How to support farmers without buying their crops – Madhya Pradesh launches bold new experiment

With Madhya Pradesh’s Bhavantar Bhugtan Yojana scheme being launched on Monday, farmers across the state will be taking their produce to agricultural markets in the hope that the government will ensure that they get remunerative prices. The scheme is being launched four months after farmers in the state went on a strike, leading to a police crackdown that resulted in the deaths of five farmers in Mandsaur district.

The scheme aims to address the main source of farmer anger: low prices prevailing in agricultural markets and the failure of the government to cushion the losses of farmers.

Theoretically, state governments are supposed to offset the risks of farming by purchasing produce at a previously declared minimum support price, offered if farmers are unable to sell their harvest in the market at a better price. But the safety net has not worked well.

While the Centre declares a minimum support price for 25 crops, in practice, it procures mainly wheat and rice, which it can then funnel into the Public Distribution System. Other crops –cereals, pulses and some oilseeds – are often left out of the loop. Procuring and storing these crops is often difficult and expensive, with neither states nor the Centre able to adequately establish buying centres or warehouses.

Through the Bhavantar Bhugtan Yojana, Madhya Pradesh is experimenting with a different model of price support. The state government will not buy farm produce from farmers but it will pay them the difference between the market price and the minimum support price. For instance, if the minimum support price for maize is Rs 1,425 per quintal, but the average market price is just Rs 1,225, the government will pay the farmer the remaining Rs 200.

Most farmers say they do not fully understand how the price deficit scheme will work, but they are keen to take part in it. On October 9, Hari Om Gaur went around Rehti, a town in Madhya Pradesh’s Sehore district, looking for the representative of the primary agriculture cooperative society that serves his village, to register for the scheme. Gaur had harvested urad dal late in September. But two weeks later, he had still not taken it to the market. He said he was waiting for the scheme to begin on October 16.

As the scheme becomes operational on Monday, farm produce is likely to flood agricultural mandis across the state. The scheme covers eight crops this year – four oilseeds, three pulses and one cereal.

The Centre’s think-tank, Niti Aayog, is keeping a close eye on the scheme, which is being seen as a pilot project for the entire country. If it works, it might well become a mechanism to replace the minimum support price altogether.

How it works

Broadly, Madhya Pradesh government proposes to execute the scheme in three windows.

All farmers across the state had to register on a website between September 11 and October 15. For this, they needed a copy of their Aadhaar card or Samagra card, which is an identity card issued by Madhya Pradesh. They also needed to submit a mobile number and details of a bank account into which the government will later transfer their money.

Between October 16 and December 15, farmers can sell five of the eight crops in registered agriculture markets. There is a different window for the three remaining crops, depending on their harvest period.

Should the market price fall below the minimum support price, the government will step in and pay farmers the difference from December 16 onwards.

To prevent traders from artificially suppressing market prices, the state government will determine an average sales price for the whole state, based not only on the price prevailing in Madhya Pradesh, but also in two other neighbouring states.

While this might pose difficulties for the price determination of soyabean, which is primarily grown in Madhya Pradesh, for other crops, this is expected to produce a more representative picture of prices.

Take the example of Gaur’s urad dal. In Madhya Pradesh, urad is selling for around Rs 3,000 per quintal at present. But the state government has chosen to compare its urad prices with those of Rajasthan, where the average sales price for October so far is around Rs 3,700, and Uttar Pradesh, where the average price is Rs 3,900. The average sales price of the three states comes to around Rs 3,500.

The minimum support price for urad is Rs 5,400 per quintal. If Gaur sells at the average sales price (Rs 3,500 per quintal), he will be eligible to get Rs 1,900 from the government. If he sells at a price that is higher than the average sales price but lower than the minimum support price, then the government will pay Gaur a smaller difference. But if Gaur is unable to sell at the average sales price, and gets a much lower price, he will still get only Rs 1,900. The government believes this amount is enough to cover his cost of production.

Minimum support, minimum payout

Many see the scheme as a cost-efficient way for the government to provide a safety net to farmers.This is one way for states to reduce their expenditure and still support farmers and agriculture, said Krishan Bir Chaudhary of the farm advocacy organisation, Bhartiya Krishak Samaj, who is a member of the Niti Aayog’s panel on agriculture.

In July, to quell the protests, Madhya Pradesh had pledged to buy onions from angry farmers. But this came at a cost, said Kailash Bundela, additional district magistrate of Ratlam. The government paid farmers Rs 8 per kg of onions, but its overall costs, including loading and transport, came to around Rs 20 per kg. Yet, because of the glut in the market, the onions sold at only between Rs 2 to Rs 3 in the market. “It is not easy to store onions in the warehouses as they rot easily,” Bundela said.

By paying farmers the difference in price and leaving the market to handle all other costs on handling and sales, the government stands to save far more money with the price deficit scheme, Bundela claimed.

Open to manipulation

While on paper, this might sound better than the current broken mechanism of minimum support prices, the scheme is still not foolproof.

The main problem with the minimum support price, according to Bundela, was that it distorted the free market. Once the government entered the market to make purchases over a short period, market prices did not necessarily rise in tandem as more farmers tried to sell their produce at the same time. The price deficit scheme’s two-month window of direct sales will perpetuate the problem, he said. There will be a rush in the mandis as farmers hurry to complete sales, Bundela predicted, and increased sales will push prices down. “There will be fewer fluctuations if we have an eight-month window so that traders do not then use it to manipulate prices below,” he said.

The scheme has a provision for an allowance of Rs 7 per quintal for farmers to store their produce at registered warehouses for four months after the sales window, if they are not satisfied with the prices they are offered during this time. However, those who wait for better prices will not get the deficit payment – in effect, the distortion is most likely to continue.

Another problem is the signal the scheme sends to traders. Already, said Bundela, secure in the knowledge that the government would pay the difference to the farmers, traders had begun to set lower prices for pulses.

“The weak point of this scheme is the traders,” said Ajay Gaur, a farmer from Nayagaon near Rehti. “The traders will begin to reject our goods for their profit by giving us Rs 2,000 instead of Rs 3,000 and saying that the government will give us the rest.”

Days before the sales window for the scheme opened, there were reports of pulse prices falling in parts of the state. While this might also have been because arrivals from the kharif harvest had begun to come in, prices in other states continue to be high.

Farmers are also concerned that this scheme will still rely on minimum support prices, which they claimed are often set lower than their actual production costs. There are concerns that farmers might not be able to understand the calculations or whether they have indeed got the correct price from the government or traders.

Said Kashmir Uppal, a retired principal of a college in Itarsi and farm activist: “This [the price] should have been decided on the basis of production costs, not this complicated calculation.”