20 years ago today

Smart implementation of the new Farm Bills will lead to four significant changes. These are: An increase in farmer’s income, the rise of agri-entrepreneurs, massive private investments in agriculture, and a jump in farm product exports. Enabling farmers o get a better price for their produce will remain the most crucial factor in assessing implementation quality.

Let us first visualise the results assuming the best possible implementation of the reforms. Consider the story of Rajan, a farmer in Karnataka.

Rajan’s story

Rajan and his three brothers have been growing paddy for many years in their 20-acre farm. Can he earn more money from the farm? Rajan heard of contract farming but feared that someone would grab his land.

Enter the new Farm Bills. A more confident Rajan, with the help of Muthu, his school teacher friend, goes to the farmer connect website and registers his farm giving details of the area, location, soil property, etc. The new rules permit setting up of such agri e-marketplaces. To his surprise, Rajan gets three responses the same day.

The first firm offers to handhold Rajan in the farming of vegetables. The net return would be double that of rice after paying all expenses. Another firm was looking for 100 acres. If Rajan could persuade others for a contract farming agreement for five years, the firm would prepare the farm to international specifications for organic farming and export the produce. This is necessary as global buyers mandate that product quality be traced back to the farm. The third firm offers growing white muesli. The Ayurvedic herb has ready buyers and would fetch more money. The farm soil is just perfect for it.

Rajan picks the third option. He is also talking to his friends about trying the contract farming option next year. Rajan is happy that the law ensures ownership of land would remain with him even in case of a dispute.

Farmers like Rajan will greatly benefit if someone like a village extension worker helps them through each of the steps and at the time of any dispute. The government must invest in strengthening such handholding services at the village level. We may soon have a million of Rajan-like happy cases. The reforms may start a countrywide rethink about crop diversification as a better economic option. Crops that are remunerative even without free water and power.

Rise of agripreneurs

With many farmers trying new farming models and crop diversification, we will see the rise of agri-entrepreneurs. specialists in farming best practices, storage, finance, quality, transport, aggregation, branding, technology, and marketing will emerge across the country.

The Essential Commodities Act that placed limits on stocks discouraged private investment in agri infrastructure. The new changes do away with any stock limit for food items such as cereals, pulses, potato, onions, edible oilseeds, and oils. The government will intervene only in four circumstances: war, famine, grave natural calamity, and extraordinary price rise. An extraordinary price rise would mean (i) a 100 per cent rise in horticulture and perishable items, or (ii) a 50 per cent rise in non-perishable items compared to the average price.

But food processing and export firms would be free from such restrictions. The two changes (no restrictions on the stocking of food items and the freedom to sell anywhere) will open the field for private investment in food processing, supply chains and promote export of high-quality agriculture produce.

For clean implementation, the government would need to define ‘average price.’ Guidelines are also required if an export order is cancelled, and a firm wishes to sell a product in the domestic market when the price is high.

Will the removal of the stocking limit lead to monopoly and hoarding? The global agriculture trade is highly concentrated. Just four traders control 90 per cent of the international grain trade. These are Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus. These four, known as ABCD, are not mere traders. They control most parts of the farm-to-fork supply chain. How do we ensure that a few firms do not similarly control India’s agriculture trade?

Hoarding could also be a problem. Even China is experiencing the hoarding of wheat this year. Grain traders and flour mill owners are hoarding in anticipation of the price rise due to the severe floods and coronavirus-led supply disruptions. How do we ensure such hoardings do not hurt farmers? The best antidote to hoarding is helping the farmer sell at a fair price. How?

For a fair price

The massive difference between what a farmer gets and the consumer pays for a product is the rootcause of rural poverty. It could exceed 100 per cent easily in most cases. The need for cash at the harvest time compels farmers to sell its produce at a low price which has little relation with the market price. Most sales happen at the farm. For fruits and vegetables, we have roadside markets without facilities for weighing, sorting, grading, storage, etc. Here also the farmer is the price taker.

A farmer can get a fair price only when he can sell at a nearby marketplace, which has necessary facilities/guidance and oversight. One reason why for 100 kg of grains, farmers in Punjab get ₹1,900 while farmers in Bihar get ₹1,300 is that Punjab has a better network of mandis/market place than Bihar. To create such a marketplace, the government may use the Agriculture Infrastructure Fund (AIF). Farmer producer organisations may provide the necessary oversight. The private sector, with a focus on profit maximisation, will not do this.

The writer is from Indian Trade Service. Views are personal