea), -13.7% in soyabean, -4.6% in groundnuts and -0.10% in cotton.
- Direct cash transfers to farmers for market losses
- Could be replicated nationally to curb rural dissent
- Government fills gap between federally-fixed prices and market rates for select crops
- MP government paid Rs 140 crore in the first cycle (Oct 16-31, 2017)
- In the second cycle (November 1-30), Rs 746 crore was paid
- Scheme currently covers oilseeds and pulses
The margins were calculated by subtracting the market price from the projected ‘C2 costs’ as a percentage of ‘C2 costs’. ‘C2 costs’, as defined by the Commission for Agricultural Costs and Prices, denote expenses such seeds, fertilizers, machinery, labour, working capital as well as ‘opportunity costs’ such as imputed rental value of land and family labour.
Bhavantar operates at two levels. For ‘fair and average quality’ produce, it seeks to pay farmers the difference between MSP and the modal price prevailing in three states. Modal prices are a kind of derived average prices.
For produce that’s below ‘fair and average quality’ or slightly inferior, the government pays only the gap between modal prices, not MSP, and the actual prices received by farmers.
In a country that spends more on farm subsidies than capital investments in agriculture, the price-deficiency payment scheme will add to government costs, but help farmers in times of distress.
The policy was first advocated by Ramesh Chand, the head of agriculture at the state-run Niti Aayog think-tank, as a solution to collapsing prices.
“India imports oilseeds worth Rs 70,000 crore and pulses worth Rs 18,000 crore. We are running this scheme on a pilot basis to offer profitable prices for these crops,” says Rajesh Rajora, principal secretary in the state’s agriculture department.
Policymakers are smart, but profiteering traders can be smarter. Since the state was anyway paying for farmers’ losses due to lower prices, evidence shows traders in Madhya Pradesh colluded to suppress prices further.
In the last week of October 2017, the first month of the scheme’s rollout, prices of urad beans in the Bhopal market fell to Rs 1,500-1,750 a quintal, 67% lower than the MSP of Rs 5,400 per quintal. The average prices in neighouring Rajasthan were Rs 3,500-Rs 3,800 a quintal, raising the suspicion of a price-lowering cartel in Madhya Pradesh.
Moreover, there were reports of farm produce being ‘re-sold’ to traders in fake transactions. State agriculture minister Gaurishankar Bishen played down such possibilities.
“Small incidents may have taken place of say 10 quintals. Even that could not have happened without farmers colluding with traders. But we are plugging loopholes as we learn.”
When the government buys wheat or rice, it spends significant amounts in ‘economic costs’, or the cost for transporting and storing the produce. Bhavantar works out cheaper. Rajora recently made a presentation before the Union agriculture ministry to show the extent of savings vis-à-vis MSP-driven procurement.
For example, according to the presentation, the costs of procuring 128 lakh quintals (each quintal is 100 kg) of soyabean that arrived until January 1 in MP at an MSP of Rs 3,050 per quintal, would have cost Rs 3,198.49 crore.
Under the Bhavantar scheme, paying the difference between MSP and average prices for the same quantity worked out to just Rs 424.61 crore, which is just 10.84% of the procurement cost.
Of the 60 lakh-odd farmers, nearly 22.1 lakh farmers have enrolled for the Bhavantar scheme. Even among those who enrolled, farmers who actually chose to avail of it are fewer in number, pointing to logistical hurdles. In Indore district, only about 20-22% farmers registered for it, says Renu Parashar, the scheme’s nodal officer for the region.
For instance, of the 17.71 lakh tonnes of total urad output in MP, 8.1 lakh tonne or just 45.75% was registered under Bhavantar. Of this, farmers actually chose to claim benefits for 8.1 lakh tonne, or 70%.
Rajora, the official manning the scheme, says since the quantity of produce for which payouts were made is less than the total produce, there was no possibility of largescale fudging in transactions, as alleged.
So far, Rs 140 crore had been paid for the first phase of the scheme (Oct16-Oct 31), while Rs 746 crore was paid in the second phase (1 Nov-30 Nov).
Rajora has made three recommendations to the Centre to strengthen the scheme in case it’s adopted nationally. One, to discourage poor quality crops, he said, anything sold at less than 50% of the MSP should not qualify for the scheme. Two, strategies should be made to ensure that the difference between
MSP and modal prices shouldn’t be large. Third, the entire transaction between the trader and farmers should be digital.
“It’s a good scheme but how long these things are sustainable, I don’t know. In the long run, it’s important to address imperfections in the market by reforming them,” says Pravesh Sharma, former agriculture secretary of the state.
Even if it succeeds, the scheme may not benefit vegetable farmers since determining a national benchmark price for horticulture produce is tough. For six years in a row, India’s horticulture output has outstripped foodgrains. In 2016-17, horticulture production stood at 283 million tonnes, compared to 273 million tonnes of foodgrains. That’s a huge market to take care of.