Agriculture Market Policy Reforms | Part 2 - What Lies Ahead

Updated: Jul 28, 2020

Till now, we have talked about what the scenario was in our country for the farmers. Unlike other businesses, they could only sell in their local markets and faced many restrictions.

This second part of the article deals with what the recent announcement by our government aims for and what all challenges we might see?

What Changes/Reforms have been proposed?

A. Deregulating the price of certain essential food items.

The amendment in ECA will deregulate commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes. The stock limit will only be implemented only under extraordinary circumstances, which include extraordinary price rise, war, famine, and natural calamity of a severe nature.

The dismantling of such controls would expand India’s agri-exports and enable private investment in supply chains and storage. It could also facilitate private investment in the food processing industries, strengthening the farm-to-fork chain, and benefiting both producers and consumers.

However, there is no fine print of the new law and unless it specifies what these ‘extraordinary circumstances’ will be we cannot estimate its reasonability.

B. Freeing the Agri-Markets.

By allowing farmers to sell outside APMC yard will bring greater competition amongst buyers along with lowering commission and cess charges imposed due to these mandis.

Further, by removing barriers in ‘inter-state trade’, farmers in the regions with surplus produce will get better prices if they chose to sell in areas of less competition. Also, consumers in regions with shortages will have the availability of agri-products at lower prices.

Thus, due to better spatial integration of prices, India will finally have ‘One common market for agri-produce’, enabling an efficient supply chain.

Since agriculture is a state subject then how can Centre pass legislation seeking to remove barriers to its trade?

First, the centre can invoke Article 301 of the Constitution which envisages freedom of trade and commerce “throughout the territory of India”. It includes both inter-state and intra-state trade in goods.

Second, the objective of this amendment is not to dismantle APMCs. Farmers will continue to access mandis having good infrastructure and where they get more buyers for eg. Unjha APMC in Gujarat for Jeera or the Guntur Mirchi Yard. Only the APMC monopoly will end!

C. Contract Farming with Advance Pricing.

Normally, our farmers use last year’s prices to evaluate which crop can be profitable to sow. As a result, all farmers grow one kind of crop leading to a plunge in the selling price in the subsequent year.

The legal environment for contract farming will assure them of a basic price at the time of sowing. This will help them take cropping decisions based on 'forward prices'. It will minimise their market risks and encourage a variety of crops to be sown.

The farmers have been promised a minimum price, which will be 50 per cent higher MSP than the input cost, as proposed by the Swaminathan report.

The Challenges Ahead

Complete deregulation, as we have seen in the decade following Bihar’s repeal of its APMC Act in 2006, does not necessarily transform agricultural markets and stimulate competition. Big corporate buyers, processors and retailers did not go to small farmers individually. It was more efficient for them to transact with large traders and aggregators, thus defeating the whole purpose of the reform.

For this, Mr Ashok Gulati, (Infosys Chair Professor for Agriculture at ICRIER) in an editorial recommends of building Farmer Producer Organisations (FPOs), based on local commodity interests. This according to him will ensure uniform quality, lower transaction costs, and also improve the bargaining power of farmers vis-à-vis large buyers. He added that NABARD has to ensure that all FPOs get their working capital at 7 per cent interest rate — a rate that the farmers pay on their crop loans. Currently, most of them depend on microfinance institutions and get loans at 18-22 per cent interest rates which is quite high.

What we as a policy-makers can do is to find the gaps. E.g. How will the farmers find out the fair and competitive pricing of their products from their homes? Will it be transparent or via the meddling of middlemen again? How to empower them with technologies like electricity, internet, smartphones so that they can make use of e-NAM? How can they transport their products to markets throughout the country? Find the reason why most farmers still transact in cash and what all is needed to make ‘online’ easy for them? See whether Financial inclusion through ‘Aadhaar-Cards’ is happening in reality, in the technologically-challenged areas? If not, then how can you mend that? And finally, how to attract young minds, agri-techs and entrepreneurial ventures into it?

Developing essential infrastructure for wholesale like storage and transportation, setting up of enough mandi yards in the remote areas, technologically driven procurement and online transactions are crucial steps. Without these, farmers will not be able to exercise any newly granted regulatory freedom in the market.

We will have to ensure that these reforms do not degenerate into favouring large-scale consolidation and channel control by big multinationals. Our agriculture runs on the backs of small-scale producers, traders, wholesalers, retailers, processors and labourers. Increasing competition should not eliminate them rather strengthen their enterprise and resilience.

- Srishti Singh (PRM 41)