Context:

• Farmers, largely from Punjab, are protesting on Delhi’s borders. 
• Agricultural scientist Ashok Gulati opines that the real issue behind farmer’s protests is that farmers basically want significantly higher incomes. 
• Gulati was a former chairman of the Commission for Agricultural Costs and Prices(CACP), the advisory body of the Government of India on food supplies and pricing policies.

Demands of the Farmers:

• The farmers’ main demand is to make minimum support prices (MSPs) legally binding and fixing of MSPs according to the so-called Swaminathan formula. 
• This formula suggested 50 per cent profit over comprehensive cost, often referred to as Cost C2. 
• This cost concept includes not only all the paid-out costs of farmers and imputed value of family labour (Cost A2+FL), but also imputed rent on owned land and imputed interest on owned capital.
• At present, the government sets MSP at 1.5 times the Cost of Production (CoP), where CoP is A2+FL.
• So, if the current formula is replaced by Cost C2 plus 50 percent margin, in most crops covered under MSP regime, the MSPs will go up by 25 to 30 per cent.
• The farmers have some other demands including loan waivers, pension for farmers and agricultural labourers, a minimum wage rate of Rs 700/day and allowing MGNREGA workers to work on farmers’ fields. 

Possible Impacts on accepting these demands:

• Budgetary Strain: Accepting farmers’ demands, particularly those related to implementing the Swaminathan formula and making MSPs legally binding, could lead to increased government spending on agricultural subsidies and support programs. This could strain fiscal resources, potentially impacting allocations for other sectors such as education, healthcare, or infrastructure development.
• Inflationary Pressure: Implementing higher MSPs and other demands may lead to increased food prices, contributing to overall inflation. This could affect consumers’ purchasing power and lead to a rise in the cost of living, especially for lower-income households.
• Environmental Concerns: Cropping area under the common MSP crops rice and wheat will increase leading to increased water and fertiliser usage. This could affect not only the quality of the soil but also of the water bodies and ecosystem dependent on it.
• Market Dynamics: Changes in MSPs and agricultural policies could impact market dynamics, influencing investment patterns, cropping choices, and supply chain operations. This could lead to adjustments in the behaviour of farmers, traders, and consumers, potentially affecting market stability and competitiveness.
• Economic Competitiveness: The acceptance of farmers’ demands could affect the competitiveness of Indian agricultural products in both domestic and international markets. Higher MSPs may lead to increased production costs, potentially impacting exports and trade balances.
• Long-term Sustainability: The impact of accepting farmers’ demands should be assessed in terms of long-term sustainability. It’s essential to consider whether the proposed measures would contribute to the overall resilience and viability of the agricultural sector in the face of evolving economic, environmental, and social challenges.
• Policy Precedents: Accepting farmers’ demands may set precedents for future negotiations and demands from other sectors. It could influence the government’s approach to policy making and its stance on issues related to agricultural pricing, subsidies, and support mechanisms.

Sustainable Suggestions- Focus on Producers:

• • Focus on Livestock, Fisheries, and Horticulture: It would be interesting to note that the biggest agricultural produce of India is milk, and its value exceeds the value of paddy, wheat, all pulses, and sugarcane combined.
    • Livestock and horticulture together constitute more than 50 per cent of agri-produce, and they have been growing without any MSP. 
    • In fact, their growth is much higher (5 to 8 per cent) than the growth in cereals (1.8 per cent) over the last two decades.
    • Recognizing the potential of these sectors in enhancing farm incomes, a shift towards a well-integrated value chain approach is essential. 
    • Models like the Amul model in milk production or vertically integrated poultry sectors can serve as examples.
  • Investing in Productivity and Market Access: Augmenting productivity through investments in agricultural research and development (R&D) and irrigation infrastructure is crucial. Additionally, facilitating access to both domestic and international markets can increase farmers’ income streams.

• Removing Trade Barriers and Eliminating bans on agri-exports, lifting stocking limits on private trade, and revisiting subsidy policies can contribute to higher farm incomes. 

• Subsidy Reorientation: This entire gamut of subsidy policies needs a re-visit and reorientation where 75 per cent could be geared towards producers in the form of a price stabilisation fund or policies like PM-Kisan, and only 25 per cent goes to well targeted vulnerable consumers.
  • The food subsidy of Rs 2.12 trillion and even the fertiliser subsidy of Rs 1.88 trillion (RE of FY24) is a pass on to consumers as it keeps the costs and thus MSP prices low. 
  • Out of roughly Rs 47 trillion, subsidies in the agri-food space account for about Rs 5 trillion, of which 80 per cent is geared towards consumers to keep food prices low. 
• Price Deficiency Payments(PDP) systems through which the Central Government pays the difference between the MSP assured and the market price at which the produce was sold by the farmer.
  • This system has the advantages 
• Balanced Policy Making: Policymakers must strive for a balanced approach that considers the interests of both producers and consumers. Rational policy making, devoid of political or emotional influence, is essential for ensuring sustainable improvements in farm incomes.

Policy makers, in negotiating with the farmers, should ensure that both producers and consumers are given priority. Sustainable production methods of diverse crops at a profit to farmers and economical availability to the consumers should be the goals.