The Government deserves some credit for at least putting on the table long-pending reforms in agri-marketing, which if carried through, will be truly revolutionary
Heralding a new chapter in agricultural market reforms in India, on May 15 Finance Minister Nirmala Sitharaman made three major announcements under the “Atma Nirbhar Bharat Abhiyan.” The first announcement was about the Centre’s decision to enact a legislation to enable direct purchase of specified commodities — under entry 42 of the Union List and entry 33 of the Concurrent List — from farmers outside the designated Agricultural Produce Market Committees (APMCs). Next was the move to 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. Third was the decision to amend the Essential Commodities Act (ECA), 1954 and 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. the APMC Act. This 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 5,000 such markets or mandis across the country.
The stated objective of the APMCs is to promote organised 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 licenced traders and middlemen, who have a complete stranglehold over these platforms.
While on one hand, farmers don’t get to sell their entire produce at the Minimum Support Price (MSP), on the other, no alternative platforms are available where they could sell. Even Government agencies 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 minimises his payout to the farmer for the grains he buys. He can succeed in this gameplan if the 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 and so on (the revenue State Governments get from levy of market fee on transactions at the mandis has proved to be another major deterrent. In 2017, the Modi Government had passed a Model Agricultural Produce and Livestock Marketing [Promotion and Facilitation] Law containing provisions to give more options to farmers for selling their crop and greater flexibility to traders such as ‘single pan-State licence’ for buying from anywhere in the State).
True to its nomenclature, the model law is a mere showpiece as until hitherto (prior to the Covid–19 crisis, to be specific), a 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 and Regulation) Act, 1963, in sync with the 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 the 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 a 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, that the resulting low income not only keeps farmers poor but also boomerangs on overall economic growth through reduction in rural purchasing power. The extant 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 the Rabi crop, mostly the 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 overcrowding at the markets which comes in conflict with “social distancing” — a pre-requisite for preventing the spread of the deadly virus.
Due to the dire need for adhering to “social distancing”, Modi asked the States to suspend certain provisions of their respective APMC laws for three months to make way for purchase of farmers’ produce directly from their doorsteps by large farmers’ producers organisations (FPOs), large buyers such as processors, millers, exporters, cooperatives, individual traders and so on.
Some States like Madhya Pradesh, Uttar Pradesh, Gujarat and Karnataka responded by making amendments in their APMC laws (using the ordinance route as none of the State Assemblies are in session, courtesy the prevailing emergency). As per the amendment, the entire State is declared as a “single market” wherein a trader can get a single licence for purchase of agricultural produce from any mandi within it. Further, it allows trade in all farm commodities, including livestock, outside the regulated APMC markets.
This has not only kept Covid–19 at bay (as the traders went to the farmers’ doorstep instead of the latter having to go all the way to the mandi) but also fetched a remunerative price for their produce by offering more choice, resulting in higher income. No wonder, amid the gloom and doom in most other sectors of the economy, agriculture is expected to show a positive growth rate of over three per cent during the current year (of course, this will be helped by normal monsoon predicted by the meteorological department).
In retrospect, there is some 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 the icing on the cake. But some doubts remain.
For one, most States continue to turn a deaf ear to the Centre’s wish. Even in the four States, where the changes have been brought about, these will have to be passed by the State Assemblies in the end. Given the deep-rooted vested interest, a Maharashtra-type fiasco can’t be ruled out. In this backdrop, the Centre’s decision to enact a Central law, wielding the rarely-used power under the Constitution to regulate inter-State trade and intra-State trade, makes major 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, the amendment in the 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 and so on, 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 farm reforms are intended to create a parallel arrangement for selling farm produce and can co-exist with the APMCs. These aim at breaking the monopoly of a few licenced traders at mandis, create competition and thus help both farmers and consumers. Whether or not these actually see the light of the day remains to be seen. For now, the Government deserves some accolades for at least putting on the table long-pending reforms in agri-marketing, which if carried through, will be truly revolutionary.
(The writer is a New Delhi-based policy analyst)
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