While the government deserves credit for announcing agri-reforms that have long been in the making, these may remain halfway measures as it has refrained from biting the bullet on truly freeing up the sector
By T Nanda Kumar
As part of the ‘Aatmanirbhar’ package, the finance minister announced a package for agriculture. It contained three regulatory changes that have been in the making for quite some years. The government did show courage in announcing these now—better late than never. This part of the package has been hailed by many agricultural policy experts as a 1991-moment for the sector. Whether it will become a 1991-moment or remain a halfway measure and be called a ‘19’ moment is for history to judge. Let me put this in context.
During the lockdown period, rabi harvesting was completed, though with some difficulty. States like Punjab were also able to complete procurement of the rabi harvest in spite of the lockdown. The efforts that went into this remarkable performance are another story. Other not-so-fortunate farmers, those involved in growing fruits and vegetables, poultry, floriculture, fisheries, etc, were big losers in the lockdown. They did not get compensation from either the government or insurance companies.
They expected some money from the package. This component, significantly, was missing.
In spite of this vital missing component, they will still do farming—do they have a choice?
Out of the eleven other components, eight are schemes, and three are changes in the regulatory environment. The scheme(s) for creation of infrastructure (warehouses, cold chains, processing facilities, et al) are critical. These are designed to support farmer producer organisations (FPOs), cooperatives (co-ops), etc, and will be financed by Nabard. How these are rolled out, and the time taken will be key. Also note that these are loans, albeit at a lower rate of interest, and FPOs and co-ops are better advised not to ‘over-invest’ in their exuberance.
The major announcement relates to the outdated Essential Commodities (EC) Act. The government says that agriculture foodstuffs, including cereals, edible oils, oilseeds, pulses, onions, and potato, will be deregulated and stock limits will be imposed only under exceptional circumstances like ‘national calamities, famine with surge in prices’. No stock limit shall apply to processors or value chain participants, subject to their installed capacity, or to any exporter, subject to export demand. The government, therefore, intends to amend the EC Act, not to abolish it altogether. The government still has the option of making major changes in Section 3 of the EC Act (the crucial section in the Act), and deleting certain items like foodstuffs and sugar from the schedule to the Act. This is the easiest way to free commodities. Will the government bite this bullet? Unlikely. What is likely, is a change in the Act to reflect exactly what was stated above. Stock limits will be imposed, but less frequently and for explicitly laid down reasons—and only on traders. Not enough to free up the market, considering the state amendments to the Act as well. Anyway, let us wait for the fine print. But, my take is that these are, at best, halfway measures!
As regards the APMC Act, the central government has a problem on account of the federal nature of the Constitution. The best guess is that invoking entry 42 of the Seventh Schedule’s Union List (inter-state trade & commerce), a law will be passed removing all barriers on inter-state trade of all (agricultural) commodities. The proposed central law will hopefully enable farmers to sell on inter-state trading platforms, including e-Nam. This will mostly be an aggregators’ game. Forward-looking state governments have amended the APMC Act to allow private mandis, declared dedicated warehouses as mandis, and allowed farmgate sale of produce. These do give some freedom to the farmers, but do not guarantee them a better price. It is common knowledge that large companies are averse to dealing with farmers directly and use intermediaries. It is also not anyone’s case that they will rush to farm gates to offer better prices. But, the market will now offer choices: Farmers should be able to take advantage, but only if they have collective bargaining power and are aware of current market prices. Mandis can become effective price-setters and price information advisors in real time. This will be the biggest service they can provide. A lot more organisation-building needs to be done before farmers can hope for a better deal.
The third announcement has two elements—a legal framework to engage with processors and aggregators; and assured returns and quality standardisation. I would reckon this is as a combination of contract farming and futures markets. Futures markets help price discovery and, ideally, should enable farmers to take appropriate sowing decisions. Successive governments have blamed the futures markets for rise in prices, and farmers have also not seen them as giving the correct market signals. While the government may, as part of this pronouncement, give more space to futures trading, the farmers may still shy away from using these platforms. These platforms may, therefore, continue to be dominated by traders—something that markets need to worry about.
Contract farming is more a matter of trust and confidence than that of law. The current draft Model Act for contract farming is a bureaucratic cobweb unlikely to infuse any confidence in major players or farmers. Neither the industry nor the farmer wants litigation, they need smooth running businesses. A simple arrangement enabling quick and amicable dispute resolution is the best way forward. The best option is to allow the state governments to make these ‘arrangements’ as per what suits their farmers and processors.
For a start, why don’t we take sugar out of EC Act and shift it to the contract farming model? In any case, sugar has ceased to be an essential commodity!
Farmers will welcome these measures, but keep their fingers crossed, with a hope that reforms will help them. At this point in time, however, they will be praying for a normal monsoon!
The author is Former Secretary, Food & Agriculture, GoI. Views are personal