Farm conundrum

Farmers in India are complaining of poor returns, and many are even committing suicide, while many agricultural prices around the world reach record levels. Indeed, the forecast is that agricultural prices will continue to rise through 2008. How can the two realities exist side by side? The answer is that, for many products, domestic prices have been kept under check through curbs on the trade "" including on the large trading and food processing companies who have emerged as substantial buyers of farm produce. There are stocking limits and controls on movement, besides export restrictions. The domestic price of wheat, the crop most in news in recent months, is more than 30 per cent below that in the world bazaar; indeed, large-scale imports have taken place at prices far in excess of domestic rates. Maize prices too rule much higher overseas than in India, because of the new demand to feed the ethanol market. Several other agro-commodities, including sugar and politically sensitive onions, have been affected at different stages by the government's interventions. Governments talk of farmer welfare, but when the concern is inflation, the consumer comes first and the farmer-producer suffers.

This may be understandable, but artificially depressed prices lead to a negative cycle of low investment, poor productivity and low agricultural incomes. For instance, wheat prices have been tightly controlled, with the result that both its acreage and production have been either static or in decline in recent years. In contrast, maize is in demand in the export market and also as poultry feed in the domestic market, so its acreage as well as production has gone up steadily and hit a record 13 million tonnes in the last kharif, in part because the government has stayed away from price intervention. For the rabi harvest, maize acreage is said to have increased by 30 per cent.

Meanwhile, following the wheat shortage and costly imports, the government has in the last couple of years raised substantially the wheat support price, and this year has seen the farmer respond with a limited increase in the acreage under wheat. It should be noted that the minimum support prices are effective only in a few states and for a few crops which are procured by the government agencies. In most states, where the official procurement agencies are not active, the farmers do not get even the MSP in the post-harvest marketing season. Indeed, farmers increasingly have a greater choice of crop as horticulture and floriculture offer better markets. So the old approach of managing the wheat and rice economies through a complex control system may not work in the future, because the farmer is not captive to these policies. What is needed is greater reliance on market forces to signal price incentives, a new policy matrix for boosting production, and a fine balance between the interests of consumers and producers.