Heralding a new chapter in agricultural market reforms in India, on May 15, 2020, the finance minister, Nirmala Sitharaman made three major announcements under ‘Atmanirbhar Bharat Abhiyan’.
(i) enact a central legislation to enable direct purchase of specified commodities – under Entry 42 of the Union List and Entry 33 of the Concurrent List – from the farmers outside the designated APMCs [Agricultural Produce Market Committee];
(ii) enact a Central law on ‘contract farming’ to provide a legal framework for farmers to engage with processors, aggregators, large retailers and exporters in a ‘fair’ and ‘transparent’ manner;
(iii) amend the Essential Commodities Act [ECA] [1954] to take off pulses, cereals, edible oil, oil seeds, onions and potatoes from the purview of this archaic law.
To understand the full ramifications of the proposed enactments, at the outset, let us take a look at the existing regulations.
At present, trade in agri-commodities is governed by a highly restrictive legislation viz. APMC Act. The Act empowers state governments to specify market areas – where farmers bring their produce for sale. These are operated and regulated by market committees. There are a total of about 5000 such markets [also known as ‘mandi’ in local parlance] across the country.
The stated objective of the APMCs is to promote organized marketing of farm commodities to ensure fair play, achieve an efficient system of buying and selling of commodities, protect farmers from intermediaries and traders and to ensure better prices and timely payment for the produce. Far from achieving these objectives, farmers are being exploited by a network of licensed traders and middlemen who have complete stranglehold over these platforms.
While, on one hand, they don’t get to sell their entire produce at the MSP on the other, no alternative platforms are available where they could to sell. Even government agencies such as National Agricultural Cooperative Marketing Federation of India Limited [NAFED] etc don’t come forward to buy when the market price dips below the MSP. Actually, the problem is much deeper.
This has to do with a cozy nexus between politicians and grain traders that has existed and flourished for decades. A grain trader has a fundamental interest in ensuring that he minimizes his payout to farmer for the grains he buys from him/her. He can succeed in this game plan if farmer is left high and dry by state agencies. So, he collaborates with the politicians in the ruling establishment to ensure that state agencies remain weak and de-motivated.
This nexus has also come in the way of amending the APMC Act to make way for alternative channels of selling such as direct purchase by bulk buyers, processors, exporters etc [the revenue state governments get from levy of market fee on transactions at the mandis has proved to be another major deterrent]. In 2017, Modi – government had passed a Model Agricultural Produce and Livestock Marketing [Promotion & Facilitation] law containing provisions to give more options to farmers for selling their crop and greater flexibility to traders such as ‘single pan-state license’ for buying from anywhere in the state.
True, to its nomenclature, the Model law is a mere showpiece as until hitherto [prior to Covid – 19 crisis, to be specific], majority of the states showed no interest in amending their laws. In a daring move, the then BJP government led by Devendra Fadnavis had approved in August 2018, an amendment to the Maharashtra Agricultural Produce Marketing [Development & Regulation] Act, 1963 in sync with Centre’s model law. That was done through the ordinance route. But, Fadnavis was forced to withdraw the bill on November 28, 2018 from the legislative council, a day after it was passed.
The continued writ of APMCs has meant that there is no free movement of farm products even within the state, forget free inter-state trade. With several pieces of state legislation creating impregnable zones, even the much trumpeted electronic national agriculture market [e-NAM] has failed to take off. The processors, exporters and other large buyers have no incentive to invest in agri-infrastructure. The archaic ECA [1954] with its draconian provisions especially with regard to stock limits acts as a further disincentive.
All this boils down to farmers not getting a remunerative price for their produce on the one hand, and consumers having to pay high price on the other – even as a number of intermediaries in the supply chain appropriate a major slice of what the latter pays. Needless to say, resulting low farmers’ income not only keeps them poor but also boomerang on overall economic growth through reduction in rural purchasing power. The state of affairs is not good for boosting exports on a sustainable basis either.
The Covid – 19 crisis may have come as a blessing in disguise. It gripped India at a time when Rabi crop [October 2019 – March 2020] mostly winter staple, wheat was ready for harvest. April – May is the period when farmers congregate at the mandis. Being the only platform where farmers could sell their produce, this would have led to over-crowding at the mandis which comes in conflict with ‘social distancing’ – a pre-requisite for preventing spread of this deadly virus.
In this backdrop and dire need for adhering to ‘social distancing’, Prime Minister, Narendra Modi asked States [during a video-conference with state chief ministers on April 11, 2020] to suspend certain provisions of their respective APMC laws for three months to make way for purchase of farmer’s produce directly from their doorsteps by large farmers’ producers organizations [FPOs], large buyers such as processors, millers, exporters, cooperatives and individual traders etc.
Some states viz. Madhya Pradesh, Uttar Pradesh, Gujarat, Karnataka responded by making amendments in their APMC laws [using the ordinance route as none of the state assemblies are in session]. As per the amendment, the entire state is declared as a ‘single market’ wherein a trader can get a single license for purchase of agricultural produce from any mandi within the state. Further, it allows trade in all farm commodities, including livestock, outside the regulated APMC markets.
This not only kept Covid – 19 at bay [as traders went to farmer’s doorstep instead of the latter having to go all the way to the mandi] but also fetched remunerative price for their produce by offering more choice resulting in higher income. No wonder, amidst the gloom and doom in majority of the other sectors of the economy, agriculture is expected to show a positive growth rate of over 3% during the current year [of course, this will be helped by normal monsoon predicted by the meteorological department].
In retrospect, there is every reason to rejoice over the changes in APMC laws by the aforementioned states which has enabled private trade to complement efforts of state agencies in ensuring record procurement from the farmers. While, Modi had asked for suspension of the relevant provisions for three months, these states have gone a step further by bringing an element of permanence. That serves as icing on the cake. But, doubting Thomas remains.
For one, majority of the states continue to give a deaf ear to Centre’s wish. Even in the 4 states, where the changes have been brought about, these will have to be passed by state assemblies. Given the deep rooted vested interest [even BJP ruled states are not free from this], the Maharashtra type fiasco can’t be ruled out.
In this backdrop, Centre’s decision to enact a central law using the rarely used power under the Constitution to regulate inter-state trade and intra-state trade makes eminent sense. The law will enable an entity to buy farm produce from farmers directly anywhere in the country, even outside the regulated market yards. At the same time, amendment in ECA to remove fetters such as stock limits [these limits will be imposed only in exceptional circumstances] will enable large buyers viz. processors, millers, exporters etc to scale up purchases thus providing sustained support to farmers.
The proposed Contract Law – enforceable in all states – will clearly lay down rules of the game for a processor/large retailer that it must follow to ensure that farmers are not taken for a ride.
These enactments are intended to create parallel arrangement for selling farm produce and can co-exist with APMCs. These aim at breaking the monopoly of a few licensed traders at mandis, create competition and thus help both farmers and consumers. Whether or not, these actually see the light of the day, one can only wait and watch. For now, Modi – government deserves accolades for putting on the table long pending reforms in agri-marketing which if carried through will be truly revolutionary.