Congress, states, Planning Commission all wanted agri reforms; what changed now?

For too long, the story of Indian agriculture has been a tale of market distortions. These seemingly insurmountable hurdles frustrated successive policymakers whose repeated counsel to dismantle these barriers often ran into political resistance.

In May 2020, when finance minister Nirmala Sitharaman announced a raft of measures, many saw these as the Narendra Modi government’s demonstration of its intent to walk the talk on marshalling reforms that promised to tilt the terms in the favour of farmers.

Structurally, these moves were predicated on legislative changes. These required an overhaul of laws that, in many ways, provided the oxygen to vested interests—unscrupulous middlemen to local political strongmen—that kept these regulations alive.

The three ordinances that the Centre promulgated on June 5, 2020— the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020; Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020, and the Essential Commodities (Amendment) Ordinance, 2020—seek to facilitate barrier-free trade of farm produce outside the markets notified under the various state Agriculture Produce Market Committees (APMC) laws.

They also define a framework for contract-farming and impose stock limits on agricultural produce only if there is a sharp increase in retail prices.

Experts have often blamed the APMCs for unfair trading, a line of thought that the Congress also explicitly believed in, at least on paper.

The Indian National Congress (INC) party’s poll manifesto, released ahead of the 2019 Lok Sabha elections, unequivocally said “Congress will repeal the Agricultural Produce Market Committees Act and make the trade in agricultural produce—including exports and inter-state trade—free from all restrictions”.

In 2013, the Committee of State Ministers, In-charge of Agriculture Marketing to Promote Reforms, which the Congress-led ruling United Progressive Alliance (UPA) had formed, also favoured enacting an “Agricultural Produce Inter-State Trade and Commerce (Development & Regulation), Bill that may, to start with, be applied for a few perishable agriculture commodities and it may be expanded for other commodities depending upon the experience of its working”.

The committee, led by Harshvardhan Patil, minister of cooperation & parliamentary affairs in the previous Congress-led government in Maharashtra, said the APMC Act and Essential Commodities Act (ECA) “need to be amended to ensure barrier-free storage and movement of agricultural commodities across the States as storage and movement are very important marketing functions for maintaining regular supply and distribution of food products in the country from the point of production to the consumption centers”.

Bigger market 

To regulate and develop a national agricultural market and to provide the farmers access to such a market for better price realization, the committee said there was a need for a central legislation to deal with “Inter-State Agricultural Marketing, promotion of agribusiness, trade and commerce at national level”.

This can be achieved even without creating any conflict with the provisions of existing State APMC Acts.

The Planning Commission, in the 12^th five year plan (2012-17), the last before the institution ceased to exist, came out in support of urgent reforms in the APMC system that was fraught with inefficiencies.

“Reforming the Agricultural Produce Marketing Committee (APMC) Acts should, therefore, have priority… The introduction of the Model Act in 2003 was directed towards allowing private market yards, direct buying and selling, and also to promote and regulate contract-farming in high-value agriculture with a view to boost private sector investment in developing new regularised markets, logistics and warehouse receipt systems, and in infrastructure (such as cold storage facilities). This is particularly relevant for the high-value segment that is currently hostage to high post-harvest losses and weak farm-firm linkages,” the 12^th Five Year Plan document said.

Critics have questioned the government’s move to push through a central legislation to govern agriculture—a subject that falls in the state list. The government, has, however, has said that though agriculture is part of the state list, the committee was of the view that under item no. 42 of the Union List, the Centre is empowered to pass a legislation regarding “Inter-State Trade and Commerce” of agricultural produce at the national level. The same was said by the Harshvardhan committee in its report.

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 the middlemen or the buyers behave like 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 argued that the new central law will enable farmers to sell their produce at attractive prices. The new law will also remove barriers in inter-state trade, allowing farmers from Uttar Pradesh, for instance, to sell to buyers and merchants in Gujarat through an e-trading framework.

The argument in support of amending ECA is also similar: to eliminate punitive measures such as preventive detention, confiscation of vehicles and attachment of properties of suspected hoarders and black marketeers.

The government’s view, it appears, is broadly on the following lines. The removal of restrictions, based on the recommendations of an expert panel, will enable merchants to directly purchase produce from farmers in large quantities. This can be particularly helpful in times of bumper harvest, when farmers are forced to dump produce in wholesale markets at throwaway prices.

Previous rules limited the quantities traders could buy from farmers and hold as stock.  If a trader could not 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.

The Congress, in its 2019 Lok Sabha poll manifesto, had promised to replace the ECA with a new law, terming the ECA 1955 as a legislation that belonged to the “to the age of controls”.

“Congress promises to replace the Act by an enabling law that can be invoked only in the case of emergencies,” the manifesto said.

The agriculture reforms blueprint, which the government has laid out, also includes the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 that is essentially aimed at creating a price signalling system, a move aimed at eliminating price-related uncertainties at the time of sowing.

The Bill, however, has led to concerns that this could create corporate monopolies that could entrench India’s farm and agriculture economy through widespread contract farming.

There is a strand of thought favouring the bill is that currently, 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 producer, 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) pasyto 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.

The new regulatory framework, the government says, will ensure farmers get to know about the indicative market price of their produce at the time of sowing.

The Planning Commission, the government’s think tank until 2014, had repeatedly favoured creating conditions for contract farming to boost farm income.

The eleventh five-year plan (2007-12) noted that “Contract farming, which is being encouraged by many States, also provides a mechanism for improving linkages between farmers and markets through the active involvement of the private sector, which can also serve as a supplier of key inputs and extension advice”.

The latest bill proposes a farming agreement that must provide for a conciliation board as well as a process for settlement of disputes.

Eventually, the success or otherwise of the latest shot at reforming India’s farm sector will depend on the extent to which the new policies and laws can give stronger bargaining power to the millions of small and marginal farmers that form the backbone of India’s food economy.