How to prevent farmers from committing suicides in India
Communist economy vs Free market economy
Foreword:
Initially it is very important for us to understand how farmers sell their produce currently. Once we understand it, we can intellectually analyze the various elements of it to understand what is going right and what is going wrong. Hence this essay has been structured in the following way.
Road map :
- How do farmers sell their produce currently?
- APMC features
- A Planned Chaos
- Suggested solutions and case studies
- Final word: Are Protests the solution?
1. How do farmers sell their produce currently?
After winning Independence in 1947, the farmers started selling the agriculture produce to the consumers directly. But in several parts of India money lenders who had lent money to the farmers started harassing the farmers with extremely high interest rates. When the farmers cannot afford to pay the extremely high interest, the money lenders started acquiring the farm produce from the farmers for an extremely low price. Having no go the farmers had to experience the exploitation and had to sell their produce for a non sustainable price. In order to protect the farmers from such exploitation and harassment the Government of India introduced the APLM Act (Agricultural Produce and Livestock Marketing Act).
According to this act,
“The farmer can neither sell nor can anyone buy agricultural produce from the farmers directly. Every sale has to happen legally at the Mandi established by the Agriculture Product Marketing Committee (APMC) which is run by the State Government in every state of India. The APMC has licensed traders who can buy the farm produce from the farmers via an auctioning system. The starting price of the auction is fixed by the government as a Minimum Support Price”.
2. APMC Features:
APMC operate on two principles:
- Ensure that farmers are not exploited by intermediaries (or money lenders) who compel farmers to sell their produce for an extremely low price.
- All food produce should first be brought to a market yard and then sold through auction.
Each state which operates APMC markets, geographically divide the state and markets (mandis) are established at different places within the state. Farmers are required to sell their produce via auction to the APMC licensed traders. Traders compulsorily require a license to operate within a mandi and the the government fixes the Minimum Support Price for every single produce (mostly) to start the auction. None other than the licensed traders can participate in any economic transaction.
Now that APMC Mandis have been introduced, Minimum Support Price (MSP) is provided, the farmers cannot be exploited anymore from money lenders. So the problem is solved right?
Such policies are highly inspired from Communism. Under Communism, no economic transaction can happen without the government’s direction. The prices of the produce are centrally planned to make sure no exploitation happens. However it has to be recalled that modern day economists call, “Communism as Centrally planned Chaos”
3. Planned Chaos
So MSP, APMC, sale via auction have been introduced to solve the problems faced by the farmers. Still farmers are committing suicide, is it because of lack of water supply or lack of electricity supply?
NO. The most important problem that the farmer is facing today is the Minimum Support Price. Yes, you read it right, it is the MSP which was introduced to protect the farmers that is threatening and harassing them. The MSP fixed by the government is most of the times very low and the farmers end up not even getting back the money that they had invested.
What happened?
The MSP fixed by the government is as poor as the price forced by the money lenders long ago! The Government which had come in rescue to the farmers, has now taken up the role of the money lenders and is now harassing the farmers with very low Minimum Support Price. Hence the Savior has turned the villain now!
So many farmers are actually protesting to increase the Minimum Support Price offered by the government. While most of the Politicians are protesting for water and electricity, no one is opening their mouth regarding Minimum Support Price. While many youngsters overwhelmed by racist politicians are screaming most of the times online for water, electricity and drought fund.
Let us now pause all these dramas for a minute in our head. When we talk to the real farmers, they admit to us that the “Minimum Support price” is the greatest threat that they are facing and their plea is to increase the MSP. OK, so now that we know that water and electricity are the distractions, we will keep them aside and discuss them later. We will focus on the “MSP”.
So the question right now is, “Should we protest against the government to increase the MSP”? Let us take up two scenarios to answer this question. In the first scenario assume that the government fixes an MSP which is much higher than current one. Then such a high MSP will encourage more farmers to increase their production to secure more profits. When the supply increases, naturally the traders will be confronted with much larger supply hence he will ideally be bidding for much lesser price. But the MSP has been set so high that the trader will be discouraged to pay such a high price despite of the ability to buy the produce at a much cheaper price because of increased competition amongst the farmers. So there is a chaos again which will encourage the traders to involve in a black market.
On the contrary if the MSP has been set to an extremely low price, then the farmers will be discouraged to involve in farming because of the threat of losses, which is the situation currently in India. So the most important task is for the government to find out the right MSP which will make both the traders as well as the farmers happy. How can the government find out this Magical MSP which will keep everyone happy?
To be honest the government can never ever find out a magical MSP every single day that will keep every single person happy!
So what is the remedy for the current problem? We shall start looking into the details of the current system to zero down into what went wrong? Actually if we pay more attention in the details we can sense something more.
- The government has made it mandatory that the farmers and traders should trade only in the Mandi regulated by the APMC and also offers a price called MSP to start the auction.
- Yes, the key point is the auction. Auction is a form of opening up the competition. This is where free market comes into role. In a free market, a commodity is always sold at the right price when there is a right competition among the sellers and the buyers. Please don’t get lost in the details. The idea is that, the farmers will try to sell their produce to the highest price and the buyers will try to buy the produce at the lowest possible price. When there is no Minimum or Maximum price, the farmers will refuse to sell their produce when the seller bids a price which is not profitable enough. But in order to buy the produce a competing trader will try to offer a better price to the farmer. Similarly when a farmer tries to sell his produce to a very high price, another competing farmer will try to offer a lower price in order to attract the trader towards him. This process of bidding will keep going on until an equilibrium is attained. At this equilibrium, the price of the produce will be the right price.
- Wow! This is a wonderful idea and in this way we can achieve a very good economy! But there is a large loophole in this theory. The theory assumes that there is a large competition amongst both the farmers (sellers) and the traders (buyers). But in reality the number of traders operating at a Mandi is restricted based on the infrastructure of the Mandi. Usually it is a very small number therefore these traders form a cartel and bid the same amount which is usually the Minimum Support price itself.
This is why I always tell, electing an honest person or a small group of honest people to rule a country is never a solution to a problem. Because human beings are highly corruptible. Instead a system which relies on no single human being has to be adopted. Because a system which relies on no single human being can never be corrupted. And that’s why block chains work and banks fail often!
4. So what is the solution?
Let us wait a minute. Let us assume I have a factory to manufacture pens. I manufacture pens and sell it to wholesalers or retailers. And they sell it to the final consumers. Very importantly I choose to whom I wanna sell and the ones that buy, choose whom to buy from. We negotiate the price of the pens and we finalize a deal. The Government plays no role in fixing the price of the pen I manufactured. Then why should the government play a role in fixing the price of the agricultural produce harvested by the farmers? Why should the government designate and license a selected group of traders with whom I can trade with? Why should the government restrict the number of competing traders? In 1950s it made sense for the government to involve licensed traders. But now, there is absolutely no necessity for having restricted traders. With the development of News Media and social media, there are much lesser chances for the farmers to get exploited!
So the only solution is for the government to introduce free market economy for farmers! When the rest of the Indian industries have liberalized, privatized and globalized, farming sector is still living in the Communism of Soviet Union!
Is this a new solution that I am proposing?
No of course.
The Central government had realized this and had made appropriate modifications in the APLM act to make sure that farmers can sell their own produce to whomsoever they wish and whatsoever price they wish. But most of the State governments have not adopted this change, because the traders play a very important role in many of the Political parties and they don’t want such a system which will eliminate them from the game!
Maharashtra has adopted direct farmers consumers market and most of the farmers are already reporting increase revenues and the consumers are reporting decreased price. The price changes are exactly because of the elimination of the traders, middle men from the process.
5. Final word: Are Protests the solution?
Nowadays the culture of getting on the roads and protesting has increased rapidly. I think the most important role of today’s educated youngsters is to research into the problem, study hard to figure out a solution and pass it on to others gently. Because the youngsters today are the only who turn into administrators tomorrow. And these administrators are the ones who implement programs and not the politicians!
Be intelligent! Don’t be a parrot!
