Sowing a bitter harvest? Indian farmers need more market access, not more markets

October 2, 2020 6:32 AM

Indian farmers need more market access, not more markets. The new farm laws are likely to replace small APMC cartels, with larger corporate monopolies (if not cartels), at whose mercy the farmers will be.

By Poornima Varma & Gurpreet Singh

The consolidated objective of the three farm laws recently passed by Parliament are widening farmers’ marketing options and freeing them from commission agents and traders, the monopolists of the Agriculture Produce Market Committees (APMC) mandis. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act allows farmers to sell their produce to anyone, anywhere in the country. At first glance, the Act looks fine, but a closer reading reveals the undesired consequences it might bring to the agrarian sector. What Indian farmers need is access to markets and not more markets. Unless the markets are regulated, farmers’ access will shrink further.

In India, around 86% of farm households are small and marginal, operating on 47% of the area. This section is often exploited by the middlemen due to dearth of bargaining power and resources. . Being outside the purview of the formal credit system, 60% of them rely on informal sources for finance. They lack access to markets due to the several constraints they face in production and marketing. The objective of setting up APMCs was to avoid distress-selling by farmers at throwaway prices at the farm-gate.

To a great extent, public farm investment plays a crucial role in removing production and market-access constraints. However, the public farm investment declined drastically since the introduction of macroeconomic stabilisation and structural adjustment policies in the 1990s. This decline in public investment hurt the agricultural sector. Public investment is imperative not only for better irrigation facilities, research, and development facilities but also for rural electrification, rural roads, literacy, etc, to augment agricultural growth. The high levels of public investment during the early 1980s witnessed a decline from 2.43% to a mere 0.59% of GDP in the mid-1990s. Though there was a marginal improvement in the mid-2000s to 1.28%, it was still grossly inadequate.

Public investment not only has a complementary relationship with private investment but is also capable of removing several constraints, such as inadequate irrigation facilities, transportation, storage facilities, electricity supply, etc, that small farmers face. The removal of these constraints can better equip them to integrate with the market. Unless these prerequisites are met, small farmers won’t be able to produce for the market and take advantage of market prices. Though the functioning of APMC was not flawless, these platforms were useful for small farmers to a greater extent.

The new laws will undermine the importance of APMCs and erode their finances. The APMC amendment of 2003 and 2017 permitted direct purchase from farmers, even outside the APMC; the buyers were still required to pay the mandi fee, which allowed the prices to be regulated. As per the new law, the buyers do not need to go through APMCs or pay the fee. Also, the procurement for Public Distribution System (PDS) by the Food Corporation of India (FCI) was undertaken through these mandis. The new law certainly poses challenges to the existing platforms where MSP-based procurement operations are implemented.

The aspect of dispute settlement in the Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, needs close attention. In case of any dispute between parties, i.e., farmer and trader, one cannot directly approach the judiciary system or a court. As per the third chapter of the Bill, the parties will approach the sub-district magistrate (SDM), who shall direct them to a conciliation board. If reconciliation fails, then the order will be passed by SDM and collector or additional collector on appeal. In the subsequent appeal, authorities will be appointed by the Centre in consultation with the state government for dispute settlement. The fifth chapter, of the Bill safeguards the state from any suit filed against it. The section is worded strongly, to shrug off any accountability of disputes arising as a consequence of this law. Even if organised as a farmers’ producer company, the transaction cost to fight a dispute with a trader/corporate will be enormously taxing on the farmers.

So, gradually we will experience a shift away from small, regulated cartels inside the APMCs to large, unregulated cartels working outside the APMC system. Another point to contend with: When the government is set to push for e-NAM under the goal of “one nation, one market”, which necessarily relies on physical mandis, how will the e-NAM function when the supporting institution is undermined? The expectation that the small farmers will get greater access and choice to markets with “right prices”, is less likely to materialise, while big private aggregators and multinationals, who are “investment-ready”, are more likely to reap from the reforms.

Varma is a faculty and Singh is a PhD scholar, Centre for Management in Agriculture, IIM-A. Views are personal

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