Budget 2018: Higher MSPs are Welcome, Bring Cheers to Farmers

On expected lines, the Budget 2018-19 aimed at strengthening agriculture and rural economy. Agriculture deserves serious attention as roughly half of the population is dependent on it for food security and livelihood opportunities. During the last few months, we have witnessed farmers’ agitation silently spreading across all the states. Budget 2018 has very well packaged various provisions for making agriculture more efficient, sustainable and resilient. The key pillars to strengthen the agri sector—improved technologies, appropriate policies, effective institutions and required infra—are well reflected in Budget 2018.

Budget 2018: This will build resilience to agriculture by reducing production risks due to droughts. (Reuters)

The most significant one is accepting the long-pending demand of the farmers on minimum support prices (MSP), by fixing it 50% higher than the production cost. This was one of the recommendations of the National Farmers’ Commission, and farmers were demanding for its implementation. It is an important step, as farmers rarely get the benefits of higher retail prices. Often traders collude around MSP and procure at much less prices than the retail, by keeping a large share of higher prices. In the new regime, even if the traders collude, it will be at higher prices and will not be transmitted to retail, as these prices are determined by supply and demand. Announcing higher MSP is not enough unless it is procured at that price or effective mechanisms are in place to compensate farmers in the event of fall in farm harvest prices below MSP.

In the past, farmers responded to government policies, which led to the record production of foodgrains, horticultural crops and milk. With exception of rice, wheat and sometime pulses, oilseed and potato, the government is not procuring at MSP even if the farm harvest prices fell. We have witnessed in the past that in the absence of adequate mechanisms, the prices of majority of food commodities steeply fell and adversely affected farm incomes.

This is contrary to the target of doubling farmers’ income by 2022. It is welcoming that the FM has mandated the NITI Aayog to develop mechanisms to compensate farmers when prices fall below MSP. Recently, the MP government launched a new scheme, Bhavantar Bhugtan Yojana (price-deficit financing scheme), to hedge price risk of eight commodities. This scheme needs to be replicated in other states to discourage farmers for distress sale and ensure MSP. Feasibility of other mechanisms, namely warehouse receipt, futures trading, and export/import, may be tried so that farmer is protected from price risks. Another key part of Budget 2018 is developing 22,000 gramin agricultural markets, and linking them with e-NAM. At present, e-NAM is linked with the existing APMC markets.

Farmers, having no access to APMC markets, are deprived of e-NAM benefits. The proposal of developing gramin markets will have far-reaching implications, including farmers in remote areas will now have access to markets. In the past, developing agricultural markets were ignored that made our marketing system inefficient and fragmented with long supply chains. The traders often exploit farmers in the absence of markets. Access to markets will benefit farmers, especially small and marginal, who have less marketable surplus and high transaction costs. They will realise better prices and their marketing costs will come down significantly. The move will also generate employment opportunities for rural youth and induce input markets, especially seed.

Union Budget 2018 has provision to strengthen FPOs and women self-help groups. Since the agriculture sector in India is dominated by smallholders, aggregating them is necessary to harness economies-of-scale in production, processing and marketing. The FPOs and self-help groups need to be linked with the proposed new food parks for processing and marketing. This institutional innovation will (i) transform agriculture into agri-business profession; (ii) realise better prices due to collective bargaining power; (iii) promote agro-processing; and (iv) generate employment opportunities. It is a welcome step that the FPOs established on the pattern of cooperatives, and having transactions less than Rs 100 crore, will now be exempted from income tax. This will also encourage many start-ups to promote FPOs for production, processing and marketing.

Financing agriculture is of paramount significance to adopt improved technologies, make provision for irrigation, and go for farm mechanisation. Provision for agricultural credit has gone up from Rs 10 lakh crore to Rs 11 lakh crore. Now fisheries and dairy farmers can also avail the benefits of kisan credit card. This will further boost the dairy and fisheries sectors. In addition, aquaculture development fund and animal husbandry development fund have been created. Budget 2018 has further strengthened the Prime Minister Irrigation Scheme by allocating Rs 2,600 crore for groundwater development in 96 most deprived districts for assured irrigation.

This will build resilience to agriculture by reducing production risks due to droughts. Studies have clearly shown that groundwater development helps in accelerating agricultural growth, increasing farm incomes and reducing poverty, especially in low-income and deprived regions. Overall, Budget 2018 is pro-agriculture, which must cheer farmers, especially small and marginal ones.

P K Joshi is Director South Asia, International Food Policy Research Institute. This piece was originally published in The Financial Express

How PDS can be made Effective through Better Governance

India’s public distribution system (PDS) is the largest food security programme in the world, which covers nearly 60% of the population and costs Rs 1.45 trillion—close to 1.4% of the national income. PDS has often been criticised for its structure, incessant corruption and leakages, and inclusion and exclusion errors in identifying the beneficiaries. The rolling out of the National Food Security Act (NFSA), 2013, and the overhauling of PDS in some states has created an aspiration that the system can be made effectual in making the households not only food secure, but also nutrition secure.

Among the states, Odisha, Tamil Nadu, Rajasthan, Chhattisgarh, Madhya Pradesh, Telangana and Gujarat have intensified reforms in PDS using latest technology and ensuring community participation—they have taken steps such as computerisation of offtake of grains, recording of procurement, storage and distribution, installation of electronic point of sale machines in fair price shops, and regular monitoring at every stage. The digitisation of beneficiaries’ database and verification of their identities through Aadhaar have resulted in scraping of over 23 million fake ration cards and savings of Rs 14,000 crore of annual food subsidy.

Amid serious discussions on replacing the in-kind transfers with cash transfers, with pilots carried out in Chandigarh, Pondicherry, and Dadra and Nagar Haveli, it appears difficult to let go of PDS, at least in the short run. The political sensitivities, complexity in dismantling the massive system built over time, and inadequate infrastructure to transfer money to beneficiaries may act as barriers. Whether a revamped PDS, undoubtedly backed by strong political will and good governance, would pay off across the country is yet to be seen. We gauge its possibility by looking at the stellar performance of PDS in Odisha—a state marred with high incidence of poverty, hunger and malnutrition.

 

Odisha began with a state-of-the-art e-PDS from 2004 onwards to cover the entire network for greater transparency and accountability. PDS coverage in terms of population was expanded, grain prices were lowered, and entitlements were simplified and rationalised. The outlets were largely brought under the ambit of community, presently managed by gram panchayats, self-help groups (SHGs), cooperatives and non-governmental organisations, which ensured participatory management and transparency in administration. The entire distribution system was computerised and vans were mobilised to reach distant places that were otherwise disconnected from the mainstream distribution network. The movement of food grains from the warehouses to fair prices shops was monitored and tracked with GPS systems. The weighing scales were digitised, transport agencies were separated from distribution agencies and fixed distribution schedules were introduced. In fact, the overall system was strengthened with provisions for a grievance redressal mechanism.

A remarkable turnaround was visible in due course in terms of better coverage of eligible beneficiaries from 6.4% in 1993-94 to more than 58% in 2011-12, along with minimal targeting errors and plugging grain leakages. Some more statistics from the NSS showed an increase in the contribution of PDS grains in calorie intake from less than 2.4% to over 19.5% during this period, with larger benefits accruing to the rural households (21.3%). The consumption of cereals among weaker sections increased at a much faster rate than that for other privileged social groups. The estimates reveal that PDS contributed 34%, 32% and 26% of cereal consumption of SC, ST and OBC households, respectively, compared to 19% of general caste households. An increased access to subsidised cereals led to a decline in the share of cereal expenditure in total expenditure, which could be used for purchase of other commodities.

The incidence of calorie deficiencies in 2011-12 would have been 48.9% in a business-as-usual scenario, but the turnaround has been able to contain it to 17.2%. In absolute terms, nearly 14 million people could escape the curse of hunger due to revamped PDS. This translates to 31.7% reduction in calorie-deficient population in the state.

Perhaps an increasing divergence between market price and PDS price of grains made the latter more lucrative. The growing price advantage pushed the households to claim their eligibility which created demand-side pressures on the system to function better. The estimated grain leakages were capped to 11.4 % in 2011-12 from a staggering 85.8% in 1993-94 and 73.4% in 2004-05.

The functioning of PDS can be improved further. Firstly, nearly 16% of the below poverty line households were non-beneficiaries as they did not possess ration cards. Such unintended omissions could be minimised by strengthening the identification mechanism. Second, the density of fair price shops is still lower compared to many other states and efforts are needed to widen the distribution network to remote corners to enhance access.

Thirdly, there is still room for minimising wastage and losses resulting from poor handling and storage of grains. Continued research and improvements in logistics throughout the distribution chain is imperative. Lastly, appropriate choice of food including biofortified food, if distributed, can help in addressing recalcitrant micronutrient deficiencies such as vitamin A and anaemia.

The Cabinet has approved the setting up of the National Nutrition Mission (NNM) with a budgetary allocation of `9,046.17 crore for the next three years. NNM will cover all the districts in three years beginning with 315 high-burden districts. The aim is to reduce stunting by 2% annually, anaemia in young children, women and adolescent girls by 3%, and undernutrition and low birth weight among 100 million people.

Since each state has invested heavily in PDS and revamping is already under way, it would be cost-effective to make it as a platform to achieve some of the proposed goals under NNM. The respective states can provide necessary nutrients such as pulses and millets to women along with grains and possibly promote dietary diversification as per the culture, tastes and preferences of people. The ministry of women and child development has advocated bringing convergence with other ministries for the success of this mission. Clearly, PDS can play a pivotal role in bringing convergence and making India’s two important missions—food and nutrition security—successful in a short time.

Anjani Kumar and Seema Bathla are agricultural economists with the International Food Policy Research Institute and Jawaharlal Nehru University, New Delhi. This article was originally published in Financial Express

Five Ways to Reduce Farm Distress

Indian agriculture is confronted with high price volatility, climate risks and indebtedness. Since majority of farmers (86%) are small and marginal with declining and fragmenting landholdings, they are more vulnerable

 

and risk prone to any of the uncertainty. The last two budgets of the government were pro-agriculture. More resources were allocated to agriculture and number of programs were initiated to increase irrigated area, improve soil health, promote agro-processing, cover production risk, among many others. Despite of this fact, it appears that agrarian distress is silently spreading across all the states. It seems that all these programs and schemes are disjointed and function independent of each other. Therefore, it is time to have a five-point program which addresses the agrarian challenges and converge various on-going programs under one umbrella.  These are suggested as below:

Increasing incomes: Agricultural transformation is very slow in India. Therefore, the process of generating higher income from agriculture is also slow. Production increase was the main objective than raising incomes. It is welcoming that the Prime Minister has given target to double the income of farmers by 2020. This paradigm shift is expected to raise framers’ incomes. Within agriculture, it will require (i) aggressive push to improved technologies by strengthening seed sector and knowledge dissemination system; (ii) agricultural diversification in favour of high value commodities and develop value chains by linking production and marketing centres; and (iii) develop mechanisms to ensure minimum support prices in the event of crash in farm harvest prices. The condition for success will rely on how the farmers are aggregated for production and marketing through promotion of contract farming, cluster farming, farmer producer organizations and self-help groups.

Generating employment opportunities: The Situation Assessment of India reported that more than 40 percent of the farmers would like to quit agriculture if alternative opportunities are available. Agriculture is becoming crowded and does not provide regular employment opportunities. In the absence of regular employment in rural areas, the rural population, especially the youth, is migrating to urban areas to explore better avenues and income. There will be around 34 percent youth (15-34 age group) of total population in India by 2020. More than 70 percent of youth lives in rural areas. Their energy and enthusiasm need to be tapped for meeting their aspirations and transforming agriculture and rural economies. Agriculture per se would not be able to absorb the growing number of youth in rural areas.  Incentives need to be given for (i) aggregating raw and processed products (good example is of Lizzat papad that employs more than 43 thousand women). (ii) self-employment in agro-processing, agro-advisory, agriculture and rural transport, etc., (iii) private sector engagement in custom-hire services, secondary and tertiary processing, (iv) location specific non-farm employment in micro, small and medium enterprises and link them with large manufacturing sector, and (v) engagement in government programs, schools, agriculture extension, etc.

Reducing risks in agriculture: Risk in agriculture is increasing over the years. Both production and price risks are leading to agrarian distress. On production risks, the incidences of droughts, floods, rising or falling temperature and unseasonal rains and hailstorms are increasing and adversely affecting agricultural production. However, during the normal years, farm harvest prices are steeply falling and badly affecting farmers’ incomes. Already Prime Minister’s Agriculture Insurance Scheme is in place to cover some production losses.  Though the scheme is good but compensation is not enough and does not cover the risk of falling prices. Therefore, the government may consider launching ‘Prime Minister’s Climate Resilient Scheme’ that covers both production and price risks. The scheme may bundle promotion of climate smart agriculture, provide value added weather advisory services, effective implementation of agricultural insurance and ensure minimum support prices.

Developing agri-infrastructure: Agri-infrastructure, including agricultural markets, cold storage, warehouses, and agro-processing, have not developed in corresponding speed of increasing agricultural production. The pace of agri-infrastructure is far behind than it is needed to improve overall agri-food system. More focus in the past was given to production of agricultural commodities. In the absence of adequate agri-infrastructure, the supply chains of agri-food commodities are in the hands of unorganized sector which is fragmented and inefficient.  Organized private sector is slowly coming up due to less commercial viability to develop agri-infrastructure. Role of public-private partnership (PPP) is immense in developing agri-infrastructure for high economic and social gains. Government may constitute a commission to develop modalities and proposals for public-private partnership in agri-infrastructure sector. Lessons may be learnt from excellent track record of PPP in constructing of national highways, building and functioning of airports, distribution of power, etc for developing agri-infrastructure (such as rural agri-markets, cold storage, agro-processing, surface irrigation and agricultural extension). Central government may contribute to states for viable projects in PPP mode to develop agri-infrastructure.

Improving quality of rural life: Rural India is still missing basic amenities (like sanitation, hygiene, drinking water, drainage, schooling and health centres). Three years ago, the Prime Minister encouraged each member of parliament and state assemblies to adopt one village to transform it into a model village. The main objective was to provide all basic facilities in rural areas to improve the quality of life. Former President late Dr APJ Abdul Kalam also gave a concept, namely “Provision of Urban Amenities to Rural Areas” (PURA), with the aim of providing urban infrastructure and services in rural hubs to create economic opportunities in rural areas. The scheme may be revived to improve the quality of life in rural areas. Though there are several programs and schemes to create social and economic infrastructure, these need to be converged for larger impact.

It is high time to revive agriculture sector and improve the purchasing power of the bottom of the pyramid to accelerate overall economic growth. It can only be done by focussing on key areas and implementing under one umbrella.

P K Joshi is director South Asia, International Food Policy Research Institute. This piece was originally published in The Business Standard 

Is dietary quality in Nepal improving?

Women farmers in Nepal

Nutritional deficiency is a major concern in achieving sustainable food and nutrition security, especially in the South Asian nations. Nutritional deficiency, also known as “hidden hunger” is very common in these countries where people’s diet is largely dominated by starchy staples. The macro nutrients (protein, carbohydrates and fat) and micro nutrients (vitamins and minerals) are essential for our metabolism, growth,

and physical and mental well-being. The major source of these nutrients is our diet and hence the quality of diet largely determines the intake of these nutrients. Dietary diversity is one of the indicators which can assess the dietary quality and also the extent to which our nutritional needs are met. A recent study conducted by IFPRI tries to explore the dietary diversity and the food expenditure patterns for households in Nepal using data from the Nepal Living Standards Survey (NLSS).

The findings of the study suggests that many sociodemographic and economic factors determine the dietary diversity and quality of diet of the people in Nepal. Historically, Nepal has been known as an impoverished country with poor nutrition indicators. However, in recent years it has shown the fastest rate of reduction in child stunting, in the world. Lately, there has been many positive changes such as reduction in the share of food expenditure devoted to staples, which has dropped by 32 percent between 1995 and 2011. Though still the largest share of food expenditure is on cereals yet there has been a significant increase in the expenditure on fruits, vegetables, milk and milk products.

Research shows that dietary diversity was seen more in the urban areas because of the better access to markets in comparison to their rural counterparts. The diets of small and marginal farmers were more cereal-dominated. Ethnicity also influenced the choice of food items and the Brahmins had the most diversified diet compared to the other unprivileged ethnic groups.

The study revealed that factors like poverty, educational status, ethnicity and access to basic facilities, all have a bearing on the kind of diet one consumes. The households receiving greater remittances, having higher income, better education and increased access to facilities would have more diversified diet and vice versa.

This implies that efforts are needed to adopt a multisectoral approach in order to deal with the nutritional security. Measures like social cash transfers could improve the situation for better. Initiatives to improve literacy levels and increase access to basic facilities need to be further scaled up. Special programs to improve nutritional security among the unprivileged ethnic groups must be implemented. Further fragmentation of land needs to be stopped and simple measures such as kitchen gardening need to be encouraged. A comprehensive strategy, including all the plausible factors that impact dietary diversity, needs to be put in place in order to deal with the dreadful hidden hunger.

Time for PPPs in Agriculture

Ch. Hira Singh Wholesale Vegetable Market at New Sabzi Mandi, Azadpur, Delhi
Watching over pineapple fruit trucks.
Photo Credit: Melissa Cooperman / IFPRI

Indian agriculture has come a long way from its earlier image of being traditional, subsistence and non-commercial. With the increasing demand for value added and high-quality products, agriculture has been adopting commercially and economically viable agribusiness solutions. In the recent past, business and investment opportunities in this sector have suddenly jumped manifold. But the response from the private sector has been likewarm.

There is a pressing need to develop a structured approach for increasing the number of bankable agri-business and agri-infrastructure projects through private sector participation for better quality and improved services. Role of private sector is immense in reinvigorating agri-food sector. We have good record of public-private partnership (PPP) in infrastructure development such as highways, ports, power and other sectors. Unfortunately, agri-infrastructure development in PPP mode was not adapted and applied in agriculture sector with the same vigor as done for these sectors.

Engaging private sector in developing and managing agri-infrastructure will bring improved technologies, best practices in operations and generate rural employment. The partnership can emerge as an important tool to induce investment and capitalize on the synergies of public and private sector. While the government continues to lead and facilitate development of agriculture sector through its policies, the entry of the private sector will induce a fresh bouquet of ideas that when scaled up can emerge as mass development models for the agriculture sector. Drawing lessons from other sectors, we are proposing few areas for developing agri-infrastructure in PPP mode.

Wholesale market development: Agricultural markets in India are thinly distributed. Existing marketing is characterized as inefficient, fragmented and unorganized. Very few markets have been developed during the last three decades; most of these are concentrated only in well off areas. The time is apt for evolving mechanisms to develop wholesale markets in PPP mode in a similar pattern of constructing and managing national highways using BOT (built, operate and transfer) approach. A model concession agreement using viability gap funding mechanism should be created by central government with encouragement to state to implement the process as per specific needs of each states. 

Warehouse and cold storage development: High price volatility is one of the major reasons for agrarian distress. Prices crash in the event of high production. Warehouses and cold storages play an important role to stabilize prices and benefit farmers as well as consumers. Development of warehouses and cold storage offers enormous opportunity for public-private partnership. Non-availability of land and low scale of business are reported to be the major obstacles for private sector response in this sector. Panchayat land, uncultivated land, government land, including some of the railways land, may be allocated on a long-term lease with annual rent by inviting bids from private sector in OMDA (Operation, Management and Development Agreement) mode as has been done for airport development and management.

Agro-processing development: The agro-processing, especially of perishable commodities, has huge opportunities as their demand in domestic and global market is rising very fast. This sector must be harnessed to meet the future demands and reduce unaccounted losses of perishable commodities. The Ministry of Food Processing and Industries committed for continued emphasis on creation of world class infrastructure for growth of food processing sector through mega food parks and Integrated cold chains. Use of PPP model for achieving these objectives and developing processing plants and linking them with micro, small and medium enterprises (MSMEs) will boost agri-processing sector. This is a lesson to be drawn from successful PPP mode in constructing airports, providing numerous services, and linking operations by various airlines.

Canal irrigation development and management:  India has large network of major and minor canals and distributaries from various rivers. Roughly 40 per cent of all irrigated area is covered by canals. Huge investment has been made to develop reservoirs, canals and distributaries. The canal irrigation system in many parts of the country is reported to be underperforming with irrigation efficiency is mere 30 per cent. The PPP model can be extended to this sector on the lines of the power sector. At first level, the irrigation department, should take sole responsibility for developing and managing the water reservoirs. This way government will have control over water for irrigation. At second level, canal management and water delivery could be contracted out to the private sector based on the performance. The contract may include canal and distributary management, water pricing and promoting efficient -irrigation methods. This will incentivize for volumetric release of water at different stages from reservoir to the farmers and eventually improve water use efficiency.

Agriculture extension: Public agricultural extension system has significantly contributed in bringing green revolution in the country. But it is its efficiency and effectiveness are now being questioned.  At present, Krishi Vigyan Kendras (KVKs) and Agriculture Technology Management Agencies are the last mile connectivity for technology delivery. Some of the KVKs are also run by private sector but majority are with agricultural universities (AUs) and Indian Council of Agricultural Research (ICAR). The AUs, ICAR institutions and KVKs have good infrastructure with land and water resources; a part of that can be allocated on a medium to long term lease (7-10 years) to the private sector for demonstrating their best practices. Private sector and public research system can also jointly undertake research for demonstration purposes. The process can also be used to incentivize private sector to use their CSR funds.

Private sector will come at its own where there is commercial viability and profit can be generated. But above-mentioned areas may have less commercial viability but high economic benefits. Therefore, these are the areas for developing public-private partnership to re-energize agriculture sector. This could mark the beginning of the next revolution in agriculture – one that is driven by institutional and governance reforms implemented via social equity based PPP process. This will require a new thinking to evolve enabling policy environment to attract private sector in developing agri-infrastructure.

This article was originally published in Business Standard

P K Joshi is the director- South Asia, International Food Policy Research Institute. Tushar Pandey is the freelance consultant in PPP and social equity related policy analysis.

 

 

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