Farmer fair price and farm produce MRPs: New way forward?

Price crashes attributed to higher production unlikely to lead to any significant increase in demand

The management of prices of agricultural produce securing the interests of the producers and the consumers has been through minimum support price (MSP) limited to key staple crops, and tweaking import/export prices/permits. In the absence of a price safety net for non-MSP crops, farmers flood markets on harvest, resulting in a price crash, specifically when rumours of excess production circulate. Even in MSP crops, the operations are not satisfactory, which is another story not dealt herein, but solutions offered may still be valid for MSP crops as well. Every manufacturer has the right to earn a reasonable return, and they do not plan production on the basis of a gamble of winning sometimes and losing in others. However, farmers are the lone category of producers with absolutely no say on the selling prices of their goods.

An analysis of onion arrivals in Mumbai over 2011-16 shows that consumption did not increase with lower prices, as was noticed in 2012 and 2015. Therefore, price crashes attributed to “higher production” are unlikely to lead to any significant increase in demand. But, such price crashes inflict financial losses on farmers in the name of free market, operating on “supply-demand”. 

The situation, however, offers an opportunity for people with a risk appetite or speculators to garner stocks with the hope to profiteer a few weeks later when stability returns, as most items can be stored for a few weeks. The situation needs a system correction to provide a mechanism for assuring farmers of a fair return for their efforts, which would stop the mindless carnage in agricultural markets through price-management controls with farmer inputs, and not leave to trade sentiments, making agricultural commodities a speculative trade item.

Just as farmers are mute spectators in the market-dictating terms, so are consumers in cities unsure of the right price as there are no MRPs available for agricultural produce. From a study of the modal prices of the Mumbai market for the June-October 2013 period, it is noted that there were inter-day price changes in excess of 10 per cent on eight occasions, and three of those were in excess of 20 per cent. Even the stock exchanges have price bands beyond which prices are not allowed to fluctuate. Certain sections of the trade with speculative interests could use the system to their benefit in the absence of defined norms for auction prices. Even if supplies could be made good from some other markets to meet the market requirement, it may not be in the interests of certain sections to do so. Therefore, agricultural markets in consumption locations also need to adopt permissible auction price bands based on certain norms to prevent sudden price spikes. Consumers also have the right to know if they are being overcharged in relation to what the producing farmer was paid for the item bought.

A suggestion being put forth is to develop a mechanism that determines a farmer fair price (FFP) for all essential non-MSP items to begin with, just as any manufacturer has a cost-plus model, based on the cost of production and reasonable return at the beginning of every harvest season based on the productivity expected during the season. All negotiations/auctions, where a farmer brings the goods, have to begin at FFP as the base price for the FAQ grade, which eliminates the need for market intervention procurement just as under MSP. Farmer Producer Organisations (FPOs) could serve to unite farmers and handle enforcement of FFP and negotiations if desired by farmers. The mechanism of working could be designed by the state marketing boards in consultation with the farmer bodies, market thinkers, researchers on agricultural markets and trade organisations.

At the consumer end, a similar model of FFP plus cost plus returns based price bands within which markets in every consumption location can carry out auctions. By defining norms and regulations for determining a auction price band (APB) within a certain range, all participants would be equally aware  of  a possible range of prices in any market. Market participants would also be encouraged to source from alternative  markets to feed the demand in the case of short supply in any one of the places more efficiently. This would also keep the speculative interests away from agricultural markets as abnormal profiteering would not be a possibility.

An implementation mechanism under the marketing boards of each state could form an empowered consultative body, which can recommend FFP for key vegetables, to begin with, on a pilot basis. It is now time to knock out some of the old processes, which have turned vestigial, and indulge in some more fresh initiatives in securing farmer interest alongside getting APMC markets to compete for existence.

The author is an agri-business specialist. 

He was the CEO of Safal National Exchange