Tuesday, April 8, 2008

Time To Strike The Right Balance Between Consumers, Producers

NEW DELHI: When it comes to farm commodities, the buck stops, literally, with the producers. Especially when governments take administrative measures to check inflation and high domestic prices to help the consumer, unmindful of the producers’ plight.

The policy of slashing duties to rock-bottom levels for key essentials would pave way for higher and permanent import reliance. The right policy is to take concrete mid- and long-term measures to incentivise producers to boost their output and thereby cover yawning domestic demand/supply gaps. There are no shortcuts to ensuring sustained growth in the farm sector and bolstering food security.

It’s unclear if that is what the finance minister meant when he referred to the possibility —under the current background of high inflation and runaway essential commodity prices— of sacrificing growth to an extent in order to control spiralling prices and inflation.

But the spectre of ‘agflation’ or the inflation caused by the rise in global agricultural prices could leave long-term scars on the farm sector. (We are importing more and more food — pulses, edible oil, wheat, and now, even rice— and also fertilisers.)

Policymakers need to appreciate that the Indian farmer needs a profit to stay in the business of producing essential commodities, not just the so-called succour of the minimum support price. The Commission of Agriculture Costs and Prices moved in that direction with its recommendation to the government on sugarcane support prices this week, including new calculation criteria, such as market rentals for land, a 10% risk factor (given the steadfast refusal of the government to come up with a viable, crop-specific, gram panchayat-level risk mitigation plan to replace/complement the NAIS) and a profit margin compared to the abysmal SMP of Rs 81 a quintal announced recently.

That market-driven producer price corrections are a double-edged sword is something that cane farmers —they received a much higher price for their produce just two years ago before the cane glut struck hard —are now aware of. The CACP suggestions, based on recommendations of Dr MS Swaminathan, have yet to be accepted by the government. Sadly, the media glare—crucial to build public pressure—is mostly trained on ephemeral band-aid moves by the government to check price spiral. Farm incomes suffer from cheap imports.

But much worse, a deluge of cheap imports in essentials would drive the farmer from food to more commercially remunerative crops if not suicides. The impact of the measures taken by the Centre earlier this week is likely to weigh heavily on the farm sector.

The farm ministry was clearly against zero import duty on edible oil. It may be noted that because of programmes like oilseed technology mission, domestic production of edible oils today accounts for about 40% of the consumption needs. Higher imports will mean that the country will miss the target to increase production so as to meet 60% of domestic consumption. “That is very precarious balance that the government will have to strike,” says Sanjay Kaul, director of the NCDEX institute of commodity research (NICR).

The decision to ban all non Basmati rice varieties was a no brainer vis a vis inflation. What it could do though, is to depress remunerative prices for farmers in Punjab, Haryana and Western UP, areas where select high value non-Basmati rice variety is grown.

No comments: