Farm distress: Three big ideas to revitalise agriculture

It’s time to abandon hope for APMC-mandi reforms and create an alternate mechanism for farmers to realise a better price for their produce.

Farm distress: Three big ideas to revitalise agriculture

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By Pravesh Sharma

The national elections are over. It’s time to return to governance. If there’s one sector that demands action from the new government from day one, it is agriculture. Here are three big ideas that can unleash a multi-year cycle of growth and prosperity in this sector.

Millions of tiny and unviable plots are at the heart of the distress in agriculture. In fact, 65% of all holdings are marginal (less than one hectare of land, i.e. two-and-a-half acres), while another 21% are small (up to two hectares, or five acres). With 86% small and marginal landholdings, investments in productivity-enhancing technologies and economies of scale cannot be deployed.

Thus, incentives for voluntary aggregation or pooling of land should be created. This can be achieved by the central government laying out a legal framework, whereby farmers pooling a minimum of 100-500 acres of land are allowed to legally lease out the combined land parcel to anyone (including private companies, farmer producer organisations, cooperatives, self-help groups, individuals, etc) under a registered deed for 10/20/30 years.

The Negotiable Instruments Act, a central legislation, can be suitably amended by the government of India to achieve this outcome. In one stroke, the option of leveraging their basic asset—i.e. land—will become available to the farmers across the country, bypassing the maze of restrictive state-level land laws that prevent voluntary pooling of agricultural land.

The pooled land parcel should be limited only for agriculture-related activities (including horticulture, dairy, livestock, poultry, fisheries or agroforestry), as well as for setting up solar power plants by private developers. As a matter of fact, technology demonstrations in different parts of the world have shown that solar power generation and agricultural operations can take place on the same plot of land in a complementary manner.

The lease should be a negotiable instrument, enabling capital to be raised against for investment in the land. The original title holders need to be guaranteed payment of the agreed lease amount and restoration of land at the end of the lease period by a government entity (every state can have a dedicated authority for this purpose).

The pooled parcels of land could form the nucleus for integrated value chains for a range of agricultural produce (cereals, pulses, oilseeds, fruits and vegetables, livestock, dairy, poultry, agroforestry, and fisheries) for domestic as well as export markets. It would incentivise mechanisation, technology infusion, as well as modern infrastructure at the farm gate for production as well as post-harvest operations. Most importantly, the investments and higher output of value-added food products will create huge employment opportunities for rural youth.

Central and state governments should kick-start this initiative by offering large unutilised land parcels (for example, the barren Chambal ravines in Madhya Pradesh and Uttar Pradesh) and other wastelands and government farms. This will create comfort amongst ordinary farmers to adopt the same approach.

The second big idea relates to marketing. Every effort to persuade, cajole, incentivise and arm-twist the states into liberalising agricultural markets has failed in the past 20 years.

It’s time to abandon hope for APMC-mandi reforms and create an alternate mechanism for farmers to realise a better price for their produce. Give farmers a practical option to store at least a part of their output immediately after harvest in a warehouse against a negotiable receipt, and offer 80% of the market value of the produce as a loan.

The key is make the cost of the loan bearable and if there’s a subsidy required on the loan (subject to a reasonable limit of produce that can be stored), then it’s highly justified.

If the farmers can hold back even a third of their marketable surplus in a nearby warehouse and avail of an affordable loan, they have a chance to participate in some of the upside on prices in the following 3-6 months. All warehouses (public as well as private) that register for this facility should compulsorily display farmers’ stored stocks on e-NAM (the online agriculture marketing portal launched by the government).

This will make the produce stored even in remote warehouses visible to pan-India buyers and facilitate interstate trades. In any case, it will substantially reduce the power of local trader cartels, which dominate APMC-mandis, to drive down prices during the post-harvest flush and force them to compete with a wider cohort of buyers.

The third big idea is to legislate a Farmers’ Bill of Rights. The farmer brought India from a food-deficit to a food-surplus nation. However, current terms of trade are mostly against agriculture. Policies towards factor markets in land, labour, capital, technology and output are highly restrictive and work against the farmer’s interests.

It is utopian to expect that the maze of laws, regulations, institutional arrangements and other hurdles that hinder ‘ease of doing business’ in agriculture (largely in the domain of the states) can be somehow harmonised in a coordinated manner in the farmer’s favour in a reasonable time frame.

The answer lies in a constitutional amendment to include a Farmers’ Bill of Rights, which lays down all the entitlements of a farmer, from choosing what to grow, where and to whom to sell, his rights over his land, water, knowledge, etc. Only when these rights are embedded in the Constitution can the various vested interests, which have captured various aspects of the agri supply chain and squeezed farmers, be challenged and pushed back.

To underline the importance of agriculture and to enable coordinated action by the Centre and states on all issues pertaining to agriculture, a National Agriculture Council, chaired by the Prime Minister, with all chief ministers as members, must be mandated in the Farmers’ Bill of Rights. Only such a constitutionally-mandated body can be tasked with supervising the comprehensive set of steps that will be required to transform agriculture.

(The author, a former IAS officer, is the CEO of an agri start-up and visiting senior fellow at ICRIER)

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