1. Not demonetisation, here’s what caused the farmers crisis in Maharashtra, Madhya Pradesh

Not demonetisation, here’s what caused the farmers crisis in Maharashtra, Madhya Pradesh

Lack of agricultural reform caused the crisis in Maharashtra and Madhya Pradesh, not demonetisation.

By: | New Delhi | Updated: June 17, 2017 4:40 AM
farmers, demonetisation, agriculture, Lasalgaon, Maharshtra, Madhya Pradesh A huge price spike will cause a surge in production which, in the absence of adequate storage or bulk buyers.

Ever since the onion price crash led to the bloody agitation in Madhya Pradesh, many have argued this was the result of demonetisation. Harish Damodaran talked of, in The Indian Express (goo.gl/Uw7Nem), potatoes in Farrukhabad, Uttar Pradesh, fetching below  Rs350 per quintal in February compared to Rs 600 or more last year; in the case of onions in Lasalgaon, Maharashtra, they traded at Rs 450 per quintal in May as compared to Rs 750-800 and Rs1,200 in the same month of the preceding two years … several such examples are given, from garlic to grapes. Since demonetisation, he and others argue, caused a haemorrhaging of liquidity in the markets, there were few buyers. According to this logic, though the central bank has pumped cash back into the economy, the black economy is still starved for cash and so trades like those in commodities are suffering.

The argument seems rational and can, in fact, also be used to explain the crash in prices in, say, the housing market where a lot of the transactions are in cash. The problem, however, is that, in the case of real estate, prices were falling even before demonetisation. And in the case of onions in Lasalgaon, if the fall from Rs 750-800 to Rs 450 this year is meaningful, so is the fall last year, from Rs 1,200 to rs 750-800.

Talk to anyone in the agriculture/commodities sector, and they will tell you about the typical agriculture price-output cycle. A huge price spike will cause a surge in production which, in the absence of adequate storage or bulk buyers, leads to a sudden collapse in prices; this leads to a fall in sowing the next year and a spike in prices. To be certain, there are exceptions, but the cycle is quite strong. So, as Banikinkar Pattanayak reported in this newspaper (goo.gl/I2mUys), a bumper potato crop in 2014-15 resulted in wholesale prices crashing to `1,198 per quintal during harvest season (Feb-Apr) as compared to `1,938 in the previous quarter; in the case of onions, production touching 21 million tonnes in 2015-16 saw prices falling to Rs 1,201 during harvest (Apr-June) as compared to Rs 1,563 the previous quarter. The graphic, where prices have been plotted with production of the previous years, shows this relationship quite clearly.

That prices should collapse is, of course, no surprise since in the absence of a big buyer, this is a simple matter of supply exceeding demand. Had FDI in retail been allowed and big retail chains entered the market, things could have been different. Or, if food processing had grown large enough, the large production would simply have been processed. With neither large retailers nor large processors, there is not enough cold storage either—according to food processing minister Harsimrat Kaur Badal, the storage capacity for horticulture is just around 6% of the country’s total need.

Given the BJP’s 2014 promise of raising farmer profit margins to 50%—this later morphed into doubling incomes by 2022— it is amazing that the government never woke up to this reality sooner. With even retail food inflation falling from 6.3% in April 2016 to just 1.2% in April 2017, it is obvious farmer margins have been even further squeezed.

Apart from the government dilly dallying on FDI in retail, reforms like futures and creating a pan-Indian agriculture market which will take time, it continues to impose stocking limits and bans exports the moment farm prices start to rise. Its latest response, earlier this week, was to increase interest subvention on farm loans by another Rs 5,339 crore, taking the total to `20,339 crore this year. What it doesn’t take into account is that, while 45% of all farm credit is still from the informal sector, the bulk of loans are in any case taken by better-off farmers. And, as a study by ICRIER points out, there are large leakages in such loans.

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Also, as Credit Suisse points out—see page 1graphic—farm loans are slowing in states like Telangana which had loan waivers some years ago. Given the `170,000-180,000 crore spent on farm subsidies—`70,000 on fertilisers and `100,000 on water and electricity—and the fact that little goes to the small farmer versus the `60,000 crore or so of public investment,surely the government could have made a move towards converting this to per acre cash payments? No amount of farm loan waivers will help till these distortions are fixed.

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  1. Mallikarjun J Iyyer
    Jun 18, 2017 at 8:34 pm
    Agri infra and marketing beyond loan waivers and subsdies require a lot of analysis. A rightly pointed out delay FDI in retail which could have assuaged the price crash could have helped farmers. Needless to say demonetisation has been disruptive but what next as pointed out with 45 agri lending in informal sector, it is anyone's guess where india's black money lies and where it is invested. While realty prices dropped, a major crash in prices in agri land has also taken the toll. For example, more farmers with large land holding consolidate their land holding by buying land of smaller farmers and convert them into labourers as most small land holding farming is unviable as well as they lack the access to modern inputs of farming from funds to other modern inputs of seeds, fert. etc. Most farm labourers double up in harvest season into sellers of products produced either from pledged lands to rich one. Things stand evident. Analyse lands transfers. journos reports on farming is
    1. H
      Jun 18, 2017 at 3:24 pm
      This blackmail Shouldn't be allowed to throw a wrench in the financial standing of states! If today farmers who are not paying g taxes are forgiven their loans then why should the taxpayer pay for it?
      1. The Worm
        Jun 18, 2017 at 12:33 pm
        Demonetization brought happiness to a section of society that was full of glee on seeing the other section in pain. A person who I closely knew was the biggest champion of demonetization. This person had nothing positive in him: physically (full of all diseases) or mentally (highly negative) or worldly (single, lost everything is legalized gambling den stock exchange). This sick guy, committed suicide. His Gods, RSS Brahmins and Feku didn't help him. The rip off schemes of his Gods didn't help him. These farmers are the sick section of society. They were enjoying when Demonetization wreaked havoc, mostly on honest, hard working and industrious persons of society while the dishonest, crooks and thugs were being protected by RSS Havala Operators. They have elected their Gods: RSS Brahmins, Yogi and Feku Maurya whose only achievement in life is to sport the tilak on forehead, a luxury allowed by their upper caste progenitors.
        1. H
          Jun 18, 2017 at 3:28 pm
          Ha ha ha! We enjo DEMONETIZATION with glee, and we will.enjpy if those CROOKS TRAITORS TERRORISTS muslim league FRANCHISEES ITALIANS and their SERVANTS commit suicide too! If you join them please inform us so we can celebrate another leech less on mother India!
        2. Narasimhaiah Ramanagaram
          Jun 18, 2017 at 6:21 am
          Lack of foreseeing from state government agriculture departments is the root cause of bumper production and uneconomically falling prices. The field functionaries of the department can sense the over sowing of a particular crop. It is failure of the dedicated media to alert farmers about over sowing. The agricultural department needs functionaries who are sensitive to farming habits of the farmer. Intensive interactions with co ordination should take place between farmers and govt.functionaries They need proper training in this matter.
          1. H
            Jun 18, 2017 at 3:31 pm
            The farmers do the sowing, the farmers don't pay taxes, but when the farmers b er, or make a loss the taxpayers has to pay and the government is to blame? Only a COMMIES thinks this way!
          2. A
            Jun 18, 2017 at 5:43 am
            Looks like article is wrttien with specific interest in mind of fdi retail and data seems to be backward correlated while world over retail is slowing down
            1. R
              Ramakant Tiwari
              Jun 18, 2017 at 5:32 am
              Agri sector is a state sector. Without State's active intervention, agri infrastructure cannot come up. However, farm unrest in MP appears to be entirely poli ical, stoked by Congress, narcotic lobby.
              1. C
                Jun 17, 2017 at 9:27 pm
                It is sad that till today, the Govt doesn't know for sure, the reasons for what's happening in the economy.
                1. Darmaniac Lance
                  Jun 17, 2017 at 4:48 pm
                  That's all well. But the thing is comparison of prices due to whole in previous years might yield price drops, but you cannot compare with conditions post demonetisation. It is true people suffered from lack of cash. 2000 denominations didn't help either and farmers could not find buyers. The cir stances of the farmers and their families and what has transpired in those states is a direct impact of demonetisation. Please Do not dilute the facts by comparing this with price drops due to whole and supply and demand. That is an entirely different case and does not relate to what is happening now. You cannot justify with general economic theories and reasoning.
                  1. P
                    Jun 17, 2017 at 8:02 pm
                    Brilliant explanation.... Even if you got diarrhoea, it was because of demonization.... SCAMgress supporters r lickers of one family.... Demonization was killing the middle class and farmers... It's the licking policy of SCAMgress which is leading to farmer's suicide...
                    1. Darmaniac Lance
                      Jun 19, 2017 at 1:01 pm
                      These are facts, me or you getting diarrhea or black plague will not change facts.
                  2. H
                    Jun 17, 2017 at 9:23 am
                    The lack of msp and the inability of farmers to sell their crops for at the very least manufacture is the result of demon ization. But I suppose those aspects cannot be given when your bosses are watching.
                    1. A
                      Jun 17, 2017 at 7:57 am
                      1. Farming distress has become a political issue. To solve famers’ problems are the farmers joining hands with the political leadership and bureaucracy? 2. I believe that bureaucrats and their politician masters are professing to do something for farmers, but not much positive action is taken. 3. If Union Agricultural Ministry wishes to do something constructive for farmers, it should act on what Dr. M S Swaminathan, noted agricultural scientist, wrote on the subject of warehouses and storage facilities. He wrote: “It is time that we organise a National grid of grain storages, starting with storage at the farm level in well designed bins and extending to rural godowns and regional ultra-modern silos. Post harvest losses can then be minimised or even eliminated and food safety ensured. Unless the prevailing mismatch between production and post-harvest technologies is ended, neither the producer nor the consumer will derive full benefit from bumper harvests.”
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