Price Policy Issues: Balancing Farmer and Consumer Interests

Food being a basic need, balancing the interests of producers and consumers will be one of the top priorities for any government. While the producers require incentives to grow enough, the consumers want the prices of the agricultural produce to be reasonable. While the government took consumer friendly measures to impose stock restrictions on sugar mills and advised states to take similar measure in case of the onions, it is also trying its best to support farm-gate prices to help the farmers. As a part of farmer friendly measures, the government has hiked the import duty on edible oils and has placed quantitative restrictions over the import of tur, moong and urad to prevent prices from falling due to overabundance of these products in the market.

• When the government intends to support the consumers, some of the typical tools used by it to check prices of agricultural commodities include export restriction, easing imports, and imposing stock limits on traders to prevent them from indulging in manipulation.
• Similarly, to support farmers, the typical tools used by the government include opening up of exports, restricting imports and buying of farm commodities at support prices.

Thus, the job of the governments {both centre and states} is difficult and involves challenging task of keeping both farmers and consumers happy. Pleasing both the farmers and consumers is not always an easy task. For example, recently, when the onion prices reached Rs 50 a kg, the government stepped in and asked the states to impose stock limits on traders. This action antagonised farmers while doing little to stabilize the prices. Farmers felt that the government pays heed only to the sufferings of urban consumers. This made them to block the essential supplies to the cities in Maharashtra and Madhya Pradesh and elsewhere.

In another example, when the government scrapped the stock limits on pulses to avoid speculative rise in prices, the consumers were the sufferers as they ended up paying more money to buy pulses like tur, and urad in 2015-16. Farmers also suffer due to drought, un-remunerative prices of farm commodities like onions, pulses, ground nut and soyabean etc. Another angle is that when consumers paid more for the commodities, the producers were not able to derive all the benefits.

This issue should be further analyzed in the light of different commodities which have seen price swings in recent times.

Onion-Weak Market Structure

Maintenance of continuous supply chains for fresh horticultural produce from growing markets to consumer markets is essential to maintain stability. However, some traders are involved in manipulation of these supply chains to speculate in onions. The easiest method employed by these traders is to use close market operations. This shows the existence of weak market structure in our country. The weak structure helps the hoarders to store goods in advance and create artificial shortage of commodities to increase their prices. And the government’s policy of stock limits on onions has hardly ever yielded desired results as these hoarders tend to store stocks in the names of other people, including farmers.

Sugar: Give and Take

Sugar is another politically sensitive commodity in India like onions. In case of the sugar, good rapport between the government and Indian Sugar Mills Association has helped to reign in tough situations and ensure stability of sugar price. While government takes dynamic decisions allowing only restricted imports only when needed, the ISMA on its part ensures stability of sugar prices by maintaining adequate supplies. Speculation and manipulation are nipped in bud. In earlier times, the traders would hoard sugar and increase its prices on NCDEX. Now these types of practices are hardly practiced by traders.

Edible Oils: Import Dependence

In case of edible oils, India’s dependence on imports is about 70%, which is dangerously high. Cheap imports of edible oils from foreign countries have not helped in the development of domestic oilseeds production. In case of edible oils, the government’s policies pertaining to import and export have not yet become dynamic. The edible oil industry for long wants the government to increase the import duty form the present 17.5% to 37.5%. But the government has increased the import duty in case of only soyabean oil. Due to this, industry veterans have pointed out that the cultivation of oilseeds like sunflower is on the verge of extinction.

Like all other agri-based industries, the edible oil industry too wants the government to come up with a long term solution. They are demanding the creation of an Oilseed Development Fund by imposing a cess of Rs 3 on each kilo of imported edible oil barring palm oil, which is not produced domestically but are consumed by poor households.

Discussion: The Way Forward

Reform of agricultural markets in our country is pending for decades. However even simple solutions like opening up of markets for farmers on all days can do wonders in ensuring a steady flow of commodities to the markets, which will further improve the supply chains.

The government needs to take a two-pronged approach to tame inflation and offer remunerative farm prices to the farmers as this would help in making timely and dynamic decision. It would also help in making long term sustainable measures, including some offbeat solutions. But price control is double edged sword. It will be challenging for the government to both control inflation and increase farmer’s income at the same time. In this regard, the government can follow the practice in some countries like making direct transfer of cash to farmers. This will help markets to decide on prices while the industries will get cheap raw material. For example, in the state of Madhya Pradesh which witnessed violent farmer agitations in the recent times, a pilot scheme called the Bhavantar Bhugtan Yojana (Price Deficit Financing Scheme) has been approved for Kharif 2017. Under this scheme, the government of Madhya Pradesh strives to strike a balance between consumer and farmer interests by paying farmers the difference between the market price and the minimum support price (MSP). Even the central government can roll out a Market Assurance Scheme to support states for carrying out below-MSP procurement operations.

In case of sugar industry, the government should set up a price stabilisation fund (PSF) and implement the revenue-sharing formula. This formula mandates the mills to share 75% of their revenue with the farmers when the sugar prices are high. As per this scheme, in case of sugar prices being lower than the legally binding fair and remunerative price, then the government will pay the difference to the farmers from the PSF.