OpEd – Resolving the farmer-consumer binary

OpEd - Resolving the farmer-consumer binary

Issue :-

  • Food Security Concern of 1.32 Billion people in India.

Challenges for Indian Govt Policymakers :- 

  • First, They need to incentivise farmers to produce more and raise their productivity in a sustainable manner.
  • Second, they need to ensure that consumers have access to food at affordable prices, especially those belong to the vulnerable sections.

What have been done to combat these challenges ?

In order to find a fine balance between these challenges, India has followed myriad policies that impact both producers and consumers.

  • These policy instruments range from
    => Domestic marketing regulations (for example the APMC Act, Essential Commodities Act, ECA)
    => Budgetary policies (such as input subsidies)
    => Trade policies (such as Minimum Export Prices, MEP or outright export bans and tariff duties) to food subsidies for consumers through the public distribution system.
  • These policies work in complex ways and their impact on producers and consumers are sometimes at variance with the initial policy objectives.

Outcomes of Indian Policies on Agriculture :-

  • The OECD and ICRIER jointly undertook research over two years to map and measure the nature of agricultural policies in India and the ways they have impacted producers and consumers
  • The report includes key policy indicators like Producer Support Estimates (PSEs) and Consumer Support Estimates (CSEs)
  • In the case of PSEs, it basically captures the impact of various policies on two components:
    ♣ One, the output prices that producers receive, benchmarked against global prices of comparable products.
    ♣ Two, the various input subsidies that farmers receive through budgetary allocations by the Centre and states
    The two are combined to see if farmers receive positive support (PSE) or negative as a percentage of gross farm receipts.
    A positive PSE (in percentage) means that policies have helped producers receive higher revenues than would have been the case otherwise
    ♣ Negative PSE (in percentage) implies lower revenues for farmers (an implicit tax of sorts) due to the set of policies adopted

Producer Support Estimates by OECD

What does the graphy says ?

  • The results of the PSE exercise reveal that India’s PSE, on average, during 2014-15 to 2016-17 was minus 6 per cent of farm receipts. India is very much in the minority in this respect as most of the other countries studied by the OECD have positive PSEs
  • The negative PSEs were particularly large during 2007-08 to 2013-14 when benchmark global prices were high but Indian domestic prices were relatively suppressed due to restrictive trade and domestic marketing policies.

This means is that there has been a pro-consumer bias in India’s trade and marketing policies, which actually hurts the farmers and lowers their revenues compared to what they would have received otherwise

What changes are needed to bring in policy-making  ?

  • First and foremost Policy change that is needed is to “get the markets right” by reforming its domestic marketing regulations (ECA and APMC), promoting a competitive national market and upgrading marketing infrastructure.
    ♣ India also needs to review its restrictive export policies for agri-products which have inflicted large negative price support to farmers during the period studied.
    Outcome :- These changes will reduce and, in time, eliminate the negative market price support to farmers and allow them to earn much improved returns.
  • Second, the report recognises concerns of policy-makers to protect consumers from potential price hikes when global prices are on the rise.
    ♣ But it argues for switching to an income policy approach through the Direct Benefit Transfer (DBT) targeted to the vulnerable sections of population.
    Outcome :-
    ♣ The report shows that this would generate better outcomes all round, including for nutrition quality. This can be done gradually over a three-five year period, starting with cities and grain surplus states.
  • Third, Indian agriculture and farmers would be much better-off if input subsidies are contained and gradually reduced & the equivalent savings are channelled simultaneously towards
    ♣ Higher investments in agri-R&D
    ♣ Building rural infrastructure for better markets and agri-value chains, as also on better water management to deal with climate change.
  • Fourth, given that agriculture is a state subject, a greater degree of coordination is required between the Centre and states, and also across various ministries (for example, agriculture, food, water resources, fertilisers, rural development and food processing) for a more holistic approach towards reforming agriculture.

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