Assured MSP would be a ‘rocket dose’ for economy

A couple of days after Prime Minister Narendra Modi announced a rollback of the three contentious farm laws, a photo essay in The New York Times titled: “Once we’re gone, we’re not coming back,” (Nov 23, 2021) painted a telling picture of the devastation market reforms had inflicted on American agriculture. With more and more farmers filing for bankruptcy in the Midwest region, the small farmers who have stayed back on the farm are somehow struggling to survive.

“At some point, the people raising your food are going to be dead,” Jeff, who farms 800 acres, small by American standards, was quoted in the newspaper.

This reminds me of another poignant report in the Time magazine (Nov 27, 2019) with a disturbing headline: “They are trying to wipe us off the map,” explaining how small farmers are nearing extinction. Between 2011 and 2018, nearly 100,000 farms were lost in America; with 12,000 of them disappearing in just two years, 2017 and 2018. “Farm and ranch families are facing a great extinction,” it quoted a Nebraska cattle farmer, Al Davis, who added: “If we lose the rural lifestyle, we have really lost a big part of what made this country great.”

Not only in America have market reforms in agriculture destroyed farm livelihoods, in the rest of the developed world, the situation is equally alarming. “Every genuine farmer is now struck unfairly on a treadmill with accumulating debts to meet unless he goes bankrupt, commits suicide or finds another source of income,” a British farmer was quoted in the media.

In March this year, French farmers had hung suicide dolls on trees outside Parliament to draw attention to the severe agrarian crisis that prevails. In Germany, more than 130,000 farms have closed down in the past 15 years. In short, free markets have failed to enhance farm incomes anywhere in the world and in the process have made it easy for the big businesses to gradually take over agriculture.

This is what worried Indian farmers. The intense farmers’ protest at the borders of New Delhi, which completed one year on November 26, and finally led to the rollback of the three contentious farm laws, comes as a great relief to the farming community who feared the laws were aimed at facilitating the takeover of agriculture by the corporate. With agriculture already reeling under a terrible distress for several decades now, farmers were able to comprehend what the entry of big businesses in agriculture would mean for their future, knowing that the companies would eventually drive them out.

Unnerved by all kinds of insinuations thrown at them, protesting farmers have actually ended up challenging the dominant economic thinking that relies on sacrificing agriculture for the sake of the industry. Knowing that markets have failed to prop up farm incomes in the developed world, they have questioned the economic rationale of letting farm prices be left to the play of supply-demand principle, which market economists believe leads to price discovery. But, in reality it doesn’t.

The demand for making MSP a legal right for farmers, ensuring that no trading is allowed below the price announced for 23 crops every year, is actually aimed at seeking a guaranteed and stable income. It didn’t happen in Bihar, which had thrown out the APMC Act in 2006. Mainline economists had then predicted that Bihar would be the harbinger of a new market-driven agricultural revolution in the country, attracting private investments, setting up a network of private mandis and the efficient markets would lead to higher prices for farmers. But 15 years later, nothing like that happened.

For the sake of comparison, markets failed to increase farm incomes in the US and the European Union. This can be very well gauged from the latest Producer Subsidy Equivalent index prepared by the Organisation for Economic Cooperation and Development, which shows that rich countries have been heavily subsidising their agriculture with Norway, Switzerland and Ireland topping the chart. On the other hand, India, Vietnam and Argentina have been negatively taxing their farmers. The prosperity, therefore, that we see in the western agriculture is not because of markets but due to huge government subsidies, including direct income support. The question that I am often asked is, if not for market reforms, what kind of measures are required to revitalise Indian agriculture. After all, the Situational Assessment Survey-2019 report released in September shows the average farm income from crop cultivation alone stands at a paltry Rs 27 a day, the distress that prevails on the farm is simply frightening.

A Niti Aayog study showed that the growth in farm income between 2011-12 and 2015-16 had remained at less than half-a-percent every year. Simply put, it means farm incomes have remained frozen or have been on a decline.

It was the compound anger built over the years from the continuing failure to provide a living income that brought protesting farmers to the streets. Reiterating what I have often said earlier, agriculture has been deliberately kept impoverished to keep economic reforms viable. This is how the economic design is cast, keeping food prices low so as to keep food inflation under check and also to provide cheaper raw material for the industry. In other words, farmers have had only two roles – as a vote bank and a land bank. This has to change. Protesting farmers believe that an assured income by way of a guaranteed MSP is the only way to pull out farmers from the clutches of mounting indebtedness and poverty.

The demand for making MSP a legal instrument has tremendous economic implications. Besides making farming a viable enterprise, thereby reducing the pressure on the cities for creating additional employment, higher income for farmers would translate into higher economic growth. When the 7th Pay Commission was announced, benefiting some 4-5% of the population, economists had termed it as a booster dose for the economy. Imagine if 50% of the country was to receive a higher income by way of a guaranteed MSP it would create such a huge rural demand thereby acting not as a booster, but as a rocket dose for the economy.

Agriculture is certainly crying for a change. Instead of borrowing the failed agricultural marketing reforms from other nations, protesting farmers have given us a great opportunity to redesign and come up with a desi version of agriculture reforms where a guaranteed price becomes the hallmark of what could lead to a bright future in agriculture.

It’s time we listen to protesting farmers.

(The writer is an author & food policy analyst)