Webinar :Register now for webinar on 'Trade BankNifty in just 15 minutes a day' - By Asmita Patel
you are here: HomeNewsOpinion
Last Updated : May 16, 2020 01:31 PM IST | Source: Moneycontrol.com

COVID-19 | Using the crisis to propel much-needed agricultural marketing reforms

While the Centre must be commended for committing to undertake these reforms, it is equally important that these reforms form part of a larger farming ecosystem and unless simultaneous changes are brought in other aspects, these reforms may fall flat

Moneycontrol Contributor
Representative Image
Representative Image

Shweta Saini

On May 15, Union Finance Minister Nirmala Sitharaman announced a third tranche of measures to make India and Indians atmanirbhar or self-reliant. This tranche focused on agriculture and highlights of the announced measures were the three administrative and governance reforms.

In collaboration with the Organisation for Economic Co-operation and Development (OECD), at the Indian Council for Research on International Economic Relations (ICRIER), we concluded an exhaustive study where farmer support ecosystem and related policy environment in India were extensively studied and analysed. The study, undertook analysis of 19 years, since 2000-01, for commodities covering about 67 percent of Indian agricultural value of output, and found that (i) while on one hand, the farmers were supported by government through elaborate input subsidies, on the other (ii) the farmers were taxed due to, inter alia, government’s restrictive trade and marketing policies.

Close

Upon aggregating the two impacts (positive from subsidies and negative from taxation), the net impact on the farmer was found to be that of taxation, which implied that even after giving high subsidies, the government was unable to compensate farmers for the loss the latter incurred due to restrictive government policies. The policies causing the biggest loss/damage to farmers were, inter alia, the Essential Commodities Act, 1955, and the Agricultural Marketing Produce Committee Act 2003.

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

In this third tranche, Sitharaman promised reforms in both, and in addition, she presented a bright future for contract farming in India.

…on the Essential Commodities Act 1955

The Essential Commodities Act (ECA) gives power to central and state governments to control production, supply, distribution, etc. of essential commodities for ensuring smooth supplies, equitable distribution to all and access at affordable prices.

It has been hugely criticised because, inter alia, its provisions are generally invoked in situations of price rise when the government machinery comes heavily on traders and stockist, who as a consequence refrain from creating stocks in future. This taxes a farmer because in case of a bumper crop, the price crash is much worse because traders do not come forward to purchase excess crop. Also, the ECA provisions have been invoked historically in a way that reflects the government’s inherent consumer-bias. This is because the ECA provisions are invoked when prices are rising or are expected to rise (and thus protect consumers), however, there is no provision that checks the free fall of prices for farmers.

Under proposed reforms, the FM will amend the ECA by (i) deregulating cereals, edible oils, oilseeds, pulses, onions and potato, (ii) removing stocking limits on processors and value-chain participants, and imposing them only under exceptional circumstances. These are welcome steps; only that these ‘exceptional circumstances’ will have to be clearly defined, and closely monitored.

…on the Agricultural Produce Marketing Committee Act 2003

The existing Act notifies agricultural commodities produced in a region and provides that first sale in these commodities be conducted only in designated APMC market yards (mandis), by authorised commission agents/licensees. Mandi fees, taxes, charges and levies are imposed on trades conducted in these mandis.

The APMC’s biggest criticisms include: (i) it has created fragmented markets where freedom of farmers to sell their produce is curtailed as they are forced to sell only through commission agents or traders authorised by the APMCs; (ii) the APMC traders monopolise trade and their price discovery mechanism is non-transparent, and often leads to lower price realisation by farmers; (iii) mandi fees and other charges/taxes are high and are mostly borne by farmers where traders/agents deduct these charges from farmer’s payments, and; (iv) these excessive mandi fees and charges put cost burden on entire value-chain.

Sitharaman proposes to create a central law in this regard that will provide barrier-free inter-state trade and a framework for e-trading of agriculture produce. This is a long haul reform as agriculture is a state subject and there are huge and deep-rooted network of APMCs in major agricultural states. How does the Union government propose to create this central law that perhaps is likely to bypass state APMC laws, will have to be seen. There are provisions in the Constitution in that regard, but will the Centre use them to over-ride state APMC laws or will it co-move with states coercing them to reform? Time will tell.

Contract Farming

The FM also shared about promoting contract farming as a way to “offer alternate marketing channel to farmer that will ensure predictability of future farm prices for farmers”. Under this Act, a farmer or a farmer group can enter into a future contract to sell with a buyer. This is a good initiative.

Overall, these were long due reforms which were restricting the realised potential of Indian farmers and farming.

While it is imperative to commend Prime Minister Narendra Modi and Sitharaman for committing to undertake these reforms, it is equally important to remember that these reforms form part of a larger farming ecosystem and unless simultaneous changes are brought in other aspects, these reforms may fall flat.

For example: unless the farmers are mainstreamed and have access to institutional credit (as per NABARD’s NAFIS, only about 30 percent of agricultural households took institutional credit in 2015-16), their dependence on traders/arthiyas, etc. for meeting credit needs will continue and this will limit avenues of sale for the farmer.

Additionally, repealing the APMC will not automatically result in higher price realisations for the farmers as can be seen in case of Bihar. Besides, the problem of aggregation and small holder landholdings persists, and requires land-related reforms.

In times of COVID-19, it is the perseverance and commitment of the Indian farmer that has ensured uninterrupted supply chains for most food crops. It was only opportune for the Modi government to support their growth growing forward.

While all reforms are commendable and are likely to take care of growth going forward, we only wish the Modi government did something to support farmer’s current fragile economic situation, in which regard, an increased unconditional DBT to all farmers, including tenant farmers and sharecroppers, will go a long way.

Shweta Saini is Senior Consultant (External), ICRIER. Views are personal.
First Published on May 16, 2020 01:31 pm
Sections