Agricultural subsidies

Post 1:

I am confused at the farmers' protests. Though it has been in the news for quite a few months now, I decided to investigate the proposed "reforms".

1. The bill allows farmers to bypass "mundis" (intermediaries) and sell their crop to any buyer.

2. <<We will see these later >>

 

I see some benefits here. Mundis served as a "platform" and hence obviously ate into the supply chain profits. They were traders and hence have no interest in making the farmers rich (or even sustainable). They do not suggest crops to cultivate or educate farmers. Lack of options typically would mean mundis are price-setters (typically, MSP+something). The current plight of farmers is direct evidence of the above. 

 

If private companies enter the fray, they will be directly competing with mundis (and probably eliminate some of them, if they don't add value). Economically, this is a good outcome. Supply chain profit should increase as a result. The question is would farmers' profit? 

 

Now where can 1 go wrong? One concern is major private players (example, Reliance) can dictate terms to farmers, pushing prices down. But such a move would only backfire on the private companies. They need their "suppliers" to be sustainable. This is not the same as Walmart (or Amazon) eliminating retailers. In fact, there are cases around the world where a "manufacturer" partners with their supplier for long-term profits. It could mean each farmer may even produce what is at demand in the market.

It is funny that major private companies who cannot dictate terms to a few "mundis" would now suddenly be able to dictate terms to several farmers. With multiple options to farmers, divide and conquer strategy would simply not work. 

 

Obviously mundis and states (who lose taxes from mundi-transactions) are worried. If the latter's concerns and revenue compensation are addressed by the government, some of these dissent may subside.

 

If my benefits listed above are speculation, then so are some of the reasons for protests. Reforms are long due and let data reflect decisions and future direction. Perhaps, the government could have piloted such move in one state to convince others to join. 

 

I hope farmers are given proper direction and their fears are allayed with reason.

 

Post 2:

As the farm bill stir continues, I continued my research on this topic. What was intriguing is both parties cited developed countries and the models they had used. For example, one reason the unhealthy McD burger costs more than fresh vegetables and fruits needed per meal is because of agricultural subsidy in the US. Not exactly I would term a "success" of subsidy. What exactly is this "subsidy"? I wanted to look at different countries and how they do it. Perhaps, should have looked at a literature review. But wanted to do this from primary sources first.

For no particular reason I looked up Canada first. I really liked the AgriStability program here (https://www.agr.gc.ca/eng/agricultural-programs-and-services/agristability/?id=1291990433266)

It simply offers compensation if your current year's revenue fell short of your benchmark revenue (based on YOUR history) by more than 30%. I liked it for two reasons. Its simplicity and may avoid perverse incentives: It avoids adverse selection (it's not just bad farmers who will enroll and seek benefit in the program as the compensation is based on history). It may still cause some form of moral hazard (after enrolling in the program, if the farmer expects a revenue shortfall this year), the farmer may just stop working. Perhaps, the payment is proportional to avoid such incentives.

There are also other such programs offered by Canada. I neither found evidence for MSP or any restrictions on sale of products (Will have to check this further).

Would the AgriStability program work in India? Unfortunately, not currently. You need historical revenue figures for each year at the individual farmer level. Until we implement that, such customized schemes cannot be implemented.