Prof. Raj Kishore Panda in Bhubaneswar, January 25, 2024: Distress sale of crops by the farmers has been hitting the media off and on. Reports show that the farmers are throwing away potatoes, onions, tomatoes, etc on the street to avoid fall in prices. Sale of the staple crops like paddy, wheat at very low prices has broken the farmers and in many cases they have committed suicide.

Here the question is why does distress sale happen? The most common answer is poverty of the farmer which forces him to sell his produce immediately after the harvest without waiting for the ideal selling conditions.

To check the farmers’ distress sale, the Government of India since 1960s has been continuing with the price support policy (determining MSP with FCI procurement of the crops) and subsequently a bill has also been passed in the Parliament in 2004 preventing distress sale through compulsory market intervention, yet this unfortunate practice continues in the country.

Empirical studies conducted in this context corroborate the media reports that the marginal and small farm categories are found selling their produce especially food-grains immediately after harvest at a price which happens to be much below the support price announced by the Government.

Implications of distress sale are far-reaching. It not only deprives the farmers from getting remunerative prices for their produce but also leads them to live perpetually under low income, poverty and debt. More so, the prevalence of distress sale affects investment and growth of agriculture in the long run.

In the present context when the Central Government is making strategies for doubling farmers’ income, the prevalence of the distress sale of produce by the farmers carries greater significance in reformulating the existing price support policy. Keeping these into account we here highlight some broad issues concerning farmers’ distress sale in the country with particular focus on the price support policy pursued by the government which is found to be ineffective in giving the smaller farms fair prices for their produce.

At the outset it is to be highlighted that there is hardly any macro study at the all-India level estimating the extent of distress sale in the country. More so there is hardly any reliable data in this context at the all-India level. No doubt there are many empirical studies conducted at different regional and local levels on the farmers’ distress sale of produce. Explaining the causal factors towards distress sale these studies are more or less unanimous in attributing indebtedness as the prime cause for the practice.

The latest available data obtained from the 77th Round, Situation Assessment Survey, 2019 released in 2021 reveal that the cultivator-households are found more indebted as compared to non-cultivating households in rural India both in terms of percentage of indebted households and amount of outstanding debt. Besides, non-institutional sources continue to be of considerable importance as provider of credit to farmers in rural areas.

More than 30 percent of the farm households are found indebted to these agencies out of which professional money-lenders’ share comes to 20 per cent. Since studies reveal close link between farm produce and credit contracts, the continuance of non-institutional sources of credit to farmers certainly suggests forced selling of produce by the farmers to these agencies for liquidating their debt and keep these agencies’ trust for future exigencies.

Secondly, while analyzing the variety of schemes pursued by the government for the welfare of the farmers, the scholars often argue that government’s price support is not only deficient but also exacerbating the situation of distress sale. A support price is a guaranteed and attractive price at which farmers are interested to sell their harvested produce to the government directly. However, as per the criterion laid down in the guidelines, FCI purchases food grains (wheat and rice) from the farmers of the states where there is surplus production.

Accordingly, as per the available data, FCI’s procurement is largely confined to a few relatively rich states and larger farm holdings leaving the poorer states and smaller farms at the mercy of outside agents. This suggests that FCI’s procurement mechanism is skewed in favour of richer states and medium and large farm categories neglecting poorer states and smaller farms where distress sale is quite high. The procurement data of FCI reveals lower contribution of the rice growing states like Bihar, West Bengal, Jharkhand, Odisha and Assam to the central stock of food grains.

As we commonly understand, distress sale situation emerges when supply of a particular crop is more than its demand in the market. Thus a bumper crop production and /or inflow of cheaper imports into the country create panic among the domestic farmers for a price fall. In such a situation market fails in giving a reasonable price to the farmers for their produce. In India there is no provision to protect the farmer against market risk.

The Prime Minister Fasal Bima Yojana (PMFBY) only provides protection to the farmers in case of crop failure due to climatic variability but not in case of market failure. This suggests for a composite insurance scheme covering risks arising out of both crop failure and market failure. Some scholars are of the opinion that since there has been frequent hike in MSP, distress sale of farm produce below MSP should be covered under composite insurance.

No doubt there have been significant changes in the farmers’ farm produce sale, particularly food grains after the introduction of MSP and food grains procurement by FCI. However, no structural change to deal with the situation of rising food grains production has been evolved by the government. Agricultural marketing still continues to be in a bad shape in rural areas.

After Green Revolution India’s food grains production has achieved a quantum jump. Small farmers have contributed immensely in this direction. Distress sale being largely a matter concerning smaller farm holders, their plight needs to be addressed with definiteness. Regional approach in this case should to be adopted and small farmers are to be advised to pull their produce for sell to the government directly. These farmers have to be given some amount as advance for their waiting in the post-harvest period.