Indian agriculture needs support. Reform farm prices at the very least.

The primary demand of farmer unions has been a guaranteed Minimum Support Price (MSP). The demand is not new and was also made during the year-long protest mounted by farmers during 2020-21.

This issue has now become a sticking point for farmer unions and there appears to be broad agreement on the need for it among Indian political parties. 

While the exact details and modalities for its implementation are unclear, in principle, such a demand is not unusual, given the level of economic distress that the agricultural sector has seen in the last decade, particularly the last five years. 

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At a time when the overall economy is going through a slowdown driven by declining or stagnant incomes, farmers are among the worst sufferers. 

Not only have they seen profits decline, but uncertainties, both price- and climate-related, have also increased. With declining opportunities in the urban and non-farm economy, agriculture is now the last refuge for many. 

The absolute number of workers in this sector has increased by almost 68 million in the last five years alone. One consequences of India’s rising number of farmers has been a decline in income per cultivator.

While agricultural wages have stagnated for almost a decade, those engaged in cultivation have fared worse, with income-per- farmer from cultivation witnessing a sharp decline in the last five years. 

The most recent disaggregated data from the National Accounts is available for 2022-23. Using the Niti Aayog methodology, the income of farmers declined by 2.9% per year between 2017-18 and 2022-23. 

Compare this with a real growth of farmer incomes at 7.5% per annum between 2004-05 and 2011-12. In the last decade, from 2011-12 to 2022-23, the real income of farmers has barely grown at 1% per annum, the lowest decadal average in four. 

Even compared to 2016-17, when the government announced its intention of doubling farmer incomes, the real income of farmers has declined by 0.8% per annum.

Clearly, farmers are now facing the worst crisis we’ve seen in agriculture. Their anger, therefore, can be considered justified.

While price volatility and low profit realization are major issues, Indian agriculture also faces other big problems. 

These relate to declines in the quality of and access to natural resources, primarily land and water. Further, an imperfect credit market has restricted access to credit for a large number of small and marginal farmers, along with tenant farmers. This has aggravated the sector’s troubles.

Meanwhile, indebtedness among farmers has gone up. 

Then, there is the uncertainty created by climate change. Frequent spells of above-normal heat and unseasonal rainfall have multiplied farming risks; large public investments are required to mitigate these.

However, until then, protecting farmers from agricultural-outcome uncertainty is necessary for the sustainability of farming.

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The idea of income and price protection for agriculture is not unique to India, but is prevalent in most countries. 

This is true not just of most developing countries, but also the advanced world. 

The EU, for example, has its Common Agricultural Policy, while the US has a protective policy too. 

In fact, the US uses multiple instruments to provide price support to farmers for a large variety of field crops as well as dairy and other livestock products. 

For example, the US Commodity Credit Corporation uses different instruments, including loans and direct purchases, to provide price stability to American farmers. 

Similar is the case with the EU, which uses various price stabilization measures beyond direct income support for its farmers.

Guaranteed minimum support prices are unlikely to solve the multifaceted problems faced by Indian agriculture. 

It is also well-known that the MSP mechanism in its current form is inefficient, given its limited crop coverage as well as geographical spread. 

In essence, a guaranteed MSP would merely serve as a legal commitment from the government to implement its current MSP policy. Therefore, what is also required is to expand the coverage of the MSP procurement system, both in terms of crops eligible for it as well as the regions covered.

Also Read: Why MSP alone does not bring farmers prosperity

The forthcoming talks provide an opportunity to the government as well as farmer unions to engage in a process that leads to reforming the MSP system. 

Such a process should not be limited to merely providing a commitment to implement the existing MSP regime, but it must learn from international experience to go beyond that. 

It also needs the active participation of state governments, as agriculture is a state subject.

While comprehensive reform of the MSP system is necessary, that would still be only one part of India’s overall price policy, which is riddled with problems such as ad-hoc price controls and stock limits that are imposed from time-to-time, and unfair and arbitrary international trade rules. 

At a time when India’s crisis in agriculture is at its worst, reforming the country’s policy on farm-output prices is crucial to revive the sector and make farming sustainable. 

It is equally important to strengthen the trust that farmers place in the system.

The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.