Farmers don't benefit from rising food prices. They need minimum support prices to survive

Several years back, the late Nobel laureate Norman Borlaug had shared an interesting insight into the way Nobel prizes are awarded. At the peak of the solidarity movement in Poland, when Lech Walesa was leading a popular workers’ uprising, the Nobel prize committee decided to find out whether Lech Walesa deserved a Nobel Peace prize or not.

Borlaug told me that he was asked to lead a small team to Poland. After visiting a number of places, and meeting a cross-section of the stakeholders and others, he realized that the workers’ solidarity movement was actually fighting for cheaper food prices. But at no stage Walesa and other leaders of the popular movement showed any concern for the millions of farmers who were being asked to produce cheaper food for the workers. “What would happen to the livelihoods of those millions who produce food? If these farmers were expected to produce cheap food year after year, how would they and their families survive?”

For this reason alone, Borlaug said that Walesa didn’t deserve a Nobel Prize. But despite his team’s recommendation, the fact remains that Walesa was bestowed with the Nobel Peace Prize.

Now you will ask me what has Lech Walesa’s Nobel Prize to do with the rising food inflation in India. Well, there is a strong correlation. There is hardly a day when I don’t find newspaper articles and comments on the need to do away with the procurement prices for farmers. Corporate economists and free market lobbyists have been repeatedly telling us of the dire need to do away with the MSP for cereals like wheat and rice. The Commission for Agricultural Costs and Prices (CACP) too has been vociferously demanding the dismantling of the price support system for farmers, and letting the markets reign. 

So when the RBI governor Raghuram Rajan blamed the Agricultural Produce Market Committee (APMC) Act for the rising food prices, I wasn’t surprised. Unable to control the runaway inflation, propped up more by rising food prices, the easier option is to shift the onus to the little understood role agricultural markets play in providing an assured price support to farmers.

At 7.2 per cent, the wholesale price index rose to its highest in the past 14 months ending November. The increase in inflation is being attributed mainly to the 15 per cent rise in food prices. Prices of vegetables had earlier shot up by 18.4 per cent in September, and the sharpest rise was seen in onions which had jumped by 323 per cent on a yearly basis. No sooner had the prices of onions come down, when the prices of eggs and meat shot up. For the average consumers, rising food inflation is a more cruel form of indirect taxation.

Every year, the CACP recommends a minimum support price for about 24 crops. Out of these, primarily two cereal crops — wheat and rice — are procured by the Food Corporation of India (FCI) and on its behalf by some state agencies. This serves two purposes. First, the foodgrains that are procured by FCI serve as a buffer stock against any emergency and at the same time help in meeting the food security needs of the poor. Whatever grain that comes into the mandis is first made available to the private trade to buy. It’s only when there are no buyers left that the FCI steps in to purchase it at the support price announced by the government, which in reality becomes an assured price for farmers.

What is little known is that only 30 per cent of Indian farmers get the benefit of procurement prices.

These are the farmers who have a marketable surplus which they are able to bring it to the nearest mandi. It is only in Punjab, Haryana, and parts of Uttar Pradesh, Maharashtra, Andhra Pradesh and Tamil Nadu (and now of course Madhya Pradesh) that a strong network of mandis operates. In the remaining 70 per cent of the country, farmers have to depend upon private trade.

And it is in these areas that farmers are ruthlessly exploited. For instance, while the paddy farmer in Punjab gets an MSP of Rs1,310 per quintal, his counterpart in Bihar, where the private trade dominates, is able to sell at a distress price of around Rs800 per quintal. Withdrawing price support for Punjab farmers will automatically bring them down to the level of Bihar farmers. 

A second explanation is that it is primarily because the farmer is not able to sell his produce directly to the trader (and routes it through the APMC mandi) that he doesn’t get a better price. This is an absurd argument considering that 70 per cent farmers have no access to mandis and, therefore, do not fall under the APMC Act. Isn’t it time to ascertain why the prices of cereals/vegetable/fruits are ruling high in areas where the farmers do not get the benefit of procurement prices? And as I said earlier, 70 per cent farmers are outside the ambit of the procurement system.

Not only vegetables, prices of eggs and milk have also been on an upswing. More recently, prices of eggs have shot up in Mumbai market to about Rs60 per dozen. Milk prices too have been steadily rising. Since APMC Act has nothing to do with eggs and milk, why are the prices rising?

The organized retail units like Reliance Fresh, Big Bazaar, Metro are allowed to purchase directly from farmers. Why were these retail chains unable to supply onions for instance at a cheaper price? Similarly, if I may be allowed to cite an example of a non-food sector, why are the air fares of airlines going up. You click three times on an air route and ticket price goes up. It is cheaper to fly to Bangkok and Kuwait than to go from Delhi to Goa.

The answer is simple. Whether it is food, egg prices or airline tickets, prices are being freely manipulated by strong cartels. In the case of onions too, a very powerful cartel of a handful of traders had made a killing when there was only a 4.8 per cent shortfall in production. The APMC too is riddled with cartels. As past experience shows, even organized retail chains form cartels.

Replacing one set of middlemen, therefore, with another is not the answer. The answer lies in breaking these cartels.

The author is a food and agriculture policy analyst