In the west where futures markets are well developed and robust, farmers take a call on the crop by seeing the futures prices of various crops so that their basket widens. In this case they hedge against such instances of over production by crop diversification
The media has reported quite extensively that a farmer somewhere in Maharashtra got Rs 2 for a consignment of 512 kgs of onions sold in the mandi after all other charges were deducted. The price received was Rs 2 a kilo. We in Mumbai are paying anything between Rs 20-25 a kilo for onions and government data shows the range to be Rs 14 (Pune) to Rs 35 (Salem) across India. Kohima pays as much as Rs 45 a kilo (Feb end).
The same situation prevails for potato where farmers are getting a single digit price while consumers do not feel the glut like situation. This situation is not unusual in India. We have had situations when onion and potato prices have spiraled upwards of Rs 100 a kilo as well as seasons when tomatoes were dumped on the state highways by farmers in Maharashtra and Karnataka due to the absurd situation described earlier. What really is wrong in our system?
The issue is that the focus of policies have always been in giving handouts to farmers or talks on waiving of loans. It is supposed to work to gain favour. But there has been no permanent solution sought to be offered to farmers at large. When it comes to horticulture the challenge is that one cannot replicate the wheat and rice model where the government procures the same at a MSP and then stores the same until it is disbursed under the Public Distribution System (i.e. ration shops). In case of potatoes there is a case for enhancing the cold storage capacity as the crop typically has two seasons though is made available throughout the year. For onions, storage is a problem and the shelf life is much lower as it is susceptible to damage as it is not moisture resistant.
In this context, one can refer to the two farm laws which have been put in abeyance. The first is the one which talks of sale outside the mandi anywhere in the country. There is a pressing need to provide these options to farmers so that they are not at the mercy of the adathiyas (intermediaries) in the mandis. As the price paid by consumers is still much higher than what the farmers is receiving quite clearly there is a case for allowing farmers to sell directly to the consumers. This has to be facilitated by the state governments through the setting up of farmers markets periodically — maybe every Sunday. This is also where the government needs to subsidise the transport costs where farmers can pool their produce and bring to the cities.
This episode also shows the fallacy in opposing the farm laws, because they spoke of giving choice to farmers. In such a situation they would have preferred to sell it directly to the consumer.
The second relates to contract farming. Encouraging farmers to have buyback relations with corporates will help a lot to alleviate the pain. A large section of the food manufacturing industries ranging from readymade foods to ketchups make use of onions in their preparations. Forging such contract farming relations will help the farmers a lot. In fact, there is a big export market for such processed foods which can bring about an end-to-end solution.
Going beyond the farm laws, there are two things which need to be done immediately. First there has to be an intelligence system which guides farmers on what to produce. What we are seeing in the case of onions is the famous ‘cobweb syndrome’. Farmers decide on their crop based on the prices received in the previous year. As onion prices were very good in 2022, there was a tendency to grow more of the crop. Now as farmers grow more, supplies increase manifold leading to surpluses and consequently prices crash thus creating this ugly situation.
In the west where futures markets are well developed and robust, farmers take a call on the crop by seeing the futures prices of various crops so that their basket widens. In this case they hedge against such instances of over production by crop diversification. Onion is however a difficult product to have futures given that it is a perishable. Here the government should conduct programmes to educate them on diversification. For this to happen there needs to be a good market intelligence system for such ideas to be conveyed to the farmers. This has to be an ongoing process and the panchayats have to be involved in spreading this information.
The other is the development of cooperatives. The milk story in India pioneered by AMUL is legendary. The product is probably the most perishable one which needs to be collected, stored, and marketed on an on-going basis in a manner to ensure there is minimum wastage. At the same time there is an assured income to the farmers and there is a great deal of balancing done on the management of supplies. Surpluses are converted to value added products which have a longer shelf life. The same needs to be considered and developed for crops like onions.
There is pressing need to address the concerns of farmers dealing with onions, potatoes and tomatoes as there have been several episodes of extreme volatility in production and prices. On every occasion, nothing much is done. When there is a shortage, there is chaos and imports are reckoned as the blame game continues and consumers pay high price. High supplies on the other hand have never been addressed. This is so because no attempts have been made as it is assumed that everyone forgets the issue after a couple of months and life carries on. Besides the distress caused to farmers who would also witness their indebtedness increase. In the past a combination of negative returns and indebtedness has led to farmer suicides. We need to address these issues with urgency before we talk of becoming a $ 5 trillion or $ 7 trillion economy.
Madan Sabnavis is Chief Economist, Bank of Baroda, and author of ‘Lockdown or economic destruction?’ Views are personal
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