'One nation, one market' for agriculture: Catchy slogan, but challenging to execute

Shishir AsthanaMoneycontrol Research

During the recent round of state Assembly elections, various parties used the promise of loan waivers to woo farmers. Apart from its impact on the state economy and farmers’ bankability, loan waivers as an idea is way past its sell-by date. In addition, most of the smaller farmers do not have access to institutional credit and hence do not benefit from a waiver.

At the peak of the “loan waiver” campaign, media reports quoted farmers as saying that they needed better prices rather than loan waivers. No self-respecting farmer who has toiled in the fields would want to be seen queuing up for freebies in front of government offices. The government, too, knows that it cannot play the loan waiver card in every election.

Now, in a move that could structurally change the agriculture sector, the government is working on creating a common agricultural market. The goal is to create a 'one nation, one market' model for farmers in line with the Goods and Services Tax (GST) model for industries.

The first step was taken a few months ago when Prime Minister Narendra Modi launched e-NAM (National Agriculture Market). It is a platform that provides information to both buyers and sellers on produce available, its price as well as quality and the location where it is available.

This will benefit a mango farmer in Ratnagiri, for example, who will get a better price by selling his produce to a buyer in Delhi. The buyer in turn gets a better price by directly interacting and negotiating with the farmer.

The idea here is to reduce the long supply chain and give farmers a better return on their investment. Various reports have pointed out that farmers receive only between 15-20 percent of the price at which it is sold in cities. It’s the middlemen who reap the rewards.

The government has already put out a model law replacing the existing law for agricultural markets. The new law, in essence, will give farmers the right to sell their products wherever they want – either in the local mandi, wholesale markets or directly to the consumer.

Earlier, a farmer was restricted to selling his produce in the local mandis, where he was exploited by the trader cartel.

The benefits of such a legislation are already visible in Maharashtra, where the state government has allowed farmers to directly sell their produce in cities. Farmers from places such as Nashik, Dhule and Pune come to Mumbai and sell their produce in housing colonies straight out of their vans. The prices at these ‘outlets’ are substantially lower than the prevailing market prices. The farmer returns happy as he gets much more than he would have had he sold it to his local agent.

However, the countrywide implementation of this mechanism will not be as easy. Since agricultural marketing is a state subject, various state governments will need to amend their respective legislations.

That said, the initial response from state governments has been encouraging. As many as 417 mandis in 13 states have joined the eNAM platform against a budgeted 220 mandis. By the end of 2018, the government hopes to reach 585 mandis across the country.

Over the years, trader bodies with strong political affiliations have ensured that the laws remain in their favour. Also, farmers have been heavily dependent on the local financier and input supplier, who tie down the farmer by giving him credits for their purchases. These are set off against sales of the farmers produce, which are generally through them or their coterie.

For a farmer to exit this chain, he will need enough money to make his own financial decisions on buying inputs. This can only happen if the market prices for the produce are good. But governments also have the task of controlling inflation – this would scuttle any move to increase agricultural prices.

Increasing the minimum support price (MSP) is also out of the question as 75 percent of agricultural produce is out its purview.

Further, educating the farmer at the ground level about such a scheme would not be easy as they are dependent on suppliers and local "experts", who have protected their own vested interest.

So while the government’s intention of creating a ‘One Nation, One Market’ is noble, implementing in an unregulated sector will not be as easy as the GST exercise. More importantly, it is the willingness of the state government to implement the reform that will decide the success of the new policy.