SBI Ecowrap proposes 5 key agricultural reforms

A research report from the State Bank of India’s Economic Research Department, SBI Ecowrap, has proposed 5 key agricultural reforms that could act as enablers instead of the three controversial Bills that are going to be scrapped.

First, instead of MSP as a price guarantee that farmers are demanding, the Government could insert a quantity guarantee clause for a minimum period of 5 years that procurement to production percentage of crops (being currently procured) should at least be equal to last year percentage (with safeguards in exceptional events like droughts, floods, etc).

Contract farming

“Historical trend in case of procurement indicates that the average procurement of wheat has jumped from 26 per cent in FY14 to 36 per cent in FY21 and that of paddy from 30 per cent to 48 per cent during the same period,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, wrote in the report.

Continue to implement farm reforms in a politically acceptable manner: SEA

Second, explore converting the Minimum Support Price to Floor Price of Auction on National Agriculture Market (eNAM). Third, efforts must also continue to strengthen APMC market infrastructure.”

“Based on a Government report, as per our estimates, the monetary loss for cereals is almost ₹27,000 crore due to harvest and post-harvest losses. The losses for oilseeds and pulses are ₹10,000 crore and ₹5,000 crore, respectively. Fourth, establish a Contract Farming Institution in India that will have the exclusive right to oversee price discovery in Contract Farming. Contract farming has been instrumental in many countries by providing growers access to supply chains with market and price stability, as well as technical assistance. The experience of Thailand shows market certainty (52 per cent) and price stability (46 per cent) were prime factors due to which farmers participated in contract farming,” the report said.

Farm Bills’ repeal and the way ahead

Fifth, ensuring a symmetric procurement across States. The procurement of cereals had continued to be asymmetric, with top paddy-producing States like West Bengal (first) and Uttar Pradesh (second) witnessing very low procurement, even as States like Punjab and Haryana that are not the largest producers witnessing much larger procurement. For the record, for Punjab and Haryana, the procurement of cereals was 83 per cent of produce, while for some other States this was in single digits!

India, an oligopsony market

“MSP as a price guarantee is always a tricky issue. For example, hypothetically buying of cereals at MSP, in essence making procurement a public good, will drive down the prices significantly below MSP. Specifically, as India is an oligopsony market where there is a large number of small and marginal farmers/sellers while the buyers are either the Government and/or private, the private buyers will always have an incentive to strike a deal separately as the market has many small farmers/sellers willing to sell their produce but unable to do because of lack of market outside APMC. The bottom line, however, is that it is an outcome that the Government will never want,” the report said.