Farmers often find themselves at the mercy of a buyers' group that dictates prices. Reforms in APMC, amendment in the Essential Commodities Act and an early price signalling system are aimed at dismantling many chronic distortions that have crept into India's agricultural markets over decades.
As you sow, so shall you reap. This adage has had an overwhelmingly different meaning for Indian agriculture. How can one imagine a situation where bumper production hammers down income? This is one peculiarity that has dominated Indian farming for decades. For too long, the story of Indian agriculture has been a story of markets.
On May 15, Finance Minister Nirmala Sitharaman sought to dismantle many of these chronic distortions that have crept into India's agricultural markets.
She announced a grand plan to deal with India's protracted agrarian distress, including incentives for home delivery startups to aggregate products from farmers and setting up warehousing networks along highways, among others.
The government has set in motion plans to dismantle the decades-old monopolies of state-run Agriculture Produce Market Committees (APMCs), often blamed for unfair trading, amend the Essential Commodities Act (ECA) and frame an indicative price signalling system that a farmer can rely on at the time of sowing.
India's long slowdown in food prices – "disinflation" in economists' jargon – may well be symptomatic of a problem of abundance. The price crash is partly due to bumper crops that have flooded local mandis.
With few buyers in their local markets outside of which farmers are not allowed to hawk their produce, the glut often forces them to dump products at throwaway prices to clear up a piling mount of harvests.
In many industries such as oil, producers form a cartel to dictate prices. In Indian agriculture, the opposite has been happening for decades. Farmers often find themselves at the mercy of a buyers’ group that dictate prices.
Harvest after harvest, crop after crop, season after season, layers and layers of intermediaries and middlemen have been telling farmers on what price their produce should fetch.
APMCs, over the years, had become barriers for farmers to get a fair price for their produce as they were forced to sell it through these committees. APMC regulations require farmers to only sell to licensed middlemen in notified markets, usually in the same area where farmers reside, rather than in an open market.
There is evidence to demonstrate that they behave in cartels. In December 2010, the Competition Commission found out that nearly 20 percent of that month’s total onion trading at the Lasalgoan APMC, Asia's largest onion market in Maharashtra's Nashik, was accounted for by one firm.
This resulted in a large "price spread", meaning many groups of middlemen pocketed their share before it reached the final consumer, leaving a yawning gap between the price the farmer received and the eventual retail selling price.
The government has now said that a central law will be formulated that will enable farmers to sell their produce at attractive prices. The new law will also remove barriers in inter-state trade, allowing farmers from UP, for instance, to sell to buyers and merchants in Gujarat through an e-trading framework.
The ECA will also be amended to eliminate punitive measures such as preventive detention, confiscation of vehicles and attachment of properties of suspected hoarders and black marketeers.
The removal of restrictions, based on an expert panel recommendations, will enable merchants to directly purchase produce from farmers in large quantities. This can be particularly helpful in times of bumper harvests when farmers often dump produce in wholesale markets at throwaway prices.
Under existing rules, the ECA limits quantities traders can buy from farmers and hold as stock. If a trader cannot buy or hold sufficient quantities of grains for a certain profit margin, he or she would not buy out surpluses that farmers may have to sell. This has been identified as one of the reasons why farm incomes have taken a hit.
There are no permanent storage ceilings or commodities named in the Act but the law empowers the government to include or exclude items when "deemed necessary".
For instance, the government had brought onions and potatoes under the purview of the Essential Commodities Act for a year to curb hoarding in July 2014. It then removed them after prices cooled.
Similarly, through 2015, controls under the Essential Commodities Act continued to be applied to pulses, edible oil and oilseeds and these measures were in force till September 2016. Sugar is a prime example of a widely consumed commodity that is regulated by the Act.
The NITI Aayog, in a report titled "Raising Agricultural Productivity and Making Farming Remunerative for Farmers", NITI Aayog said there is "a need to have a relook at some of the provisions of the Essential Commodities Act which discourage large scale private investments in agricultural markets, without diluting its basic premise of ensuring supplies of essential commodities to public and preventing exploitation by unscrupulous traders".
The agriculture reforms blueprint, which the Finance Minister laid out on May 15, also includes creating a system for signalling the possible prices that a farmers’ crop will yield, a move aimed at eliminating price-related uncertainties at the time of sowing.
For instance, there's no way a tomato farmer can know the price of tomatoes when these ripen and they are ready for sale. This has been a major flaw in India's agriculture market structure, where the producers, mainly of vegetables, have no certainty about what price the product will fetch.
In the case of paddy and wheat, the government’s minimum support price (MSP) serves as a proxy for market prices. MSP serves as an assured floor price that government procurement agencies such as the Food Corporation of India (FCI) pays to farmers for paddy and wheat.
In the case of vegetables, however, no such mechanism exists, leaving farmers to the fate of merchants and traders, who mostly seek to hammer down prices to maximise their gains when they sell it to merchants and wholesalers.
The government has now announced that it will come out with a regulatory framework to ensure farmers get to know about the indicative market price of their produce at the time of sowing.
The details are not known yet, but this could result in a well-regulated national futures market for vegetables for indicative prices, enabling farmers to gauge costs and income ahead of sowing.
If implemented well, rapidly and within a well-defined legal framework, these reforms can well usher in the use of big data and artificial intelligence (AI) in India’s farming to offer a better deal to peasants, make agriculture a rewarding vocation and bring them closer to the actual markets.
For too long, the terms of trade have been heavily tilted against Indian farmers, who pay a relatively higher price for goods that they buy (say a garment) than the price they get for goods that they produce. The latest measures could well start shifting the balance towards the peasants.
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