Don't want to anger consumers and voters? Subsidise them through taxpayers, not farmers
The government’s serial restrictions on the export and stocking of agricultural commodities call into question its commitment to reforms in the farm sector and the depth of conviction in the three laws it had introduced in a hurry in June 2020 and defended vehemently for more than a year before repealing them under pressure from farmers’ unions.
One of the laws amended the Essential Commodities Act of 1955 to protect agricultural producers and those in the subsequent value from the imposition of sudden and arbitrary stock limits. The amendment was brought in as an ordinance in June 2020 and enacted as a law in September that year. It empowered the Union government to regulate the supply of food items like cereals, pulses, potato, onions, and edible oilseeds and oil only under extraordinary circumstances such as war, famine, extraordinary price rise, and natural calamity of a grave nature.
Another amendment allowed cess-free buying and selling of agricultural produce outside the precincts of the regulated markets or mandis. The government reckoned that more buyers would mean better prices for farmers.
A third law pertained to contract farming.
The stated intentions
Through the amendment to the Essential Commodities Act, the Narendra Modi government promised to restrain itself. For the price rise to be grave enough to warrant the invocation of the act, it had to be 100 per cent higher in the case of horticultural produce like onions, potatoes, and tomatoes or 50 per cent more for non-perishable agricultural food items. The increase was to be calculated on the average of trailing 12-month retail prices or the average of trailing five-year retail prices, whichever was lower.
The amendments were hailed as a watershed in agricultural marketing. Noted agricultural economist Ashok Gulati hailed them as “the 1991 moment for agriculture,” alluding to the year when the government rolled back the licence raj and eased international trade in goods and services.
The onion story
Now consider this: on August 19, the government imposed a 40 per cent export duty on onions to increase domestic supply. According to the National Horticultural Board (NHB), onion wholesale prices had shot up in the Nashik market and were selling at Rs 2,000 to Rs 2,500 per 100 kg — double the rates a year ago. After protests from farmers and traders, the government agreed to buy 2 lakh tonnes of onions in addition to 3 lakh tonnes it had procured at the prevailing market price for sale to consumers at Rs 25 a kg.
But, according to the price monitoring division of the Consumer Affairs Ministry, average retail prices of onions in the country’s four zones had moved from Rs 25.55 a kg in August 2022 to Rs 26.51 per kg this July. That’s not a big enough change to warrant an export restriction.
However, the NHB paints a different picture. According to its website, retail prices in Nashik have risen substantially from Rs 2,000 per 100 kg last August to Rs 3,500 per 100 kg this August.
Ideally, the government should have anticipated the situation through its price monitoring division and entered into procurement contracts for buffer-stocking instead of constricting the trade. That would have enabled onion farmers to earn more and make up for low profits or even losses in the previous years.
The case of rice
Proceeding in the same lane, on July 20, the government changed the export policy for non-basmati white rice and moved it from “free to export with 20 per cent duty” to “prohibited” with immediate effect. The food ministry said it wished to quell retail prices of rice, which had risen by 11.5 per cent over the year and 3 per cent during the month. According to official price data, rice prices across the country had risen by 3.6 per cent in June 2023 from July 2022. At Rs 39.74 a kg in July, it was the highest during a 12-month period, but not extraordinary.
Are prices likely to spike later this year? According to an August 18 release of the Agriculture Ministry, rice-sown area is up by nearly 15 lakh hectares over the previous year. It is possible that the government expects crop output to be affected, as rainfall during this monsoon season has been deficient in most of the rice-growing areas.
According to the Commission for Agricultural Costs and Prices, buffer stocks were comfortable as of March. On August 1, there were 24 million tonnes (mt) of rice in the central pool and 28 mt of wheat. Even with reduced output, there is little reason to believe that the government cannot procure enough to meet its obligations when the current crop is harvested. The offtake last year under the National Food Security Act was 34 mt of rice and 17 mt of wheat.
Pulses problems
Continuing with the trend of restricting trade, on June 2, the government imposed limits on the quantity of pigeon pea (tur) and black gram (urad) dals that wholesalers, retailers, chain stores, and millers could hold, as price tamping measures. These varied from 200 tonnes for wholesalers and the depots of chain stores to 5 tonnes per retail outlet, and the higher of installed capacity or previous three months of production for millers. The limits were for each dal individually.
The measure was meant to curb hoarding and speculation, the government said. Production of tur in the last kharif season was 13 per cent lower. That of urad 3.4 per cent down. During the current kharif season, area under pulses has declined by 10 per cent or one million hectares. That of tur is down by 20 per cent and of urad by 10 per cent.
Retail prices of tur in July on average were 23 per cent higher than in August last year at Rs 134 a kg. Those of urad were 6 per cent higher in July over a year ago, at Rs 114 a kg. If the Essential Commodities Amendment Act was not repealed, what would the government have done?
Sledgehammer interventions
On May 13 last year, the government moved wheat from “free to export” to “prohibited” as global prices rose due to the Russia-Ukraine conflict, and the domestic wheat crop suffered damage due to the higher-than-usual temperature during the grain-filling stage in March. On July 6 that year, exports of wheat flour were restricted.
The food secretary said sentiments were driving up prices. Big farmers, traders, and exporters were accumulating stocks, expecting international prices to rise. The average retail price of wheat per kg on May 9 was Rs 29.49, about 19 per cent higher than the price as on that date a year ago.
No political party, and especially one that is always in election campaign mode, will want to anger consumers. But they should be subsidised by taxpayers, not farmers. Low agricultural incomes, caused by sledgehammer interventions in the market, perpetuate poverty.
Ideally, the government should have anticipated the situation through its price monitoring division and entered into procurement contracts for buffer-stocking instead of constricting the trade.
(The writer is a former journalist and blogs at www.smartindianagriculture.com)
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas, or opinions in the articles are of the author and do not necessarily reflect the views of The Federal.)
