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S.S. Johl
The solution to the agricultural diversification problem lies more in a rational agricultural policy rather than technologies that are available from the National Agricultural research system of the country. Unfortunately, the Input and output prices structure of agricultural commodities has been distorted so much through time that today the cost of production of these commodities does not reflect their economic cost. As a result, production patterns have gone out of alignment with real input cost structure as well as consumption patterns in the country. Some commodities like wheat and rice are being produced more than the national capacity to manage the stocks excess of consumer demand. On the other hand, the production of commodities like oilseeds and pulses falls short of consumer demand and these commodities have to be imported at a huge cost annually.
Apart from getting production patterns out of alignment with consumption patterns, this has resulted in tremendous drain on the scarce productive resources like underground water leading to the fast deteriorating water balance, besides unbearable stress on the agricultural ecology. It is unfortunate that in spite of available alternatives that can compete well with the wheat and rice crop rotation in terms of profitability based on economic cost of production of these crops; the blame is placed almost totally on lack of market clearance at remunerative price and lack of post harvest value addition in respect of replacement crops. These are knowingly or unknowingly being used as alibis to ignore the policy aspects of the problem. Taking the case of rice production in Punjab there are two categories of costs; one incurred by the farmers (individual costs) and the other by the state and the society (social costs). The individual cost is estimated through the cost of production estimates by the universities and research centers. The average costs of production so estimated for about twenty four agricultural commodities are used by the Commission for Agricultural Costs and Prices (CACP) in the determination of minimum support prices (MSP). But, social costs are totally ignored and are not accounted for in any manner. As a consequence, the farmers do not gain from free power and water supply and other subsidies on the inputs. The benefit of these subsidies flows straight to the consumers by way of corresponding lower issue prices. The farmers serve as a sort of conduit only between the state and the final consumers without any benefit flowing to them. For the major crops of wheat and rice produced in Punjab and Haryana, the consumers are in large part outside of the state. This simply amounts to these two states subsidizing the consumers, especially of deficit states, not their own farmers. One wonders, why the policy maker of Punjab and Haryana are not able understand or not willing to understand this simple proposition.
Since the social costs are no burden on the farmers, although they do not benefit from the largesse, they find these crops comparatively more remunerative under the extent system of market clearance, where in pressure groups and vote bank politics keeps pushing for higher and higher output prices. Often even procurement standards are compromised under these pressures. The system is economically and environmentally unsustainable. If allowed to continue, diversification so much talked about will remain the subject of table discussions only and it is bound to spell disaster on the economic, social and environmental health of these states sooner than late. In fact the state of Punjab is already under stress on these aspects and Haryana is not far behind.
No doubt, it is an admitted fact that agriculture nowhere in the world can survive without subsidies, yet the type of subsidies and the manner in which these are being delivered to the farmers; do not help them in any manner. Unfortunately, even the farm leaders pressing for higher and higher largesse on these lines do not stop even for a moment to think and analyze whether in reality these benefits flow to the farmers or not! Such types of subsidies can benefit the producers in the competitive free market only and not under the system wherein commodity prices are fixed for government procurement in a major part based on the individual cost of production incurred by the farmers.
Lot many reports on this issue have been commissioned by the successive governments of Punjab since the year1985. Yet, almost no action was ever taken on any of these reports. In fact at the level of administration efforts in this direction were deliberately thwarted on many occasions. Governments seem to be interested more in keeping the experts engaged than taking any action outside the parameter of short term political banalities. The recent report on diversification submitted by the committee is no different except that due emphasis has not placed on much needed policy prescriptions. As one can gather, central and state experts engaged in discussions with the Punjab government too focused their effort, as expected on development and introduction of alternative crops like maize, sugarcane, soybean, fruits, vegetables, high value crops, animal enterprises etc. These are not new recommendations. However, the stress on sugarcane is misplaced, because according to soil scientists of PAU, evapo-transpiration of this crop is more than that of wheat and rice put together in rotation. Yet, any sensible committee asked hundred times will make/reiterate these recommendations. In fact, the ball lies in court of administration to implement these recommendations.
It would be naïve to believe that Rs200 crore allotted to Punjab for diversification will yield any tangible results. It is a pittance for providing incentives for diversification. This money can be best used only for research on developing new technologies and alternative farm enterprises. But this will yield results after considerably long time. But, the problem is immediate and demands solution now. Punjab needs substantial area of at least one million hectare under rice to be replaced by other eco-friendly crops that consume less water in order to maintain underground water balance of the state. These replacements would not come by pushing crops that do not effectively compete with rice based rotation.
If Punjab state is genuinely interested in diversification of its production patterns and at the same time wishes to continue subsidies to the farmers, the one stroke policy prescription to be followed is to calculate total subsidy that costs the government in the farm sector including that on water, power etc, and transfer this amount or whatever amount the government wishes to pass on to the farmers, direct to the farmers through bank accounts in a focused manner either upto some limit of farm size or on a graded basis. Then, let the farmers pay market price for the inputs they use. This will rationalize the decisions of the farmers on production patterns based on economic costs of production of agricultural commodities. This approach will benefit the farmers direct and subsidies intended to flow the farmers will not leak down to the consumers as is happening today. Further, farmers will get incentivized to save on cost through rational use of inputs by spending lesser than the subsidy they receive. Diversification of production patterns will become self propelled and there will be lot of savings on scarce production resources including water and power (implementation details can be worked out very easily). But the question remains whether the authorities that be, will ever move out of the grooves of their mind set!
S.S. JohlThe solution to the agricultural diversification problem lies more in a rational agricultural policy rather than technologies that are available from the National Agricultural research system of the country. Unfortunately, the Input and output prices structure of agricultural commodities has been distorted so much through time that today the cost of production of these commodities does not reflect their economic cost. As a result, production patterns have gone out of alignment with real input cost structure as well as consumption patterns in the country. Some commodities like wheat and rice are being produced more than the national capacity to manage the stocks excess of consumer demand. On the other hand, the production of commodities like oilseeds and pulses falls short of consumer demand and these commodities have to be imported at a huge cost annually.
Apart from getting production patterns out of alignment with consumption patterns, this has resulted in tremendous drain on the scarce productive resources like underground water leading to the fast deteriorating water balance, besides unbearable stress on the agricultural ecology. It is unfortunate that in spite of available alternatives that can compete well with the wheat and rice crop rotation in terms of profitability based on economic cost of production of these crops; the blame is placed almost totally on lack of market clearance at remunerative price and lack of post harvest value addition in respect of replacement crops. These are knowingly or unknowingly being used as alibis to ignore the policy aspects of the problem. Taking the case of rice production in Punjab there are two categories of costs; one incurred by the farmers (individual costs) and the other by the state and the society (social costs). The individual cost is estimated through the cost of production estimates by the universities and research centers. The average costs of production so estimated for about twenty four agricultural commodities are used by the Commission for Agricultural Costs and Prices (CACP) in the determination of minimum support prices (MSP). But, social costs are totally ignored and are not accounted for in any manner. As a consequence, the farmers do not gain from free power and water supply and other subsidies on the inputs. The benefit of these subsidies flows straight to the consumers by way of corresponding lower issue prices. The farmers serve as a sort of conduit only between the state and the final consumers without any benefit flowing to them. For the major crops of wheat and rice produced in Punjab and Haryana, the consumers are in large part outside of the state. This simply amounts to these two states subsidizing the consumers, especially of deficit states, not their own farmers. One wonders, why the policy maker of Punjab and Haryana are not able understand or not willing to understand this simple proposition.
Since the social costs are no burden on the farmers, although they do not benefit from the largesse, they find these crops comparatively more remunerative under the extent system of market clearance, where in pressure groups and vote bank politics keeps pushing for higher and higher output prices. Often even procurement standards are compromised under these pressures. The system is economically and environmentally unsustainable. If allowed to continue, diversification so much talked about will remain the subject of table discussions only and it is bound to spell disaster on the economic, social and environmental health of these states sooner than late. In fact the state of Punjab is already under stress on these aspects and Haryana is not far behind.
No doubt, it is an admitted fact that agriculture nowhere in the world can survive without subsidies, yet the type of subsidies and the manner in which these are being delivered to the farmers; do not help them in any manner. Unfortunately, even the farm leaders pressing for higher and higher largesse on these lines do not stop even for a moment to think and analyze whether in reality these benefits flow to the farmers or not! Such types of subsidies can benefit the producers in the competitive free market only and not under the system wherein commodity prices are fixed for government procurement in a major part based on the individual cost of production incurred by the farmers.
Lot many reports on this issue have been commissioned by the successive governments of Punjab since the year1985. Yet, almost no action was ever taken on any of these reports. In fact at the level of administration efforts in this direction were deliberately thwarted on many occasions. Governments seem to be interested more in keeping the experts engaged than taking any action outside the parameter of short term political banalities. The recent report on diversification submitted by the committee is no different except that due emphasis has not placed on much needed policy prescriptions. As one can gather, central and state experts engaged in discussions with the Punjab government too focused their effort, as expected on development and introduction of alternative crops like maize, sugarcane, soybean, fruits, vegetables, high value crops, animal enterprises etc. These are not new recommendations. However, the stress on sugarcane is misplaced, because according to soil scientists of PAU, evapo-transpiration of this crop is more than that of wheat and rice put together in rotation. Yet, any sensible committee asked hundred times will make/reiterate these recommendations. In fact, the ball lies in court of administration to implement these recommendations.
It would be naïve to believe that Rs200 crore allotted to Punjab for diversification will yield any tangible results. It is a pittance for providing incentives for diversification. This money can be best used only for research on developing new technologies and alternative farm enterprises. But this will yield results after considerably long time. But, the problem is immediate and demands solution now. Punjab needs substantial area of at least one million hectare under rice to be replaced by other eco-friendly crops that consume less water in order to maintain underground water balance of the state. These replacements would not come by pushing crops that do not effectively compete with rice based rotation.
If Punjab state is genuinely interested in diversification of its production patterns and at the same time wishes to continue subsidies to the farmers, the one stroke policy prescription to be followed is to calculate total subsidy that costs the government in the farm sector including that on water, power etc, and transfer this amount or whatever amount the government wishes to pass on to the farmers, direct to the farmers through bank accounts in a focused manner either upto some limit of farm size or on a graded basis. Then, let the farmers pay market price for the inputs they use. This will rationalize the decisions of the farmers on production patterns based on economic costs of production of agricultural commodities. This approach will benefit the farmers direct and subsidies intended to flow the farmers will not leak down to the consumers as is happening today. Further, farmers will get incentivized to save on cost through rational use of inputs by spending lesser than the subsidy they receive. Diversification of production patterns will become self propelled and there will be lot of savings on scarce production resources including water and power (implementation details can be worked out very easily). But the question remains whether the authorities that be, will ever move out of the grooves of their mind set!
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