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It will take much more to encourage farmers to increase production

The Centre has just announced the procurement prices for rabi crops. In the case of wheat - the most important winter crop - there has been a whopping increase of Rs 150 per quintal to Rs 1,000 over the effective price of Rs 850 in the preceding season.

The ostensible motive is to infuse dynamism on the production front by paying what the officialdom thinks is a remunerative price, which works in two ways: First, farmers are enthused to cover more area under this crop and second, the procurement agencies are able to make a success of their procurement drive.

Perhaps the only thing right about the new procurement pricing policy is its timing. Rabi operations are due to start in a matter of weeks and the farming community will not labour under any uncertainty about harvest prices.

But, in every other respect, the policy smacks of adhocism with more politics than economics at play. Here’s why:
* Wheat imports have evoked widespread criticism. The landed cost of wheat is much higher than what the government is prepared to pay our wheat farmers. While this is true, the reasons for making overseas purchases in the first place is that output has been on a declining curve and a sort of shortage syndrome has developed over this commodity.

Given that our needs are large, there is a kind of hardening even in an otherwise placid global market, when we decide to buy. Add to this the freight rates, which are on an upswing, and wheat imports are indeed dearer. So, a comparison between procurement prices and the cost of wheat imports is not wholly valid.

The Centre, mindful of the criticism on this score, has opted to jack up the procurement prices by nearly 18% at one go.

* When it comes to fixing the production target, the Union agriculture ministry has turned very coy - at 75.50 million tones (mt), it isn’t even 1 mt higher than the revised output for 2006-07.

This being the output anticipated for the next marketing season, will the procurement effort be crowned with success? When there is no worthwhile leap in harvest, can we expect farmers to troop to the procurement agencies with their produce? Clearly, the government does not expect incentive pricing to prop up wheat output.

* Will an attractive price for wheat alone work in the absence of other measures that attend to the ills plaguing the wheat economy? As recently as 2004-05, the procurement price for this crop was Rs 640 per quintal; for 2007-08, it has been hiked to Rs 1,000, or by as much as 56%. Yet, the production front presents a picture of stagnation during this period.

The malaise goes deeper, embracing factors like plateauing of yield even in the traditional wheat belt of the country, weather anomalies that have affected the crop at critical times of plant growth, decline in soil fertility, dearth of quality seeds and imbalance in the use of fertilisers.

This diagnosis suggests in what direction remedial actions must be taken. This is hard work, where there has been much talk but no worthwhile exertion. No wonder, the wheat revolution shows signs of having petered out and the government still swears by higher procurement prices year after year.

Yes, higher procurement prices are needed. But, they will work when taken in conjunction with the other steps outlined above, not in isolation.

The latest upward revision is yet another instance of bad politics triumphing over sound economics.

The wheat muddle can be overcome by launching another green revolution - via seeds that can withstand the vagaries of the weather and are suited to the various agro-climatic conditions, application of organic manure to improve soil fertility, use of fertilisers on time and in adequate quantities and in balanced proportions.

If, on top of this, procurement prices are attractive, they can insulate the farmers from a sharp drop in post-harvest prices as a result of a bumper crop so that they can be enthused to carry on wheat cultivation. Merely jacking up prices won’t do, as they end up stoking the inflationary fires when a regime of shortages already provides a hospitable climate for supply-side pressures to accentuate.