AGRICULTURAL MARKETS IN COVID-19, 2020

INTRODUCTION

Covid-19 not only affected our health sector but other sectors of the economy as well. We will primarily focus on the agricultural sector as it is a major contributor to rural employment and it serves as the ultimate source of our food items. We will see the effects (if any) of covid-19 on the food markets in India, particularly on food prices and its supply in the markets (market arrivals). We will also see (if any) the impacts of the mitigation policies adopted by the government to increase the welfare of both farmers and consumers in this crisis. For this, we will consider five states, namely Uttar Pradesh, Madhya Pradesh, Rajasthan, Punjab, and Haryana keeping the time from March 2020 to June 2020 in mind.

DEMAND AND SUPPLY CONSTRAINTS

Demand shocks were observed due to covid-19. One of the big reasons was the income shocks as the economic activities got suspended. Jobs were gone and there was no employment left for the people to keep on their earlier demand for food. A big portion of demand used to come from hotels, restaurants, etc., which got closed as per the lockdown policy.

On the supply side, the supply chain got disrupted due to movement restrictions as per the lockdown policy. Moreover, as the Indian food markets rely heavily on cash transactions, due to the high degree of cash flow constraints at that time, supply shocks were observed in the short run.

GOVERNMENT MITIGATION POLICY

From phase 2 of the covid-19 lockdown, the government granted permission to the agriculture sector for starting its activities. The government also planned to provide free rations including wheat, rice, etc. on an individual basis through the Pradhan Mantri Garib Kalyan Yojana. Moreover, Governments of several states also adopted few market reforms to take care of these demand and supply shocks, considering the public welfare.

In 2017, Agriculture Produce and Livestock Marketing Act (APLMA) was introduced to improvise market infrastructure for the welfare of both farmers and consumers. In Agriculture Produce Marketing Committee (APMC) 2003 model, it was prohibited for farmers to sell the output outside the notified market yards. But some states using the APLMA provisions delisted the fruits and vegetables (perishable good) from this regulation considering the lockdown situation (covid-19) in mind due to which farmers also got away from the market fees and other intermediary agent’s commission and could trade with anyone at any place. Hence, delisting not only prevented a decrease in prices but also helped in maintaining the adequate supply of perishable goods to the markets.

MARKET ARRIVALS

We will focus mainly on wheat (non-perishable) and tomato, onions (perishable) goods. Initially, there was a significant dip in the quantity of wheat arriving in the market due to movement restrictions (transportation problems) but as the agricultural activities started from phase 2 of lockdown, the market arrivals started recovering as now the farmer could unload its stock of wheat in the market.

If we talk about tomatoes, then there was a significant dip in its market arrival for both during and after the lockdown as compared to its previous year 2019. A big reason for low arrivals even after the unlock 1 was that this period coincided with unseasonal pre-monsoon rains that affected its produce.

Market arrivals of onions were significantly lower for both during and after the lockdown as compared to its previous year 2019, although the considered states are not very famous for its production.

FOOD PRICES

Prices of all goods spiked initially in April but then started recovering followed by the unlock process.

Wheat prices rose initially due to a dip in the arrivals but from phase 2 of lockdown, its price started decreasing, and sooner its wholesale price started reflecting the MSP. For states like Uttar Pradesh and Haryana, the wholesale wheat price was maintained at the level of MSP as these two states extended the procurement operation for wheat till the end of June, which usually gets suspended at the end of May.

Initially, prices of the tomatoes were higher due to the dip in the arrivals and later started decreasing followed by phase 2 of lockdown as relaxations were imposed only for the agricultural activities. But in mid-June, prices again started rising due to the effects of pre-monsoon rains.

Similarly, prices of the onions were initially higher but then started declining gradually followed by the different phases of lockdown. Another reason for its low prices is less demand as its large demand comes from the hotels and restaurants which got suspended. Moreover, for some time people felt that this covid-19 came from the poultry, and hence people stopped eating meat, which again reduces the demand for onion as it is the main ingredient in meat preparations.

CONCLUSION

In phase 1 of lockdown, the prices of all considered goods were high and started decreasing (recovering) from phase 2 of lockdown. Wheat wholesale prices were mainly anchored by the MSP because of government procurement. Tomatoes prices initially rose due to low arrivals, then started recovering from phase 2 of lockdown and again started rising due to the pre-monsoon rains. Onion prices also initially rose then started declining gradually.

As supply constraints started easing, market arrivals increased and gradually recovered from the short-run disruptions due to the covid-19 lockdown.

The Government played a critical role here mainly by the procurement operations as it helped in mitigating price volatility or price risk and keeps the supply chain intact. It prevented a large number of farmers from facing price risk and also increased their welfare. Moreover, the government had also adopted some market reforms which were proved beneficial especially in the case of perishable goods. Similar more relaxed and both producer and consumer-friendly policies should be adopted by the government to improve the market infrastructure, so that it enables us to absorb such harmful and unprecedented shocks like covid-19 in the future.

Reference:

Deepak Varshney, Devesh Roy, J.V.Meenakshi(2020). Impact of COVID-19 on agricultural markets: assessing the roles of commodity characteristics, disease caseload, and market reforms.

Link:

https://link.springer.com/article/10.1007/s41775-020-00095-1