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Madhya Pradesh launches new farm scheme to hedge price risks in farming

LiveMint logoLiveMint 29-08-2017 Sayantan Bera

New Delhi: The Madhya Pradesh government on Tuesday launched a new scheme to hedge price risks in agriculture wherein farmers will be compensated for distress sales at prices below Union government-announced minimum support prices (MSP).

The scheme, named Bhavantar Bhugtan Yojana (Price Deficit Financing Scheme), will initially extend to eight crops, mostly oilseeds and pulses, where government procurement is typically low unlike rice and wheat.

Not only does the new scheme seek to address price risks, it could potentially mitigate the political fallout of the recent farmer unrest—especially given that the state is due to go to polls next year and farmers are a key constituency.

The scheme comes on the back of a bumper harvest in 2016-17 when falling crop prices sparked protests by farmers demanding loan waivers and remunerative prices, in several states such as Madhya Pradesh and Maharashtra.

Under the scheme, farmers in Madhya Pradesh will be compensated when the notified crops are sold at less than the MSP, but the payout will be capped at a modal price. Modal prices are average market prices for a particular commodity over a two-month period in Madhya Pradesh and two other states where the crop is grown and traded.

For instance, if the MSP for soybean is Rs3,050 per quintal and the modal rate is Rs2,700 per quintal, if a farmer sells the crop at Rs2,800 per quintal in a mandi (wholesale market), the government will pay out Rs250 for every quintal sold directly to the farmer’s bank account. However, if the crop is sold at Rs2,600 per quintal, the state will transfer only Rs350 per quintal of produce sold, or the difference between MSP and the modal price.

Under the scheme, farmers will have to register their crops at village-level cooperative societies along with their Aadhaar and bank account numbers.

Enrolments will open from 11 September for a month. The compensation will be paid to the farmers’ bank accounts directly after verification of mandi receipts.

“We are looking at enrolling nearly half of the 6.5 million farmers in the state who grow these crops,” said Rajesh Rajora, agriculture secretary of Madhya Pradesh. Rajora adds that the scheme may be extended to cover horticultural crops in future.

“We are setting up a state farm prices commission which will recommend market intervention rates for horticulture crops. For now, we are going with only those crops where MSP is declared (by the centre),” he said.

A deficiency price payment safety net to counter frequent price risks in agriculture was first proposed in 2015 by a government panel tasked with revamping MSP.

The panel was headed by Ramesh Chand, who is currently a member of federal think tank NITI Aayog.

“It is the most economical way to counter price risks where the government does not need to physically procure crops. Such a scheme will also not distort market prices and will impose minimum financial burden on state governments,” Chand said, welcoming the initiative.

He added that with growing commercialization in agriculture, farmers need some form of price-risk support.

“The centre is already carrying out price support operations in rice and wheat, and states need to step up to protect farmers against price fluctuations in other crops,” he said.

“A deficiency price payment scheme is fine but neither the centre nor state governments are putting in the political capital to reform India’s inefficient agriculture markets where the bulk of the produce is traded... prices are decided in a non-transparent way by a cartel of traders,” said Pravesh Sharma, former agriculture secretary of Madhya Pradesh and a visiting fellow at the Delhi-based Indian Council for Research on International Economic Relations.

“A well-functioning agriculture market where spot, future and forward markets are integrated and work seamlessly is the way ahead but schemes like the current one, like loan waivers, are essentially bailing out inefficient markets at a cost to the public exchequer,” Sharma added.

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