Centre can increase its focus on strengthening the institutions of farmers and not the market institutions per se

In an interaction with AgroSpectrum India, Vijay Sardana, a renowned techno-legal advisor on agribusinesses, explains the key dimensions of agriculture along with the action points that such committees should undertake. Edited excerpts.

Post the repeal of the farm laws last year, the centre was tasked with the forming of a committee to give suggestions on making minimum support price (MSP) more effective, giving more autonomy to the Commission for Agricultural Costs and Prices (CACP) and to suggest measures to strengthen the agricultural marketing system. The committee had its first meeting in August and created sub-groups to examine the important issues hindering the business of agriculture. In an interaction with AgroSpectrum India, Vijay Sardana, a renowned techno-legal advisor on agribusinesses, explains the key dimensions of agriculture along with the action points that such committees should undertake. Edited excerpts.

Can you brief us about how MSP works and the role played by the government for its effective functioning?

There are a lot of issues surrounding agriculture, one of them being the remunerative prices given to farmers.  Here we have to consider the fact that price is a factor of market forces and the government itself cannot play around with the same beyond a certain bandwidth. One classical yet reverse example to explain the case in point is the recent losses being incurred by petroleum companies in the event of the government trying to control it. The Public Sector Units (PSUs), however, are not impacted by such a move as the losses are later absorbed by the government through sacrificed losses or recapitalisation. But the private players have to bear the brunt in such a case, thus being a testament to this theory that remains true in the business of agriculture as well.

What are the possible ways of fixing the demand-supply imbalance to improve the business aspect of agriculture? Can you also shed light on the implications in the event of not doing so?

Creating a demand for the crop is important to avoid crashing of prices due to a demand-supply imbalance.  This is being done by the government through the Public Distribution System (PDS) or Food Security Mission, which is already a saturated mechanism. The second way is through creation of export opportunities and to provide an outlet for the surplus when the international prices are high. The government pursued the latter this year which ultimately led to the crop prices being higher than MSP. The major problem arises in a reverse case when international prices are low and there is more production in the country. In such a case, the government cannot buy all the crops at MSP because it lacks the financial resources to do so. And even if the centre is willing to somehow deploy resources, the same cannot be implemented keeping in mind the rules of the World Trade Organisation (WTO). In the event of not following the regulations, the country can be subjected to reverse pressures and penalties on other exports like marine and software to name a few.  Therefore, when demanding a certain MSP, the farmers should consider all the legalities involved as it’s not a matter of requesting charity from the government but a simple play of demand and supply and the resultant global implications.

How can crop diversification be encouraged for better agribusinesses?

We can consider the classical example of wheat which is one of the controversial crops and has a surplus production in Punjab, Haryana, Western Uttar Pradesh and some parts in Rajasthan and Madhya Pradesh. The farmers have been growing this in excess for the last 30 years knowing its low profitability in markets. This is because the commission agents are paid around 4-8 per cent interest by the Food Corporation of India (FCI) for procuring wheat and paddy. The farmers can instead grow mustard which is in short supply and can be cultivated under similar climatic conditions as wheat. Its production is far from profitable and hassle-free in terms of less use of water and fertilisers. But crop diversification is completely being overlooked when it is one of the biggest remedies to solve the business woes of agriculture.

To resolve this, the foremost thing is to impart education to farmers to strengthen their business and economies of scale of the country as a whole. Secondly, better coordination between the farmers and the industry is required at large to which no state government is paying any heed. In this respect, the three farm laws were very important for bringing together the farmers and traders to eliminate the role of middlemen and foster better business growth in the long run. Thus, there is a crisis due to complete lack of education and communication wherein farmers need to be particularly taught about the economies of agriculture and not only about the economies of production. These two factors work in tandem with each other and cannot be left in silos.

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In an interaction with AgroSpectrum India, Vijay