Small changes not enough

The government's move to announce a modest hike of less than 1.5 per cent in the minimum support prices of rabi crops well ahead of their sowing season, is noteworthy for several reasons. The price increase varies from Rs 10 a quintal for wheat, barley, gram and lentil to Rs 15 a quintal for rabi oilseeds like rapeseed-mustard and safflower.

The timing is significant in that it allows farmers to decide on the choice of crops and the level of investment in inputs. This option is usually denied to them when the government fixes prices just prior to the harvest.

Also, the modest increase in prices, in line with that recommended by the Commission for Agricultural Costs and Prices (CACP), signifies the government's intention to continue correcting domestic agricultural prices till they are aligned with international prices.

This process began in 2000-01, after repeated pleas by the CACP and farm economists that an artificially jacked-up domestic price regime would not be sustainable without more subsidies, and would also not be in the interests of growers as it would prevent them from accessing the global market.

Besides, the unrealistic price structure was perpetuating a flawed cropping pattern marked by excessive dependence on growing wheat and rice. It seems that this point has gone home among farmers as well, and is reflected in their willingness to try alternatives to these staple crops.

In fact, this may well be the reason why the usually vocal farm lobby is not making an issue of the modest price increase that has been announced.

The discordant note comes from trading circles, which have expressed the fear that Indian wheat will be priced out of the global bazaar. But this is not very relevant today as there is hardly any surplus wheat left for export.

The government's wheat stocks, which were being given to the exporters at concessional prices, have declined and domestic wheat production is not rising in tandem with the growth in demand.

The real issue to ponder is why the present system of fixing farm prices and open-ended procurement should continue, especially after these commodities have been allowed to be traded in the futures market. Both these measures are inimical to the basic tenets of futures trading, which needs a totally free market to operate so that price discovery is efficient.

The argument that scrapping government procurement would lead to a price crash in the post-harvest peak marketing season, to the detriment of small farmers who have no holding capacity, does not carry much conviction and demonstrates a lack of understanding of futures trading.

Also, government procurement is confined primarily to two crops, wheat and rice, and mostly to three or four states. The prices of all other crops, as also of wheat and rice outside the procurement zones, depend on market forces even today.

The proposed law for making warehousing receipts a legally valid negotiable instrument will, moreover, enable farmers to defer the sale of their produce in search of better returns and meet their immediate cash needs through bank loans against these receipts""should they wish to go down that route.

And if the government wishes to continue the public distribution system for feeding the genuinely poor, it can do so by buying stocks from the market or even through futures contracts that will facilitate staggering supplies over the year so that government storage costs are minimised.