GRSV Blog No. 7,
Released on 16/11/2020,
Agriculture Market Reforms in India have been under consideration for a long time, with a view to make the agriculture marketing system more competitive. As early as 2003, a model marketing act was enacted, which was further amended in 2017. The model act provided for markets to be set up by private sector players, besides the existing Agricultural Produce Market Committee (APMC). In addition, farmers were free to sell produce by their choice, strengthening their bargaining power through the formation of Farmer Associations and Farmer-Producer Organisations (FPOs), bulk marketing, contract farming, pledge financing, and by instituting a system of negotiable warehouse receipts, etc. In 2016, another landmark was achieved when the electronic national agriculture market (e-NAM) was launched.
Agriculture is a state subject in India, however; as a result, 15 state governments amended the existing APMC Acts, 3 state Governments accepted the provisions partially, and 2 states have not accepted the APMC Acts. And in 11 states, fruits and vegetables are not under the APMC Acts. Even in those states that have amended the APMC Act, ground-level implementation is often found wanting. The present farm reforms (of 2020) were passed by the central government through an ordinance, and they establish a trade zone for inter- and intra-state trade which is outside the APMC area of operation. Although the bills were initially introduced by Ordinance, they were later approved by the parliament and signed by the President to become Acts. Please modify the sentence accordingly.
The three recent Acts of 2020 are as follows:
1. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act 2020 (FPTC)
2. The Essential Commodities (Amendment) Act 2020 (ECA)
3. Farmers (Empowerment & Protection) Agreement of Price Assurance & Farm Services Act 2020 (FAPAFS)
The three Acts are interrelated and complementary: the first provides for free market and permits competition; the second and third assure competition.
Is this the “1991 moment” for Indian agriculture? In 1991, the Government of India reversed its earlier policies and started “Liberalization, Privatization and Globalization” of the economy to attract foreign investment, technology, and services, with a view to modernize India. At that time, agriculture was not included in this landmark change in policy direction. Thus, the current three farm reform acts could be considered as a landmark, which free farmers from restrictions on the sale of their produce, thus bringing in competition in the commodity value chain and enabling a single common market for agricultural produce. It has also opened the window for inflow of private capital by allowing farmers to enter into contracts with large buyers—such as processors, exporters, and retailers—and by promoting private sector investment in cold storages, warehouses, transport, and other logistics, as well as removal of restrictions on stocking limits under the Essential Commodities Act (ECA) of 1955.
In addition, the government has also created an Agriculture Infrastructure Fund (AIF) for developing marketing infrastructure, which would facilitate activities aiding value addition—such as cleaning, grading, packaging, primary processing—and other logistical activities close to the growing area.
As a complementary measure, in order to protect small-scale farmers from dealing directly with large-scale buyers, and to improve the bargaining capacity of farmers, the government has initiated a process for the creation of 10, 000 farmer- producer organisations (FPOs), supported by the National Bank for Agricuture and Rural Development (NABARD) and state governments.
If implemented effectively, with appropriate checks and balances in place, the three new Acts can jointly usher in a new market-related agricultural revolution in India. Although the contribution of agriculture to overall GDP is low, it deserves special attention as India ranks 94th in the Global Hunger Index (among 107 countries), and it employs more than 50% of the labour force in the country.
Though long overdue and therefore welcome, these recently enacted reforms still leave several issues unaddressed. They have raised some concerns among the stakeholders involved in agricultural production and marketing. This is especially significant owing to the preponderance of smallholder farmers and sharecroppers, who have relatively poor bargaining power.
Some apprehensions about adverse impacts of the farm reforms
We discuss briefly here a few apprehensions about the reforms, and how they may be addressed.
- How will they impact income inequality? Though the 1991 reforms saw some improvement in gross domestic product (GDP) growth rates, income inequality has worsened over time. This raises the important question: how will the new Acts impact the smallholder farmers (i.e., those who hold less than 2 ha of cultivable land)? In India, they constitute 86% of the total number of farmers, but own only 33% of cultivated land. Also, the reforms are silent on how sharecroppers will be protected so as to ensure that benefits will flow to them as well.
- Will smallholders be sidelined? Promoting privatization/unbridled capitalism may deny promised benefits (doubling income, assured and higher prices) to the majority of smallholder and marginal farmers. It may also encourage high value commercial/corporate agriculture and discourage cultivation of staple food crops, thus endangering the much-needed national food and nutritional security.
- Other issues smallholders could face: Smallholder farmers’ access to credit may be adversely affected as they have tied transactions with the Commission Agents/intermediaries in the APMC, who provide credit at different stages of the crop and recover it at the time of sale of the produce. When smallholders enter into contract farming, procedural and legal hassles can pose serious hurdles for them in settling issues related to disputes arising from the contract.
- What happens to the existing APMC infrastructure? Though APMCs will continue to function, it is not clear how the infrastructure facilities already available with them will be utilized. It is also not clear who will record or track data regarding transactions and prices outside the APMC.
- How secure is the guarantee of a minimum support price? Though verbal assurances have been given by the government regarding a Minimum Support Price (MSP), there is no guarantee. . MSP is linked to the public distribution system (PDS), and hence it is critical for meeting the food security needs of the country..
- Will biodiversity be threatened? Modernization of agriculture (either stand-alone or through contract farming) has been blamed for genetic erosion and loss of agricultural biodiversity. Even today, much of whatever agricultural biodiversity is left is with the smallholder farmers. So, while implementing the reforms, there is a need to ensure that no further erosion of this valuable biodiversity occurs.. Any further erosion of the diversity that is left with farmers may adversely affect the sustainability of natural resources and their management.
- Are the mechanisms for implementation clearly defined? There is need for clarity on the mechanisms to systematically monitor and evaluate whether the promised reforms deliver expected benefits in the next 2-3 years. Such monitoring and evaluation can help to take up knowledge-based amendments or refinements, as and when needed.
- Apprehensions on the ECA act: It is not clear how the implementing body will separate genuine stocking for processing or sale from stocking for speculation. In many developed countries where stocking limits do not exist, a few large firms control agriculture trade in the country. Will this act impact traders and processors with small turnover? Also, the act specifies reimposition of stock limits in certain situations which could lead to arbitrariness and uncertainty.
- Apprehensions are common with every major reform, particularly with disruptive ones like the WTO, Nationalization of Banks, the 1991 Economic Reforms, GST, demonetization, etc. But, if suitable safeguards are provided against some of those apprehensions, the enabling provisions created by the Acts can minimize hardship and maximize benefits, particularly for the weak and vulnerable people who are hit hard.
What can the Government do for the reforms to succeed?
Given the apprehensions discussed above, there is a need for governments, both state and central, to chalk out a sound implementation plan. The plan should take on board the additional or new hurdles the reforms will create, and how to deal with them. hat are the agencies that need to be created afresh to ensure that the reforms are implemented efficiently? For the reforms to succeed, we strongly urge the central government to ensure participation of the state governments as they would be actually involved in the implementation at the ground level. State governments should be encouraged to frame rules for effective implementation of the Acts. They should play a facilitating role where required, for example, in ensuring electronic registration of contract farming agreements between parties.
Smallholders
The procedures for obtaining credit should be simplified. Smallholder farmers’ access to institutional credit should be facilitated to compensate for the loss of the credit facility that was available from Commission agents in the APMC. Alternatively, credit from banks on the basis of warehouse receipts should be made readily available, so that smallholder farmers can make use of the facility to store their produce and sell it when prices are higher. Regarding the Agriculture Infrastructure Fund, there is a need to ensure that it genuinely benefits the small farmers for primary value addition, at the farm or close to the village.
Empowerment and capacity building of farmers and FPOs: For small-scale farmers to effectively participate in the national market and contract farming, capacity development and skill development is essential. That would include unfamiliar activity like preparing contracts, as well as basic marketing and negotiation skills, market intelligence, and simple book keeping. The government agencies need to develop necessary action plans in this regard.
Role of APMCs
The central government should consider support to APMCs for their lost income and continue to use the existing infrastructure. The central and state governments can provide funds and procurement arrangements to effectively implement the MSP through the APMCs.
The Punjab government’s act makes non-payment of MSP a punishable offence, irrespective of procurement by the government. We recommend that the Government of India also brings an act or ordinance to make MSP legally binding, so that non- payment of MSP becomes a punishable offence; the responsibility for implementing this should be clearly fixed with officials. This way, lower paying contracts with vulnerable farmers can be avoided.
Till additional infrastructure is developed, e-trading has to be available at the APMC mandis. Such a measure makes use of existing facilities and avoids building new ones, thus reducing investment and transaction costs.
The middlemen/intermediaries from the APMC mandis could become facilitators between farmers and firms that want to contract the farmers. It is possible that the larger companies and those that are located in urban areas (far from production centres) are not able or willing to reach many small farmers to sign contracts, so they will need someone to take care of this aspect. The expectation is that most companies/contractors will have faith in fair trade and monitor the actions of middlemen.
Contract farming
Contract farming should be facilitated effectively. Ground-level implementation of contract farming depends on availability of the necessary infrastructure (roads, power supply), freedom to negotiate with farmers, minimal state interference, and a simple independent arbitration mechanism for the private sector to step in in a big way. Theconstitution, composition, powers, and functions of the Registration Authority and the procedure for registration should be prescribed by the State Governments. The State Governments may, by notification in the Official Gazette, make rules for carrying out the provisions of this Act. De-politicisation of the relevant authorities, including the Registration Authority, Sub-Divisional Authority, and Appellate Authority, all deemed to be public servants, is crucial. It is important to ensure that all necessary documents are available in the local language, and that they use simple language, avoiding complex judicial/official terms and fine-print, so that even a semi-literate farmer can follow it.
The proposed dispute mechanism could be cumbersome for the smallholder farmers. Alternatively, the government can set up farmer grievance courts, in the manner of consumer courts, to examine complaints of farmers with respect to the quality and prices charged for inputs, lower prices paid by traders for both MSP produce and non-MSP produce, and contract violations by companies, with the authority to levy punitive fines to discipline the profiteering companies and traders.
To reap the benefits of contract farming, smallholder farmers can be brought under the umbrella of FPOs, so that their bargaining capability is improved and they can negotiate more effectively with large aggregators and processing companies.
Technology development
The implications of the farm reforms on technology development (related to both crops and natural resource management, NRM) need to be assessed by technocrats, since it is the technology pipeline that will feed the markets and bolster farmers’ income. The contractors (usually food processing and/or marketing companies) have to understand the traditional practices of farmers related to crop rotation, fallows, intercropping, etc., which have to be preserved for managing soil health and preventing proliferation of disease and pests. Such practices should not be lost because of restrictions placed by market-oriented agriculture or contract farming if sustainable food production is to be assured. That will also ensure that India’s commitment to the United Nations Sustainable Development Goals (SDGs) stays in focus.
Monitoring and Evaluation
The central and state governments should establish a monitoring mechanism to assess the progress of the new farm bills in an objective manner. They can also develop a suitable index of prices received for select commodities in 2020, to be used as the baseline and monitor progress/impact over future years.Monitoring and Evaluation
Conclusion
In conclusion, our governments at all levels need to shed their garb of providers and become enablers, if the reforms are to bring about the desired change in the agriculture sector. Adoption of improved crop and NRM technologies, along with effective implementation of the proposed farm reforms, would improve land and labor productivity, enabling shifting of the excess labour force dependent on agriculture to off-farm activities, as well as to manufacturing and service sectors. Modern post- harvest technologies need to be adopted, so that the agriculture sector will attract youth and start-ups will result, using state of the art technologies. The goal should be to make agriculture a means to livelihood, without resorting to dole-outs, except in the event of natural disasters.
Until India develops to a stage where the number of people dependent on agriculture for livelihood reduces significantly, and where food and nutrition security is fully attained, the agriculture sector needs to be treated with empathy and care. It should not yet be treated on par with other sectors, such as industries or services.
Prepared by: P Parthasarathy Rao, PG Chengappa, N Nagaraj, K Purnachandra Rao, and Mruthyunjaya (with inputs from CL Laxmipathi Gowda, V Ramanatha Rao, SV Raghuram Shetty and MJ Vasudeva Rao
Authors acknowledge with thanks the editorial assistance of Dr DR Mohan Raj