Madhya Pradesh’s new scheme to protect farmers against fall of crop prices stumbles at the start

When the Madhya Pradesh government introduced the Bhuvantar Bhugtan Yojana in August it hoped the new scheme would assuage angry farmers and provide them a cushion against a possible price crash of farm produce. But in the first harvest season after the scheme was introduced farmers continue to get prices below their expectations.

Many farmers believe the scheme has provided traders the opportunity to form cartels and artificially depress prices of produce such as soyabean. Protests have ensued.

The scheme was introduced by the BJP state government in response to farmers’ protests against falling prices in June. The protests turned violent, five people died, and the state government, fearing a political fallout, reacted to launch the new scheme.

Till then, like in all other states, the Madhya Pradesh government used to depend on a minimum support price declared by the centre for 25 crops grown during the kharif and rabi season. If the farmers found market prices to be lower, they had the option to sell their produce to the state or central government at the minimum support price. In practice, wheat and paddy, which are channelled into the Public Distribution System, were the only crops to be procured on a significant scale.

The actual procurement by government agencies also remained mired in controversy and accusations of inefficiency. Madhya Pradesh said it wanted to plug these gaps. It introduced the Bhavantar Bhugtan Yojana for eight crops to begin with.

Under the scheme the government continues to use the minimum support price as a guide. But it does not buy the produce from the farmer. Instead it partly compensates the farmer for the difference between the prevailing market prices and the minimum support price it declares. The compensation is based on the average sale price of the specific crop in Madhya Pradesh and two other neighbouring states, calculated at the end of the season. The most the state is required to pay farmers is the difference between the average sales price of a commodity and the minimum support price.

The sales window for five of eight crops covered under the scheme opened on October 16 and will continue until December 15 or December 31, depending on the crop. Farmers were required to register for the scheme and sell their produce at registered agricultural markets. One of the key crops covered under the scheme was soyabean, of which Madhya Pradesh is the largest producer in India.

But when farmers took their harvested soyabean to the farms, they faced chaos and dipping prices. Many of them concluded the traders had used the new scheme as an opportunity to collude and bring down prices – an apprehension some had even when the scheme was announced.

“The moment the traders saw the registration papers [for the scheme], they reduced their auction price by Rs 200 to Rs 300,” said Mohan Singh Yadav, a farmer from Nasrullaganj in Sehore, which, he kept announcing to farmers who gathered around him at the Indore agricultural produce market committee in the middle of November, was the chief minister’s home area. “They told us to take the rest of the money from the government.”

Since October, the regional media has put out many reports of farmers complaining about an artificially induced slump in prices. Protests against low soyabean prices broke out yet again.

The price trends

Collusion is hard to prove for anyone else but the government. But perceptions matter too because they have political consequences.

A senior agricultural produce market committee official from Madhya Pradesh, who asked not to be identified, claimed that the cause for the low soyabean prices was indeed some form of cartelisation.

“There are seven plant owners [processing soyabean into oil] in all of Madhya Pradesh who control half the market,” said the official. “So they are the ones setting the price in the market.”

Gopaldas Agrawal, state secretary of the Madhya Pradesh Anaj Tilhan Vyapari Mahasangh, based out of the Indore market, confirmed that there are indeed a few people who control a significant part of the soyabean market, though he claimed this is not the entire story.

Data for sales trends

Scroll.in examined sales data of the six most important mandis in the six districts of the state that produce the largest volumes of soyabean – Indore, Dewas, Dhar, Mandsaur, Rajgarh and Ujjain. Data for five years over the 45-day period from October 1 to November 15 was analysed.

Two trends are easy to distil. The prices in the 45-day period this year have been the lowest over five years across most markets in Madhya Pradesh. The second trend, which is as worrying for farmers, is that from the day the sales window opened on October 16, modal prices have shown a downward trend in most markets. The modal rate refers to the price at which the produce is most often sold in a given period.

Take the example of Indore market. A day after sales began this season, the modal rate hit a peak of Rs 2,800 per quintal. But by November 15 it had slumped to Rs 2,600 per quintal. Last year, soyabean prices had peaked during the same time period above Rs 3,000 per quintal and averaged above Rs 2,800 per quintal. In 2015, the modal prices averaged above Rs 3,500 per quintal and hit a peak of Rs 3,800 per quintal.

The downward trend from the day procurement began is unusual. Prices for soyabean trend upwards from October 1 to November 14. This is because the soyabean in the market at the start of the sales season tends to be still wet from the field. Better quality soyabean, which has had time to dry, comes in later, farmers explained.

What traders say

Traders claim the lower price reflects market forces at play. Soyabean prices are affected by not just domestic dynamics of demand and supply but also by prevailing prices of other edible oils in the domestic market. At a recent conference by the Soyabean Producers Association in Indore, Davish Jain, the association’s president, spoke at great length of the way cheap edible oil imports were harming their ability to compete in the local oil market.

As about 80% of soyabean produced in India is exported as soyabean meal, production in other countries also swings domestic prices. Traders claim that the supply of soyabean from Argentina and Brazil has been much higher since 2015, which has led to a slump in soyabean meal prices across the world. According to the Soyabean Processors Association, global soyabean meal prices are so low now that they cannot afford to pay farmers more than they are now, reported the Indian Express.

“Traders tell us that they sell soyabean at Rs 4,000 ahead so they cannot afford to pay us more,” said Niranjan Varma, 30, a farmer from Sanawade village in Indore district who had come to the market at Indore city in early November to sell his soyabean crop.

However, a quick glance at the data shows that global prices of soyabean were already in decline last year, but there was no similar downward trend in domestic prices during the October to November sales window period

Traders proffer a third reason for the slump in soyabean prices. Ritesh Kasliwal, 40, a trader at the Indore market for 18 years, said that since demonetisation, no trader has had the cash flow to stock up on produce even during a time of high soyabean arrivals in the market.

“We do not have any cash with us so we can’t buy even to stock up,” Kasliwal said. “And even when we buy, we can’t sell ahead because plants are not ready to buy [in cash] either.”

Like other traders in the market, he said he is now only buying what he is sure he can sell. “If the government itself does not buy crops, how much does it expect us traders to buy?” Kasliwal asked. “We also have our limits.”

Agrawal of the oilseed traders association confirmed this. “Demonetisation ruined the market,” he said. “Now whatever goods come into the market has gotten stuck because the flow of cash has stopped.”

Changing rules

Since the announcement of the Bhuvantar Bhugtan Yojana, the Madhya Pradesh government has been announcing changes in the rules every few days, from granting farmers a transport allowance to registered mandis to announcing a modal price before schedule. In all, only 16 lakh or around 40% of farmers potentially eligible for the scheme had signed up for it by October 15, which was the deadline. Now, the state has opened the window for another 10 days of registration – between November 15 and 25.

The state meant to announce the average or modal price for calculating the compensation to farmers at the closing of the sales window to prevent manipulation, but after intensified signs of disgruntlement by farmers, it announced on November 13 a modal price for crops sold between October 16 and 30, and will continue to do so at regular intervals. And the government has revised its estimated expenses for the scheme upward from Rs 1,500 crore to Rs 4,000 crore.

All photographs by Mridula Chari.