Monday, March 17, 2008

Agricultural Sector Reform

Without going into the details of why, here is what I propose:
1. There should be no control price on procurement.

2. There should be no subsidies on inputs. All inputs must be governed by market prices. i.e., Fertiliser Corporation of India must continue to supply fertilizer, but it must be forced to cut its own costs to stay price competitive.
3. Food Corporation of India(FCI) must be forced to compete with other market players to procure at market prices. Minimum Support Price must be the least amount at which a sale can happen in a government regulated market.
4. There should be public-private partnership to create a chain of warehouses. The pricing mechanism should be such that the farmer does not pay for the storage – the procurer pays. What this means is that the longer a produce is in the warehouse, the more the bill of the procurer. This will transfer the pressure of selling from the farmer to the buyer. Also, since the farmer does not stand to gain anything by keeping the produce for long in the warehouse, and in fact loses liquidity and negotiation advantage, he will also be interested in reaching an early deal, but will not be under pressure to do so.

5. Once the procurement has been completed by the FCI(Food Corporation of India), the produce must be transferred to a central nodal distribution agency, which could be a part of FCI. There have to be 2 parallel distribution mechanisms – one for perishable primary produce like fruits and vegetables, and the other for staples and cereals.

6. The distribution is done at subsidized prices. The Govt. of India, along with the states, bears the differential between procurement prices and distribution prices. The more the demand-supply gap in a state, the more its burden of subsidizing.

7. Not every citizen should be expected to have a ration card. A ration card should be authorisation to get produce from the subsidized PDS. For identity proof, the voter ID card or an alternative for minors should be used.

8. Any leakage is the responsibility of FCI’s distribution wing, and the respective governments.

9. Until there is stabilisation of logistics on the ground, all speculative acitivity in these commodities should be made illegal.

What this arrangement will hopefully do:1. Stop the starvation deaths of farmers.
2. Introduce corporatisation of agriculture that goes a step beyond contract farming.
3. Plug the multiple infusion of subsidy and introduce a single injection point of money form the government to the food distribution mechanism of India. This hopefully means less corruption, or at least all corruption concentrated at one point. This also means more accountability of the nodal agency and an ability to place the blame where it should lie.
4. Make available both perishable farm produce and staples at a less price to the BPL citizens of India. Currently, the public distribution system (PDS) only takes care of staples.


Cyberkitty said...

Inputs like fertilizer, pesticides and seeds should be subsidized as farmers will not be able to afford them - if farmers stop farming and take up other jobs - then the country will starve.

The Phosgene Kid said...

The answer is fewer people. I believe the root cause of most problems from famine to global warming is too much pressure on too few resources.

Gazal said...

thanks a lot for visiting my blog.

How do we know said...

Hi cyberkitty: Think of it this way. If the farmer has only rs. 20, he will not be able to afford a fertiliser priced at Rs. 15. But if he makes Rs. 100, then Rs. 15 is not a problem, na?

Hi Phosgene: Agree, Agree, Agree. We really need to stop breeding like mosquitoes. Rabbits. Whatever.

Hi gazal: :-) When i visit a blog, the pleasure is mine.

shadows said...

i sincerely wish it was that simple....
to increase the prices of the fertilisers means that the farmer(atleast initially) poor cannot afford them...
to increase the cost of ration (before increasing the fert etc prices)means that though the immediate profits are huge investment to earning ratio will be amazingly huge too. also there are rich farmers in india (say, some in punjab, haryana) they become even more richer so the gap remains. those who are actually able to afford fertilisers, machinery, seeds of good quality will get the monopoly in the market. coz their production is higher.

ok we have increased the prices of food despite all the above factors... how do the poor in the cities (who dont grow thr own food) cope with the inflation? they cant. coz most of the poor working class in the cities are migrants. so they dont even have ration cards. they cant even afford the basic civic ameneties. so how do u suggest them affording even basic meals. giving away the grain market to private sectors means increasing the monopoly of middle men in the business who are anyway making huge profits, now they will succumb to even more lucrative deals. in case of higher prices, at any stage (which now the govt can't control) even the lower middle class will suffer... i dunno. i have actually lost track of the simplicity and complexity of my own postulates....