Price-surge rider stymies foodstuff deregulation

Published: June 9, 2020 12:15 AM

The rider could stymie the objective of spurring private investments in agriculture value chain, including in the capital-intensive warehousing and cold- chain infrastructure, analysts said.

Along with this, the minister also announced a new Central law for inter-state trade to improve market access for farmers and another one to facilitate contract farming. Along with this, the minister also announced a new Central law for inter-state trade to improve market access for farmers and another one to facilitate contract farming.

By Prabhudatta Mishra

If the key foodstuff ‘de-regulated’ from the Essential Commodities (EC) Act show ‘extraordinary price rise’, the government could still impose stock limits and other restrictions on them, the relevant Ordinance issued last week said. The rider could stymie the objective of spurring private investments in agriculture value chain, including in the capital-intensive warehousing and cold- chain infrastructure, analysts said.

Announcing a clutch of much-needed reforms aimed at boosting value addition across the agriculture value chain, Finance minister Nirmala Sitharaman last month said food items including cereals, edible oils, oilseeds, pulses, onions and potato will be deregulated from the six-and-a-half-decade-old EC Act – this seemed to mean besides deregulating production and sale, the government will also cease to impose stock limits concerning these products, including for the processors and other value chain participants. Along with this, the minister also announced a new Central law for inter-state trade to improve market access for farmers and another one to facilitate contract farming. The President last week issued there separate Ordinances to give effect to the proposals.

“The two Ordinances related to barrier-free inter-state trading and contract farming are fine. But the problem is with the EC Act and its clause of extraordinary price rise,” said noted economist Ashok Gulati. “When someone is investing in controlled-atmosphere (CA) storage, which is highly capital-intensive, he is looking at 30-year horizon to reap meaningful returns on his investment without any policy-induced risk,” he said.

According to the Ordinance to amend the EC Act, “any action on imposing stock limit shall be based on price rise and an order for regulating stock limit of any agricultural produce may be issued under this Act only if there is 100% increase in retail price of horticultural produce and 50% in non-perishable agricultural foodstuffs”. The defined price rises will be computed “over the price prevailing immediately preceding 12 months, or average retail price of last 5 years, whichever is lower.” Gulati said: “If the onion price today is Rs 15/kg and it goes up to Rs 30/kg at this time next year, or tur dal price rises from Rs 100/kg to 150/kg, and if stocking limit is imposed on onion traders or tur dal traders citing price increase of 100% and 50% respectively in a 12-month period, it will undo all the reforms in the EC Act for which the amendments are made. In fact it will be irrational to do so.”

According to the Consumer Affairs ministry data, the all-India average retail prices of onion, tomato and potato were Rs 15-20/kg, Rs 20 and Rs 20-30, respectively in May. It is very much possible there could be a price rise of 100% in these items in next 12 months particularly during off-season. Experts said the conditions attached to the so-called deregulation of the EC Act could nullify the reforms undertaken in the inter-state trading segment as well, as both are closely inter-related and could be meaningful to the investors only if these are unconditional.

“If someone buys directly from farmers and he is not able to store without any fear, what is the purpose of buying and creating warehouses,” said a wholesale trader of Delhi, who has set up warehouses in neighbouring Haryana.

However, the government has gone the whole hog as the contract farming law is concerned. The new Central law on contract farming – The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 — will override the EC Act in terms of its area of relevance. It says: “Any obligation related to stock limit shall not be applicable to such quantities of farming produce as are purchased under a farming agreement entered into in accordance with the provisions of this Ordinance.” The law has also allowed state government to notify an agency where these agreements between farmers and buyers can be registered. It also said that the agreement can be made at least for one season or one production cycle and maximum for five years.

The contract has also been allowed to be linked with insurance or credit instruments of the government and financial institutions where either farmer or the ‘sponsor’ or both can be beneficiaries. The law defined ‘sponsor’ as the one who entered into the agreement with the farmer to buy his agri produce.

While the Centre will issue guidelines to state governments on this contract farming agreement, the law also prescribed that third-party assayers will be deployed to guide, monitor and assess quality, grade and standards for pesticides residues and food safety standards which all can be part of the agreement.

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