[Editorial # 75] Urea: Prime target for subsidy reform : The Economic Times

[Following editorial has been published in The Economic Times on 1st March 2016. Read through it and try to answer the questions that follow. Please do not copy and paste answers. The objective of this exercise is to get you in the groove of answer-writing. Try to write in your own words. Don't hesitate to write in a bulleted-format, if you are uncomfortable in writing in paragraph form.]

The Economic Survey rightly pitches for overhaul of the subsidy regime for urea. There are multiple distortions in urea, which lead to inefficiencies and plain misallocation of resources. It is estimated that 41% of the subsidised urea is diverted for non-agricultural use or across the border, about 24% of the subsidy goes to prop up inefficient producers, and only about a third reaches small and marginal farmers, the intended beneficiaries. We can surely do much better. Of the total fertiliser subsidy of about Rs 73,000 crore — including for phosphoric (P) and potassic (K) nutrients — almost 70%, or Rs 50,300 crore, is allocated to urea. But there is an extensive black market for it, along with its overuse, degrading soil.

The black marketing imposes significant costs on farmers and adds to uncertainty in supply. We clearly need better targeting of the urea subsidy and its rationalisation. There are perverse price and movement controls, manufacturer subsidies and import restriction on urea. The 75% subsidy per kilogram of urea — against about 35% subsidy for P and K fertilisers — actually encourages overuse.

The canalisation of urea imports only adds to the distortions. We need prompt decanalisation of urea to ease supply restrictions. The survey moots joint-venture urea plants in areas of cheap feedstock like Iran, at the very end of its recommendations.

But we clearly need to be much more proactive and fast-track and concretise the investment plans without further delay as these are long-gestation projects. Its suggestion for limiting urea sales via biometric authentication makes sense. The idea to cap the number of bags of subsidised urea, so that larger farmers buy more from the market, is worth a try. Rationalising the urea subsidy would provide much-needed central funds for agricultural investment.

Questions:

1. What is Urea? Why and where is it  used? How much is the per hectare consumption of Urea in India?

2. How is Urea produced? What are the raw materials required for Urea manufacturing?

3. What is the total production of Urea per year in India? Does India import/export urea? If yes, then what is the value/volume of such imports/exports annually?

4. What are some traditional sources of Urea which are used by farmers as fertilizers?

5. How much subsidy on urea is provided by the government? What are the current issues with subsidies on urea provided by the government?

6. What are various nutrients required for getting a better crop yield?

7. What steps should the government take to rationalize subsidies on Urea?

[Editorial # 69] Farm solutions : The Indian Express

[Following editorial has been published in The Indian Express on 20th February 2016. Read through it and try to answer the questions that follow. Please do not copy and paste answers. The objective of this exercise is to get you in the groove of answer-writing. Try to write in your own words. Don't hesitate to write in a bulleted-format, if you are uncomfortable in writing in paragraph form.]

Farm distress resulting from back-to-back monsoon failures and falling price realisations in most crops has arguably posed the biggest challenge, economically and politically, for the BJP-led Centre. It has prompted initiatives that may not have received official priority in the normal course — which is always the case with agriculture. On Thursday, Prime Minister Narendra Modi unveiled the operational guidelines for a new crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), at a farmers’ rally in Madhya Pradesh. He also announced the creation of a National Agriculture Market (NAM), a digital platform for farmers to sell their produce to buyers anywhere in India, from April 14. Whatever may be the political calculations behind their launch and timing, both are potentially game-changing.

Currently, insurance penetration extends to hardly a fifth of the country’s cropped area. This is only to be expected when policy claims cannot cover even half of the value of produce in the event of crop failure. The PMFBY not only keeps the premiums low at 1.5-2 per cent for seasonal and 5 per cent for annual horticultural crops, but also removes any artificial capping of the sums insured that result in low claims being paid to farmers. That makes it more attractive for farmers to take insurance protection. True, such low premiums and allowing farmers to claim the full value of a crop linked to its normal threshold yields and MSP could entail additional fiscal costs. But subsidy on crop insurance is any day preferable to that on electricity, water or fertiliser. The former encourages farmers to invest in productivity improvements and new technologies; the latter promotes inefficient resource use. Also, with more farmers joining in, the actuarial premiums would come down through increased spreading of risks, thereby helping to contain the government’s subsidy burden.

Equally welcome is the move to expand the farmer’s universe of buyers beyond traders/ commission agents licensed to operate in the designated mandis of his area. Giving farmers the choice to accept the bids of local traders or those of online buyers can lead to higher price realisations, just as a robust crop insurance system is the best way to deal with weather and disease risks that are intrinsic to agriculture. India’s farmers need more such long-term solutions, as opposed to populist loan waivers and distortionary subsidies.

Questions:

1. What factors are responsible for generation of monsoon winds? Is India the only country to receive monsoon? If yes then why does this phenomenon not occur anywhere else? If yes then where else on the globe does monsoon exist?

2. What is meant by crop insurance? What are various crop insurance schemes available in India? 

What is the penetration of crop insurance in India?

3. Highlight the features of Pradhan Mantri Fasal Bima Yojana (PMFBY)? 

4. What is meant by National Agricultural Market? How is it different from APMC Mandis?

5. What are the risks faced by farmers against which insurance is required?

6. What is horticulture? Mention the names of horticultural crops produced in India? What is the share of horticulture in Indian agricultural?

7. What is MSP? What is the purpose behind MSP mechanism ? Which agency/authority decided MSP?

8. What are various types of subsidies being offered to farmers today? How much subsidy does Indian government provide for various such subsidies?

9. How is farm insurance a better tool of for improving farm productivity vis a vis farm subsidies?

10. Why are subsidies being called distortionary? 

[Editorial # 42] For the farmer : The Indian Express

[Following editorial has been published in The Indian Express on 16th January 2016. Read through it and try to answer the questions that follow. Please do not copy and paste answers. The objective of this exercise is to get you in the groove of answer -writing. Try to write in your own words. Don't hesitate to write in a bulleted-format, if you are uncomfortable in writing in paragraph form.]

The Narendra Modi government’s new Pradhan Mantri Fasal Bima Yojana (PMFBY) is worth commending for bringing crop insurance centrestage. Farmers, unlike most other economic agents, are exposed to production (weather) as well as price (market) risks. Given the extent of risk involved in growing any crop — ranging from prolonged dry spells and pest attacks to price crash at the time of harvesting — no insurer would normally want to enter this segment. Even if they do, most farmers cannot afford to fork out the huge premiums based on actuarial or statistical risk assessment. There is a case, therefore, for the government to subsidise crop insurance premiums that will ultimately also encourage farmers to invest in productivity improvements and new technologies. Such subsidy is any day preferable to those on fertiliser, electricity or water, which only promote inefficient resource use. The fact that even farmers in a country like the US pay just 35 per cent of the average premium on crop insurance policies — entailing annual federal subsidies of $10 billion — only proves the point.

Under the PMFBY, farmers would pay only 2 per cent premium for all kharif crops, while it would be 1.5 per cent for rabi and 5 per cent for horticultural crops. The gap between the premiums they would pay and actuarial rates will be met by the government without any upward limit on this subsidy. From a farmer’s perspective, this represents significant improvement over the existing Modified National Agricultural Insurance Scheme. Under the latter, the government subsidised a maximum of 75 per cent of the actuarial premium. Moreover, the premium rate on which the sum insured was calculated was itself capped, so as to limit both the farmer’s claim and the government’s outgo. But now, there will be no such indirect capping of the sum insured.

The question that naturally arises is, what would be the fiscal implications of the new scheme? The Modi government is planning to launch it from the coming kharif season, which, going by statistical probability, should be relatively better for agriculture, following two back-to-back monsoon failures. But in a drought year like the current one, the outgo from the PMFBY — assuming it is implemented in the manner proposed — may not be small. That price may still be worth paying for a country where only a fifth of farmers have crop insurance coverage. Subsidised premiums and prompt claims settlement enabled by remote sensing and GPS technology — as opposed to patwaris and crop-cutting experiments — should help substantially expand coverage. An increase in the area insured should also bring down premium rates, through spreading of risks across more farmers. That would also help contain the government’s subsidy burden.

Questions:

1. Explain the following terms: (50 words)

• Crop Insurance
• Production Risk
• Market Risk
• Kharif 
• Rabi
• Horticulture
• Drought
• Patwari

2. What are different types of Subsidies provided to farmers? What are the fiscal implications of such subsidies?

3. Why do insurance companies not want to enter the agriculture insurance sector?

4. What are the features of PMFBY?

5. How is PMFBY different from Modified National Agricultural Insurance Scheme?

6. What is remote sensing technology? What are its application in agriculture sector?

7. What is meant by GPS? Which country controls the GPS? How is this technology used in agricultural sector? What are different application areas of GPS?

8. How can agriculture insurance be more effective? What measures do you think should be adopted by the government to do the same?

[Editorial # 32] Breaking down barriers : Business Standard

[Following editorial has been published in Business Standard on 4th January 2016. Read through it and try to answer the questions that follow. Please do not copy and paste answers. The objective of this exercise is to get you in the groove of answer -writing. Try to write in your own words. Don't hesitate to write in a bulleted-format, if you are uncomfortable in writing in paragraph form.]

The nearly decade-old proposal to create a national agriculture market (NAM) finally seems to be making some headway. It would change how farm commodities are traded in the country. Based on online transactions through a national e-platform, this transparent mode of marketing would help tame agricultural inflation by cutting down on intermediaries and narrowing the price gap between producing (read surplus) and consuming (deficit) areas. Over half a dozen states have already agreed to knock down trade barriers as the first step towards formation of the unified farm market, and many more are expected to come on board soon. A time-bound programme announced by the agriculture ministry for developing NAM envisages linking 250 mandis by September 2016 and all 585 mandis by 2018. The Centre has already approved funds for states like Gujarat, Maharashtra, Telangana, Jharkhand and Chhattisgarh, to cover the cost of the needed software and its customisation in the participating markets. Karnataka is already running a unified market by interconnecting 51 of 155 major market-yards and over 350 sub-yards through an e-platform. This model is to be upscaled to the national level to create the NAM, with the Small Farmers' Agribusiness Consortium (SFAC) acting as the nodal agency.

If run properly - and this is a formidable "if" given the tendency to fall back on socialist-era recipes to control prices through trade restrictions - the new system can allow farmers to sell their produce wherever they get a good deal. Buyers could source their supplies from wherever they like. There will be a single licence valid for all states and single-point payment of market fees. With an all-India jurisdiction, the electronic platform can facilitate better price discovery. More importantly, it can spur private investment in agricultural marketing, as has happened in Karnataka, and is vitally needed elsewhere as well.

The idea of a unified farm market has been floating around since the early 2000s. It was included in the National Policy for Farmers brought out in 2007. However, since agricultural marketing is a state subject under the Constitution, the states' role is critical in this venture's success. This is especially so because the agricultural produce marketing committees (APMCs), which operate regulated mandis, have considerable political clout and do not want to forego their hold on marketing of farm produce. The unified e-market has been conceptualised in a way that may not attract much hostility from APMCs. Their interests have not been entirely disregarded. According to the SFAC, a transaction on the e-platform would be deemed to have taken place through the mandi where the seller would normally have brought his produce. Thus, the APMC concerned would continue to earn the mandi fee even if the transaction does not happen in its market yard. With this critical issue having been addressed by the government, it can be hoped that states would have no hesitation to join the NAM for the benefit of both farmers and consumers.

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Questions: 

1. What is a National Agriculture Market? Don't we have such market at present? If not, then what kind of agriculture market exists today?

2. What are the proposed features of NAM?

3. Explain the following terms (50 words):

• Intermediaries
• Trade Barriers
• Mandis
• Small Farmers' Agribusiness Consortium (SFAC)
• Price discovery
• State Subject
• APMC
• Mandi Fee

4. What is meant by Policy? Highlights the provisions of National Policy for Farmers?

5. What is meant by APMC? What is its role? 

6. Why is it said that the APMC model of agriculture market has not been as successful as was envisaged?

7. Trace out the entire value chain of agriculture commodities from the Farm to the Fork.

8. Despite witnessing a great output over the years, especially after the Green Revolution, agricultural growth in India has stagnated. Comment on this statement highlighting the role of APMCs in slow agricultural growth. (200 words)