India Raises Rice, Cotton Buying Prices as Farmers’ Protests Mount

MUMBAI/NEW DELHI — India raised minimum purchase prices for rice, cotton and other crops by the most since Prime Minister Narendra Modi came to power in 2014, according a government circular seen by Reuters, amid ongoing protests in the country’s biggest farming states.

Prices paid to local farmers for common grade paddy rice are to be raised by 5.4 percent to 1,550 rupees ($24.03) per 100 kg for the year starting on July 1, while long staple cotton prices have been hiked by 3.8 percent to 4,320 rupees per 100 kg.

The increases for rice, cotton and other crops follow an outburst of discontent in the heartland states of Madhya Pradesh and neighbouring Maharashtra as farmers sought higher prices and debt relief.

Five protesting farmers were shot dead this month in the central state of Madhya Pradesh, which along with Maharashtra is ruled by Modi’s Bharatiya Janata Party (BJP).

Farmers throwing vegetables on a road during a protest as part of the Maharashtra bandh over various demands in Nagpur, Maharashtra
Farmers in Maharashtra have dumped their produce on the roads in protest against low prices. PRESS TRUST OF INDIA

The unrest has posed a challenge to regional BJP leaders and Modi, who have promised to double farmers’ incomes over the next five years.

India is the world’s biggest rice exporter and buys the grain from local farmers to protect them from distressed sales and to build stocks for welfare programmes.

The government fixes minimum prices for more than two dozen farm commodities, although it mainly procures wheat and rice.

Growers of other crops like onions, tomatoes and potatoes are also protesting due to steep falls in the prices of their produce and the absence of the government buying.

The government has also raised soybean prices by 9.9 percent to 3,050 rupees per 100 kg, and corn by 7.1 percent to 1,425 rupees per 100 kg, effective from July 1. The increases for these two grains were also the greatest since 2012/13.

($1 = 64.5125 Indian rupees)

(Reporting by Rajendra Jadhav in MUMBAI and Nidhi Verma in NEW DELHI; Editing by Tom Hogue)

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In Maharashtra and Madhya Pradesh, the farmers are on the streets because a bumper harvest fuelled by a robust monsoon has led to a crop glut. Prices of onions, grapes, soya-bean, fenugreek and red chilli, for example, have nosedived.

In most places, the governments have been less than swift in paying the farmer more for the crops – the government sets prices for farming in India and procures crops from farmers to incentivise production and ensure income support.

So why has a bumper crop led to a crisis in farming?

Some believe that the price crash is the result of India’s controversial withdrawal of high value banknotes – popularly called demonetisation – late last year.

Indian farmers

The ban, surprisingly, did not hurt planting as farmers “begged and borrowed” from their kin and social networks to pay for fertilisers, pesticides and labour, Harish Damodaran, rural affairs and agriculture editor at The Indian Express newspaper told me.

So more land was actually cropped, and bountiful rains led to a bumper crop. But traders, Mr Damodaran believes, possibly did not have enough cash to pick up the surplus crop.

“Although the chronic cash shortage has passed, there is still a liquidity problem. I have been talking to traders who say there’s not enough cash, which remains the main medium of credit in villages. I suspect the price crash has been caused by a lack of cash.”

‘Exaggerated fears’

A prominent trader in Lasangaon, Asia’s biggest onion market in Maharashtra, a state which accounts for a third of India’s annual production, told me that concerns over shortage of cash leading to crop price crashes were “exaggerated”.

“There has been a good crop for sure, but a lot of traders have picked up crop, paying cash, issuing cheques and using net banking. Some of the glut and wastage has been due to the ongoing strike, when trucks of vegetables have been attacked on the highways,” Manoj Kumar Jain said.

Still others believe the main reason for the ongoing crises actually rooted in India’s chronic failure of coping with surplus harvests because of lack of adequate food storage and processing capacity.

“If the rains are good, you end up with a glut of crops and prices crash. The glut only highlights the inefficiencies of the farming value chain and hits farmers,” Ashok Gulati, an agriculture specialist at the Indian Council for Research on International Economic Relations, told me.

Take onions, for example. The vegetable is 85% water and loses weight quickly.

A labourer spreads onions for sorting at a wholesale vegetable market in the northern Indian city of Chandigarh
India is one of the world’s biggest onion producers. Reuters

In Lasangaon, traders buy the crop from farmers and store the onions on concrete in tarpaulin-covered sheds. If the weather stays right, 3-5% of the stored crop is wasted in storage. But if the mercury soars, more onions dry up, lose weight and 25-30% of the stored crop could be wasted.

In a modern cold storage, however, onions can be stored in wooden boxes at 4C. Crop wastage is less than 5%. Storage costs about a rupee (less than a US cent) for every kilogram of onion a month.

So the government needs to make sure – or even subsidise – to keep the vegetable affordable to consumers once it reaches the retail market.

“We need to make the supply storage chain so efficient that the customer, farmer and the storage owner are happy. Unfortunately India hasn’t been able to make that happen,” Dr Gulati said.

Poor storage

For one, India just doesn’t have enough cold storages.

There are some 7,000 of them, mostly stocking potatoes in the northern state of Uttar Pradesh. Resultantly, fruits and vegetables perish very quickly. Unless India hoards food effectively, a bumper crop can easily spell doom for farmers.

Secondly, there’s not enough processing of food happening to ensure that crops don’t perish or go waste.

Take onions, again.

One way to dampen volatility in onion prices is to dehydrate the bulb and make these processed onions more widely available. Currently, less than 5% of India’s fruit and vegetables is processed.

Thirdly, farmers in India plant for new harvest looking back at crop prices in the previous year.

If the crop prices were healthy, they sow more of the same, hoping for still better prices.

If the rains are good, a crop glut can happen easily, and lead to extraordinary fall in prices. Farmers hold on to the crops for a while, and then begin distress sales.

Farmers sprinkle fertilizers on a paddy field on the outskirts of Ahmedabad, India, February 1, 2017
Half of its people work in farms, but farming contributes only 15% to India’s GDP. Reuters

“You need to allow future prices through contract farming, not cropping based on last year’s prices,” says Dr Gulati.

Radical measures

Clearly, farming policies in India need a radical overhaul.

Punjab, India’s “granary”, is a perfect example.

At a time when India does not suffer food shortages, water-guzzling wheat and rice comprise 80% of its cropped area and deplete groundwater.

Rising production of cereals has meant that government has been giving paltry rises to the farmers while buying paddy and wheat, eroding their profitability.

“They [the policies] are distorting the choices that farmers make – those who should be finding ways to grow vegetables, which grow more expensive every year, are instead growing wheat we no longer need,” says Mihir Sharma, author of Restart: The Last Chance for the Indian Economy.

But the best that the governments here do is to quickly raise crop buying prices and alleviate the farmers’ suffering.

Faced with a crop glut at home, the newly appointed BJP government in Uttar Pradesh was smart enough to promptly raise the procurement price of potatoes – and announce a controversial farm loan waiver – and quell a simmering farmers’ revolt .

The government in Madhya Pradesh, ruled by the same party, failed to act in time. Now it says it will pay more to buy off the surplus onions. The more things change, the more they remain the same.

http://www.bbc.com/news/world-asia-india-40184788

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