Commodity activism

A fall in the prices of agro-commodities around harvest-time is not unusual. Nor is a knee-jerk reaction from the government by way of market intervention or import curbs. Much the same is happening this year, too. Thanks to delayed and low rainfall in many parts of the country, the less water-demanding crops such as cotton and oilseeds have gained in acreage and, consequently, in output.

As a result, the prices of these commercially important commodities have begun to fall on the eve of harvesting. As was only to be expected, this has triggered panic reactions in Krishi Bhawan.

Since cotton is an important crop for both Maharashtra's farmers and Gujarat's textile industry, the UPA ministers in charge of agriculture and textiles""Sharad Pawar and Shankersinh Vaghela, who hail from these two states""have lost no time in talking about the need for holding the price line.

Prima facie, there is nothing wrong in protecting the interests of farmers or the textile industry. What is worrisome is the kind of remedial measures being proposed to achieve this goal.

These include, among others, a proposal to ask the Cotton Corporation of India (CCI) to purchase cotton in all the cotton-producing states and another to set up a body to monitor cotton imports (read: to curb imports).

Considering the dismal track record of the CCI as well as of Maharashtra's monopoly cotton procurement scheme, the utility of such a move is questionable. Cotton growers in Maharashtra have often been losers due to monopoly procurement, especially when their counterparts in other cotton-producing areas have realised better returns. Similarly, the idea of curbing imports may create more problems than the ones it intends to solve.

It could, for example, create demand-supply mismatches in the market for various types of cotton required by the industry at a time when the latter is gearing up for the post-quota regime. The same logic applies generally to oilseeds as well. Any interventionist move in the marketing and import of edible oils may prove counter-productive at this stage when the festival season is at its peak.

Even if one accepts that politicians need to pander to their constituencies, they need to keep the changed context in mind and draw the right conclusions from past experience. For one thing, market interventions are increasingly incompatible with the free marketing scenario that is sought to be created in commodities.

Moreover, futures trading is now gaining currency as a mode of price discovery and price stability. If farmers need protection, this is the way to protect themselves from the vagaries of the weather and supply abundance.

It is, therefore, time to change mindsets at the ministries. Outmoded market regulation practices need to give way to free, fair and transparent commodity trade. For this, far-reaching reforms in agricultural marketing are critical.

The Centre has already made a beginning in this direction by circulating to the states a model Bill for amending the agricultural produce marketing Acts.

Additional measures will be needed to encourage the modern concept of private markets, contract farming, deferred marketing and, of course, transparent futures trading. Unless this is done, wide seasonal fluctuations in agro-commodities prices cannot be evened out.