Price controls on agricultural inputs will work against India farmers

The Narendra Modi government has recently announced its intention of introducing price controls in crop protection chemicals. This comes almost four years after the Agriculture Ministry issued a price control order, giving it powers to fix the maximum retail price (MRP) of cotton seeds and also the trait value payable to the developer/licensor of genetically modified Bt technology. There is talk now of the government even considering bringing all seeds under price control.

It raises the question: Do price controls on agricultural inputs, being pushed under the pretext of doubling farmers’ income, really serve their interest? Can these ensure availability of cutting-edge technology and products to farmers?

We know very well about the 45-odd years of License Raj — a period of all-pervasive controls by the government. We also know of the last 25-plus years after liberalisation — how this period, even with some reverses, saw the best of hybrid seeds and crop protection products come into the country. The real gainer was the Indian farmer, who could access these high-quality agricultural inputs at competitive prices because of multiple companies offering them.

It is true farmers today are facing challenges from un-remunerative crop prices and growing threat from climate change as well as abiotic and biotic stresses to plants. But wouldn’t the right response be to encourage more research to find sustainable solutions to these problems, rather than clamping down on the companies that are investing in such research.

Take pesticides, where it’s utmost necessary to phase out old chemicals and bring new molecules that are not only more effective, but also safer to the environment and human and animal health. During last forty years, the industry has gradually replaced chemicals requiring application rates exceeding 1 kg of active ingredient per hectare, such as carbamates (aldicarb, carbaryl, etc) and chlorinated hydrocarbons (DDT, benzene hexachloride and heptachlor).

These have since come down to 100-500 grams/hectare with some organophosphorous compounds (chlorpyrifos and monocrotophos), synthetic pyrethroids (cypermethrin and fenvalerate), and triazoles (fenbuconazole, propiconazole, etc) and even further to less than 10 grams with strobilurin fungicides (picoxystrobin and azoxystrobin) and sulfonylurea herbicides (sulfosulfuron and metsulfuron-methyl).

All such safer crop protection products have been developed by global corporations, for whom price-controlled markets are obviously unattractive. Can the old molecules address the challenges from new pests and diseases? But how will the newer products come, if those spending millions in developing them are forced to sell at rates dictated by the government?

It is important to understand that crop protection chemicals are a very competitive industry, with over 350 companies operating in India alone. Many of them sell non-proprietary generic molecules, available relatively cheap due to both low manufacturing costs in India and competition among producers. The same hold true for the seed industry, which has some 400 companies, of whom 70-80 invest in breeding research & development, with the rest mainly into marketing.

Again, a competitive environment helps keep prices under check to the benefit of farmers. Policymakers should know that pesticides and seeds together make up just about a tenth of the total production cost for different crops. Data from the Agriculture Ministry’s own Directorate of Economics & Statistics shows that out of the estimated operational cost of cultivation of Rs 58,031 per hectare for cotton in Maharashtra during 2016-17, the share of seed (Rs 3,690) and insecticides (Rs 2,399) was way below that of human labour (Rs 27,762), animal labour (Rs 6,560), machine labour (Rs 4,607) and fertilisers-cum-manure (Rs 8,501).

Similarly, for paddy in Andhra Pradesh, seeds accounted for a mere Rs 1,995 and insecticides Rs 2,722 out of the total operational cost of Rs 48,932 per hectare, with the lion’s share being that of human labour (Rs 23,391), machine labour (Rs 9,954) and fertilisers-cum-manure (Rs 7,658).

It’s clear, then, that the benefits accruing to farmers through price controls on seeds and pesticides are insignificant at best. On the other hand, the costs, via their being denied the fruits of latest breeding technologies and products, would be far more. We are already seeing this in cotton, where the ill-advised move to fix the MRP of seeds has forced most companies to scale down investment in research and new product development efforts. As a result, yields have started stagnating and India’s production has fallen from its peak achieved in 2013-14. Do we want the story to be repeated in other crops?

Responsible companies use price as a tool not for gouging, but to target the right customers for their products. Prices ultimately reflect the value that a product delivers to consumers. The latter will not buy a high-priced product if it doesn’t deliver the appropriate value as perceived by them. The company, moreover, does not want consumers to buy its product only today. That’s how the market operates — especially for products that have intrinsic value. In this case, a low-priced product isn’t necessarily good for the farmer, as it could lead to inefficient consumption/overuse like with water, electricity or urea.

A good example to cite is Bt cotton, which was primarily meant for farmers who were incurring very high expenditure on insecticides to control bollworms. The price seed companies charged initially was, thus, reflective of the value that these farmers derived from this technology. But by making it cheap, including through regulation of the trait value paid to the developer, the government ended up promoting Bt technology among all cotton farmers. That included those who weren’t spending huge money on bollworm control. Farmers growing desi cotton varieties in around 20 lakh hectares were neither a target market nor did they get the desired benefit from the technology.

The government needs to think holistically on the above issues. It should take a progressive approach at increasing farmers’ incomes through lowering of production costs. If 50% of costs are incurred on labour used in field preparation, sowing, transplanting, weeding, fertilisers-cum-pesticide application and harvesting, the focus ought to be on achieving reductions on these. In water, electricity and fertiliser, the emphasis must be on efficient use — whether through drip irrigation, less power-guzzling/solar pumps or integrated nutrient management. Artificial lowering of seed, pesticide, fertiliser, water and power rates is, in any case, not an answer. It may actually prove counterproductive. Overuse of pesticides could, indeed, lead to emergence of secondary pests and other unintended consequences.

Finally, the government should view the industry as a partner, not adversary, in its well-intentioned efforts to improve farmers’ profitability.