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Interview| In corporate farm markets, losses might be passed on to farmers as lower prices: Ramakumar

NABARD chair professor and economist at the Tata Institute of Social Sciences (TISS) R Ramakumar speaks to Moneycontrol about the two farm bills passed by Parliament. While the government claims that the legislation will help farmers get better prices for their crops, farmers feel that these ordinances would 'corporatise' the agriculture sector and further cripple them financially

September 23, 2020 / 06:39 PM IST

The farm-sector reforms that the government is aiming to bring in to reduce inefficiencies in government institutions do not hold much water as the agricultural produce and livestock market committees (APMCs), which host the mandis, are not government institutions.

"They are already private institutions. It is the traders who manage them. The whole movement here is from private to private corporate and not from public to private. So the usual fears being mentioned don't apply here," R Ramakumar, National Bank for Agriculture And Rural Development (NABARD) chair professor and economist at School of Development Studies at the Tata Institute of Social Sciences told Moneycontrol in an interview.

The Rajya Sabha passed the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill on September 20, after prior passage in the Lok Sabha, despite Opposition walkouts and farmer protests in parts of the country.

While the government claims that these ordinances will help farmers get better prices for their crops by legalising contract farming, farmers feel that these ordinances would 'corporatise' the agriculture sector and further cripple them financially.

Given the nature of Indian agriculture, Ramakumar said the private corporate market structure which is likely to come up might end up having higher transaction costs than the mandi taxes that are currently in place.

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"Which also means these losses might be transferred to farmers as lower prices, rather than higher prices," he said.

Edited excerpts as follows:

Q: The government as well as other experts are saying the farm-sector reforms would merely be giving another option to farmers to sell their produce beyond the agricultural produce and livestock market committees (APMCs). So if it's about increasing options available to get better prices, what could be the criticism against that?

A: The real problem is that at one level it is absolutely correct that what the legislation does is to increase the number of choices that the farmer has to sell in the market. But if you look at the reality, this freedom is already available to the farmer. Very few farmers, except the big farmers, go to the APMC markets directly. They sell to a trader who comes to their farm gate. So the small and marginal farmers already had a choice, they sold to the traders in the village itself.

Second, the whole fear is that the encouragement to new private markets may end up weakening the APMCs, which are an important institution in rural areas, because of a few things.

One, the APMCs are regulated markets and no such regulations appear to apply to the private markets that are likely to come up. So you are moving from regulated to unregulated. Two, these APMCs are not government institutions, they are already private institutions. It is the traders who manage them. So the whole movement here is from private to private corporate and not from public to private. So the usual fears being mentioned, like the inefficiencies of government institutions, don't apply here.

So the fear is also that APMC markets over a period of time would become weakened due to this exercise.

The revenue stream of APMC markets are used to improve infrastructure in agricultural marketing, including modernising marketing features, connecting with e-NAM, all those things. These are all dependent on the surplus they have which they invest in marketing infrastructure. If private markets grow outside APMCs and there is no mandi tax, this important source of revenue for developing infrastructure will diminish.

We will then have a door completely open for unregulated trading compared to regulated trading that we have now.

Q: Farmers are wary that these bills would weaken their bargaining powers. Could you explain how?

A: If you take the experiences of the states that have already done what this legislation attempts to do, like Bihar or Maharashtra, you will see that no private investment flowed into agricultural markets after these reforms. This is because Indian agriculture is filled with small and marginal farmers. So private corporate players find that going to individual farmers and aggregate produce entails high levels of transactional cost or administrative cost. And these make such an exercise unviable for them.

See, in a farmer's mind, dealing with an APMC is easier than dealing with a private corporate player. The reason is that the APMC markets are also controlled and regulated by politicians. And they have greater faith in the role of politics to advocate a particular demand compared to private corporate players. It is this trust in politics make farmers more a friend of APMCs than of private corporate players.

Q: There is a school of thought that says these reforms are necessary because it does away with the middlemen and technically removes them, making the farmers' prospects better. How do you counter this argument?

A: One, the whole idea of middlemen have assumed villainous proportions in this debate. In a country like India, where production is unequally distributed across states, a middleman is a reality, he has to be there and he'll have costs and margins.

Two, it is a myth that if APMCs go and private corporate players come, there will be no middlemen. I am sure there will be one in the new structure, if at all, though he may be known by a different name and that person too will have costs and margins.

Given the nature of Indian agriculture, the private corporate market structure which is likely to come up may end up having higher transaction costs than the mandi taxes etc. that are currently in place.

Which also means these losses might be transferred to farmers as lower prices, rather than higher prices. And in such a circumstance, private markets will never come up as they would go and buy from APMCs as that would be more profitable.

Q: There are genuine issues with the APMC structure, such as farmers exploited by being charged high commission rates. These reforms are expected to address these structural issues. Without reforms, how do you think these problems would be addressed?

A: I have been a strong advocate of reforms within the APMCs. You need to think of ways in which transaction costs could be further reduced within the APMC structure itself. I am not saying the APMC markets are without any faults, I am saying there is still scope to reduce the number of middlemen in the transaction market, to link up APMC markets with unified licenses for traders. You can still do one nation, one market through all those means.

Q: ITC e-Choupal was allowed separate direct procurement setups for a few crops. Farmers reportedly got better prices but this didn't really revolutionise Indian agriculture. Do Indian farmers vie to reach or cater to large geographies, which is what these reforms are aimed at, to open up bigger markets for farmers?

A: These initiatives have not succeeded beyond a point. In my understanding, if we take all the transactions happening through e-Chaoupal, about 30-40 percent of those transactions are through APMC mandis only. Even e-Choupal has to rely on APMC mandis.

Two, the reason they have not been able to go beyond a threshold or scale is because of the transaction cost I spoke about. In Indian agriculture, where small farmers are predominating, the whole idea of direct collection from the farmers continue to be an unviable model in an economic sense.

Which is why private corporate players are looking forward to farmers themselves getting together and aggregating their produce so that they can simply go to the aggregator and buy. In fact, APMCs are an important aggregator, they don't realise that.

Q: India's agricultural yield per unit is lower than Europe or China, and one of the major reasons for this is said to be lack of agricultural research. What do you think are the challenges in increasing agricultural yield and how can they be addressed?

A: It is a complex question and has no straightforward answer. On the one hand it is a historical failure. We were unable to reform our agrarian economy through land reforms, through education, improve rural public investment. We were not able to reform rural areas after independence in any considerable form.

The other set of failures are that over the last 30 years or so, what you see is an incremental weakening in public agricultural research and extension and you see a conscious effort to push forward private corporate agricultural research like Monsanto, Syngenta etc.

The Green Revolution of India was driven by public agricultural research, and we appear to be losing the grip on public agricultural research because we haven't invested in that sector. Globally, at least 2 percent of the agricultural GDP is invested in agricultural research but we invest only about 0.5 percent.

The other thing is the failure of agricultural extension, that is, taking the research findings from the lab to the farmers' land. That interface too is completely broken in India today. This is also because we have invested very little in this and have encouraged private agricultural extension, that is, people who provide advice to farmers upon a cost. This is another important reason why our agricultural yield is very poor.
Kamalika Ghosh
first published: Sep 23, 2020 04:32 pm

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