Seeds of change: New farm Acts are the need of the hour
December 30, 2020 5:30 AM
The government should steadfastly articulate, and spread information on the merits of the laws, supplemented with action on the ground to create the required agri-infrastructure
APMCs are not under any kind of threat, but will face competition as farmers will have a parallel mechanism, to get fairer prices for their produce.
By Naveen P Singh
Every crisis provides an opportunity to move the needle on pending reforms. Perhaps, for us, Covid-19 comes as an opportunity to sequence distorted policy levers in agriculture in a more pragmatic and meaningful way. It is evident that there is no single year after Independence without a new farm intervention or a change in existing ones. Even then improving farmers’ economic conditions and social status, especially for small and marginal farmers, is largely driven by non-farm and off-farm income.
The legacy of farm interventions started with the preparation of a Model Bill based on the recommendations of the Royal Commission on Agriculture, 1928. With the enactment of the Agricultural Produce Markets Regulation (APMR) Act in the 1960s, the regulation of agricultural marketing practices commenced, and it acted as a conduit since then for a gradual transformation from a monopoly (executed by local traders) to oligopolies (farmer-traders built-in relationship).
This transformation is quite complex, is symbiotic and seemed invincible till the new laws were approved. The laws envision to crack/end this ugly relation/transmission by allowing more avenues for farmers to sell his/her produce beyond the Agricultural Produce Market Committee (APMC) borders, beyond the clutches of traders and moneylenders.
It is apparent in villages/rural areas that commission agents, middle men and traders are wealthier than farmers. The reason is simple and well-established: i.e. earning huge profits and exploiting farmers (especially small and marginal) wherever possible. There have been several committees and commissions since the 1980s that have actively promoted/suggested ways to correct this imbalance, but did not get due sincerity from then-regimes. As a part of cajoling strategy, they brought a piece of cake by capitulating dessert. It is still a mystery for anyone who thinks that farmers who grow staple crops are more affluent than farmers who grow high-valued fruits and vegetables and other horticultural crops. In fact, farmers’ incomes have risen in those states with a larger chunk of foodgrains procured via the MSP route and their level of prosperity is non-comparable as some states have a geographical curse. It is, therefore, necessary to bring uniformity across regions, states and farmers. In the medium term, enacted laws are expected to reduce inequities amongst farmers.
The need for reforms
This need has been felt for a very long time and many states have tried to crack down on APMCs, and a few succeeded as well. It is evident that before reaching the consumer, agricultural products in the process of exchange have a potential to increase farmers’ incomes by 11-12%. Liberalising agricultural markets not something instant, but has been curated over the last two decades, taking cues from the Shankarlal Guru Committee 2001 recommendations and other research studies. The main idea behind the three consolidated Acts—viz. the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act 2020, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Act, 2020, and the Essential Commodities (Amendment) Act, 2020—is reducing the dreadful loss to the producer. In addition to a set of benefits, viz. choices and options in marketing, better price discovery and realisation with traders competing with APMCs, attracting investment in market infrastructure (where more than 80% of private investment in agriculture is done by farmers alone), efficiency gains, access to improved inputs, good agricultural practices and technology, etc, it would also ease farming across the country. Moreover, allowing direct procurement by building farm gate infrastructure would reduce the time taken for a produce to reach the consumer, conveyer loss and almost ensure no deterioration in the quality of the produce.
As per the provisions of the Act, the farmer is free to market the produce at the field, factory, warehouse or cold storage without any hindrance and without any market fee or any other charges that were earlier applicable under the APMC Act. APMCs are not under any kind of threat, but will face competition as farmers will have a parallel mechanism, to get fairer prices for their produce.
There are demands and suggestions for amendments to render assurances towards the continuance of MSP and that the intended private procurement will not be less than MSP. In fact, MSP, as of now, benefits hardly 6% of farmers cultivating mainly wheat and rice, with an annual outgo of Rs 2-3 lakh crore, and it includes all the paid-out cost and the imputed value of family labour. Studies indicate that a 10% increase in MSP reduces the GDP by 0.33%, investment by 1.9% and increases aggregate price index by 1.5%. Thus, legalising MSP may have serious economic repercussions as it may tend to move away farm commodities from global competition.
In the provision for contract farming, it is simply not possible for corporates to take over a farmer’s land as the contract is for the produce and not for the land. Fear-mongering and undue speculation of this fact is the reason for large-scale agitation. Besides, the law doesn’t allow building of any kind of structure on a farmer’ land, by traders/corporates. Further, instances of successful contract farming are clearly visible as seed production and sugarcane cultivation are the best examples of contract farming that are successfully operating for the last several years. More than 60% of broiler production in the country is also through contract farming, and even the dairy model is based on contract. Contract farming offers a wide range of opportunities and price assurance, while also sharing windfall gains in any case with the producer. Once contract farming is fully operational, farmer producer organisations (FPOs) can be leveraged for focusing commodity-wise and region-wise to achieve efficient use of resource endowments.
This may end a few state governments’ earnings of thousands of crores of rupees via levies and taxes (amounting to 8.5%, which was 14% before GST) on the mandis. This cannot be counted as a loss as the mandi taxes bred crony capitalism in the APMCs. And by the measures set in now this amount reaches to the producer and a part to the consumer as well.
There is also an apprehension that amendments to the Essential Commodities Act—intended to boost investment in agri-marketing infrastructure and reduce volatility in prices of agri-produce—will enable big agri-business houses to hoard commodities that will lead to artificial shortages and food inflation. The law mandates that its current provisions on stocking limits will be triggered in ‘exceptional circumstances’ in the event of retail prices of non-perishable food commodities shooting up beyond 50% and that of horticultural produce beyond 100% over the base price. The benchmark and base will be the retail prices in the preceding 12 months or the average retail price of the last five years, whichever is lower.
Overall, these amendments were overdue and are needed to free up the agricultural marketing system that has prevented farmers’ incomes from rising commensurately with the economic growth of the country. The government should steadfastly articulate, and spread the information on the merits of the laws supplemented by action on the ground by creating a vast agri-infrastructure, expediting tech-enabled interoperable platforms under eNAM, a vast network of FPOs, tech start-ups, mobile and digital marketing extension and logistics.
Thus, these laws are the need of the hour for ushering in game-changing reforms in agricultural marketing and sound development of the agricultural sector. There is a need to shift from entitlement to empowerment of small and marginal farmers and enable them to produce for and compete in international markets.
The author is Member (Official), Commission for Agricultural Costs & Prices. Views are personal