Farmers deserve fair pay, not subsidy shell games

First, the good news. Keeping politics aside, Chhattisgarh farmers have enough reasons to cheer.

On Mar 12, Chhattisgarh Chief Minister Vishnu Deo Sai transferred Rs 13,320-crore into the bank accounts of 24.72-lakh paddy farmers in the State. This amount was due as a deficiency payment to paddy farmers. As per the electoral promise made ahead of the last elections, the ruling BJP had promised to procure 21 quintals of paddy from each farmers at the procurement price of Rs 2,183 per quintal for common grade paddy and Rs 2,203 for A grade paddy for the kharif 2023-24 season.

The difference of Rs 917 per quintal that remained between the promised procurement price of Rs 3,100 per quintal and the purchase at MSP price announced by the Centre, has now been passed on to farmers. By rough calculations, it means an addition of Rs 1-lakh per acre to farmer’s income per acre per year. With about a record 147-lakh tonnes procured this year, farmers are surely an elated lot.

As per the latest Situational Assessment Survey for Agricultural Households, the average monthly income for a farm household in Chhattisgarh stands at Rs 9, 677. An additional income of Rs 1-lakh per year therefore is a significant jump for the farming households.

This comes at a time when the Kisan Mahapanchayat called by Sankyukt Kisan Morcha (SKM) that concluded at New Delhi on Mar 14 has resolved to continue with the demand for a legal guarantee for MSP for all crops for which prices are announced every year. The Chhattisgarh government has in fact paid a procurement price of Rs 3,100 per quintal which is in reality more than what has been even recommended by the Swaminathan Commission. According to the farmer unions, the MSP at which paddy is being procured across the country is Rs 2,183 per quintal worked out by the Commission for Agricultural Costs and Prices (CACP) as per the A2+50 per cent formula. A2 is the out of pocket expenses that farmers incur in crop production and FL stands for the computed cost family labour.

But if the MSP is worked out as per Swaminathan’s formula of C2+50 per cent (C2 means comprehensive cost), the paddy price comes to Rs 2,886.50 per quintal for the kharif 2023-24 season. What Chhattisgarh has in fact paid to paddy farmers this marketing season is in reality much higher than the C2+50 per cent recommendation. It is more than C2+60 per cent.

The enhanced price is the outcome of a tug-of-war ahead of the State elections that the ruling BJP and the Congress were engaged in. In what looked like an effort to appear more competitive, the Congress had promised to procure paddy at Rs 3,200 per quintal, buying 20 quintals from each farmer, while the BJP had promised Rs 3,100 per quintal, but ensuring the price for 21 quintals procured from each acre. And to be fair to the previous Congress government, let us not forget that Chhattisgarh was paying a much higher paddy price as compared to the rest of the country (barring Kerala). For the 2022-23 kharif season, Bhupesh Baghel’s government had paid an input subsidy of Rs 9000 per acre to farmers over and above the procurement price.

In the months to come, the higher price that has been paid to paddy farmers in Chhattisgarh will become a rallying point for paddy farmers elsewhere. Considering that the MSP announced for 23 crops every year is uniform throughout the country, the demand will be for bringing in a consistency in paddy price based on the Chhattisgarh model of C2+60 per cent. This demand is already resonating, and in the days to come is likely to become more vocal as electioneering picks up.

Interestingly, while the difference between the MSP at which paddy is being procured, and the C2+50 cost that the farmer unions are demanding, works out to Rs 683.5 per quintal. Farmer unions have said that given an average yield of 25 quintals per acre, it will mean an additional Rs 17,075 per acre for farmers if paddy is procured at Swaminathan’s pricing formula, especially in a State like Punjab where the entire crop arrivals in the mandis are procured. But going by the Chhattisgarh paddy price (C2+60), the difference with the present MSP at which paddy has been procured by the Centre, is still comparatively much higher at Rs 917 per quintal.

The Chhattisgarh price, and let’s term it as Chhattisgarh model, means relatively a higher increase in paddy prices for the farmers at Rs 234 per quintal over and above the C2+50 cost.

While the higher paddy price paid to paddy farmers has lightened farmer’s hopes and aspiration, and many have been quoted in the local media saying they will be able to spend more on their children’s health and education, the markets too are brimming with excitement. After all, more the money in the hands of farming households means more money to be spent in the markets.

The higher payments being made to farmers by way of a differential price mechanism in Chhattisgarh brings a sigh of relief for mainline economists who have been constantly arguing against market distortion if the MSP is hiked as per the Swaminathan’s formula (and still more with a new benchmark being set by the Chhattisgarh model). They don’t want MSP to be hiked as it will distort markets as per their claim, but are happy if the State government are made to pay the price difference (bhawantar price).

In reality, economists don’t want corporate and agribusiness companies to pay a higher price for agricultural commodities. They are happy as long as the price difference is paid by the state exchequer. This in my understanding is unfair and should not be implemented as a policy. The recent outburst by European farmers, where at the past few weeks, farmers from 24 countries launched unprecedented protests, clearly showed that these incentives (like the diesel subsidies for agricultural vehicles in Germany) can be withdrawn at any stage citing fiscal difficulties. What is therefore needed is a guaranteed price.

Market should pay the correct value of a crop produce. It should not be allowed to get away by underpaying for farm produce and leaving the loss in farm income to be covered by budgetary support. Already the world is incurring more than $851 billion per year as producer support for farmers in 54 major economies to meet the shortfall. This is a burden on the economies whereas agribusiness companies’ walk away laughing all the way to banks. According to Oxfam, the world has already seen the emergence of 68 new food billionaires, called food barons in the past few years.

To say a higher MSP will lead to more inflation and therefore distort markets is nothing but simply to create public fear. In the past three years beginning the pandemic year 2020, corporate have been accused of being primarily responsible for a record inflation spiral. Even the IMF acknowledges that the share of corporate profits in inflation, resulting from what is recognised as corporate greed, exceeds 40 per cent. When did you see economists raising alarm over market distortions from greedflation?

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)