The Indian agriculture sector is now poised for significant growth in view of the seminal reforms, including via Farm Bills, undertaken by the government over the last one year or so, according to KV Subramanian, Chief Economic Adviser (CEA) to the government of India.

He observed that over the last several decades, India has had a significantly higher supply of agricultural commodities when compared to the demand and the relevance of Essential Commodities Act (ECA), 1955, has become quite low.

According to Subramanian, ECA treats storage and hoarding as one and the same. So, any entity storing any agricultural produce had been taken as a hoarder.

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“Now there is a big difference between storage (which is extremely important in agriculture because of seasonality of production) and hoarding. “And yet ECA equated storage and hoarding…Storage is a very important aspect of agriculture to ensure stability of prices,” the CEA said at webinar on the occasion of NABARD’s 40th Foundation Day.

Referring to the Economic Survey of 2019-20, Subramanian said it highlighted very clearly that even when ECA was imposed to control prices, it has hardly been very successful in really limiting the volatility of prices.

Agriculture sector: Lacking competition

The CEA noted that if there is only one buyer (monopsony) then he will end up exploiting the seller. This is exactly what has been happening over the last several decades with the small and marginal farmers (SMFs), he added.

“…..If I am a small farmer producing, let us say, onions or potatoes and I know very well that in a few days these onions or potatoes will get spoilt. Then I am desperate to sell that as early as possible. And if the buyer of that particular produce knows this very well that I am desperate to sell it otherwise it will get wasted, it will rot and I will get no value for it at all,” Subramanian said.

So, the buyer also knows this very well and he then exploits this to really corner the entire gains of the trade, he added.

“And research has actually shown that in the trade between Arhatiyas (commission agents/intermediaries) and SMFs, typically the latter get only 10-15 per cent of the value that has been generated in that particular trade. The rest of the value is cornered because of the important characteristic that the production is seasonal and oftentimes it’s perishable and the SMF does not have any option.” he said.

Subramanian emphasised that now the Farm Bill provides that the SMF has the option to not necessarily go and sell his produce to this intermediary. He can go and sell it to someone else.

“And I think that is most important. Competition benefits everybody. This has been completely lacking in the agricultural sector. The Farm Bills provide that competition so that the SMF can go to the intermediary and say that if you are not going to give me a good price, I can go and sell it to someone else... And the fact that these entities themselves will compete for the farmers produce as well and ensure that the SMF will get adequate value for his/her produce,” Subramanian said.

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