A Rs. 1,000,000,000,000 annual subsidy to support stubble burning?

Last time, we asked what is the ‘Herbie’? The one action or thing or person who, if impacted, can materially change our pollution levels?

Psst: It’s the money

Two causes stand out in the emission inventories: vehicular emissions and the one responsible for winter pollution spike: biomass burning. Let us deal with the latter today, and leave vehicular emissions for another time.

The financial embrace between the government and the farmer is complex. The farmer’s income is determined by procurement, the MSP scheme, fertilizer, electricity and interest subsidy, and, of course, skill. Access to these schemes is typically lop-sided with well-connected farmers walking away with a lion share of benefits. While that becomes important later, for now, let us understand that the farmer, much like the baker and the butcher of Adam Smith, is acting in his self-interest when he chooses to grow paddy and wheat.


Food Subsidy

In 2018-19, the food procurement subsidy allocated to the Food Corporation of India (FCI) was Rs. 140098 crores. Wheat and Rice account for 99% of the grain procured by FCI. Punjab and Haryana rank amongst the biggest beneficiaries of this subsidy – given that they supply 58% of the rice and 68% of the wheat procured by FCI. As a rough ball park, 60% of the subsidy works out to Rs. 84000 crores.

Great Procurement – No market risk

Ironically, paddy burning in Punjab and Haryana results from the local government in those states doing their job – extension, procurement and payment – very very well. Farmers are both aware of Minimum Support Price (MSP) and are able to sell their crop at that price – a rare thing in India (See Figure 1 and Figure 2)

Figure 1: % of Agricultural households aware of MSP for paddy, Kharif 2012; Source: Some aspects of farming in India, Ministry of Statistics and Programme Implementation

Figure 2: Premium/Discount to MSP for Paddy, 2012; Source: Some aspects of farming in India, Ministry of Statistics and Programme Implementation; Note: The premium for farmers for the smallest farmers, i.e., those with < 0.5 Ha land seems abnormally high in Haryana, which distorts the overall premium for Haryana.

Haryana’s procurement is so damn good, that farmers from other states sneak in to sell their paddy at the Haryana mandis.  For farmers in these state, there is little market risk or marketing effort required to offload their paddy and wheat – an important point to keep in mind as we lament on crop diversification.

Fertilizer Subsidy

Punjab and Haryana’s share of the Rs. 70,000+ fertilizer subsidy works out to over Rs. 8000 crores. Moreover, the incentive to convert stubble to compost is dampened when free fertilizer is available.

Power Subsidy and UDAY – all carrot, no stick

The 2018-19 power subsidy for farmers in Punjab is budgeted to cross Rs. 6000 crores. Haryana’s equivalent was Rs. 5933 crores in 2016-17. Not all of the subsidy flows to farmers growing wheat and paddy of course, but most does. There is an added nuance here: the Punjab government signed up for the UDAY scheme in 2016, whereby the Punjab state government would take over part of the debt of the state electricity board (resulting in cheaper financing), in return for operational efficiency. However, what happened is different.  Punjab’s UDAY dashboard tells a disturbing story –cheaper bonds have been issued and both the Punjab state government and the Punjab state electricity board have financial breathing space. But, the other side of the MOU has not seen movement. The MOU states

Punjab DISCOM will endeavour to reduce AT&C losses from 16.66% in FY14-15 to 14% by FY18-19”.

In reality, AT&C losses have ballooned to over 30%! UDAY has lessened the pain of free electricity to the State, without the necessary operational tightening. All carrot, no stick.

Expertise and Extension

Lastly, Punjab farmers in particular, are experts at growing paddy and wheat, thanks in part to great extension support from Punjab university, which results in substantially higher yields.

A Rs. 1,000,000,000,000 subsidy

Putting all this together, in 2019, farmers from Punjab made a premium of Rs.10 per kilogram of paddy, substantially more than the premium of the average Indian farmer – Rs. 5.8 per kilogram. The cost base here is A2+FL cost, which is fertiliser, pesticides, hired labour, seeds etc plus an imputed cost for family labour engaged.

A 1 lakh crore subsidy coupled with efficient procurement and skill ensures that the farmers of Punjab and Haryana will grow paddy and wheat while their water lasts.

Money talks. The eloquence of this financial calculation manifests in the falling water table of the Punjab, and the smoky skies over north India. The Supreme Court has recently weighed in, saying the state and the local bodies should be held accountable for stubble fires, on the Polluter Pays principle.

Subsidy/fine/subsidy/pollution. What a mess.

What problem are we trying to solve?

There is a larger point to made here, we will optimise what we focus on. If we want to optimise water use and soil health and lower pollution, we MUST change crop patterns. This is a map produced using WRI’s India water tool. The angry red of Punjab and Haryana, with little local rainfall, is almost entirely due their crop choice and irrigation practises incentivised by the MSP, procurement efficiency and practically free electricity.

If our problem statement was ‘How to reduce the impact of pollution from stubble burning’, the obvious starting point, or the Herbie, appears to be changing crop choice.

We could do that by removing subsidies, right?

While there have been rumours that the Rs. 70,000 crore fertilizer subsidy might be tapered down, a recent government press release opened unequivocally:

There is no proposal to cut Fertilizers Subsidies.”

Influencing crop choice by pricing electricity is also a non-starter. Punjab’s Chief Minister has been recently quoted as saying:

his government was committed to the supply of quality power, in addition to 100% cost subsidy for agriculture and free power to various categories of consumers.”

On the contribution of his state to the North Indian pollution crisis, he tweeted

Compensation by Central Govt to the farmers for stubble management is the only solution in the circumstances. I had written to PM @NarendraModi ji on 25th Sep & had written to him yesterday as well. The central govt has to step in and find a consensus to resolve the crisis

The central government could step in and say no more MSP. Or, for less of a shock, say MSP applies to only those farms that don’t burn (tackles pollution but not water). This expends political capital in a limited fashion, and maybe far more effective than the solutions peddled today.

All these options are cheap in terms of ‘money’, but profligate in terms of political capital required. They don’t happen because the bottleneck resource is not money, it is political capital. When we optimize political capital, the problem we are trying to solve is:

‘What is the politically cheapest solution seen to address air pollution caused by stubble burning’

Very different problem statement. Accordingly, today’s solutions play about in the margins.

One of these is the Happy Seeder. The problem in paddy fields begins when the combine harvester harvests the rice but leaves a few inches of stalk standing. Farmers would burn the remaining stalks (stubble) to clear the fields for their wheat crop. The Happy Seeder cuts and lifts the standing stalks, spreads them over the entire field and plants the wheat seeds. It addresses the labour and the urgency issues in gathering the stubble. But it is an added cost in the eye of the farmer. The government gave a subsidy – an allocation of Rs. 1151.8 crores (fully funded by the centre) towards machinery capital subsidy, awareness and setting up Farm Machinery Banks. Expensive, credible, and seen to address stubble burning. But, the subsidy given was a capital subsidy – which predictably increased the price of the machine (by some accounts almost doubled it). Smaller farmers did not find it accessible – Rs. 70,000 (even with the subsidy) is a lot of money for a smaller farmer. Farmers also complain that using the machine is too expensive (the combine harvester needs an additional straw management system for the Happy Seeder to work well, which sucks up more diesel) and that they should be paid another subsidy to not burn.

Other solutions include alternate uses for straw including biogas, pellets for thermal plants or even cutlery. But the prerequisite for all of these is an efficient and cheap logistics network that can collect straw from thousands of farms in the span of two weeks. Not impossible, but not easy. At least, not until fertilizer subsidies lower the attractiveness of substitutes. Sameer Nagpal who runs Sampurn Agriventure, the only biogas plant in India that works off paddy straw, cites several issues in scaling up. One is that the economics of his biogas plant work only if he sells the compost it generates as a by-product. Organic compost is among the most expensive (and effective) fertilizers available.  But farmers, traditionally fearing a new face, are wary of buying expensive black ‘stuff’ from a new entrant, and can, moreover, make the compost themselves.

The other is that the current power purchase rates offered by state electricity boards do not cover the costs. In late-2018, the Indian government introduced the SATAT, or the Sustainable Alternative Towards Affordable Transportation, initiative that looks at a decentralized model for biogas with committed offtake by a large petroleum company like IOC. The has made the economics of biogas more compelling, which is a positive sign. The bottleneck remains logistics, or the financial incentive for creating the logistics infrastructure. Something that today’s subsidy regime is clouding.

The impact of the peripheral measures in the time series of images from NASA FIRMS from 2017 to 2019 from 15th of October to 4th November in each year[1].

Figure 3: NASA Firms Image of 2017 Fires between Oct 15- Nov 4

Figure 4: NASA Firms Image of 2018 Fires between Oct 15- Nov 4

Figure 5: NASA Firms Image of 2019 Fires between Oct 15- Nov 4

Negligible reduction.

Let’s be clear.

Only granular, frequent, source-apportioned, publicly-accessible data will reveal the true ‘Herbie’ to all constituents. This will (hopefully) engender the unwavering public attention which will strengthen political will to take action on the true ‘Herbie’.

Everything else is waffling.

[1] We acknowledge the use of data and imagery from LANCE FIRMS operated by NASA’s Earth Science Data and Information System (ESDIS) with funding provided by NASA Headquarters.

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