G Chandrashekhar

Agri market reforms welcome, but structural issues remain

G Chandrashekhar | Updated on June 08, 2020

Strengthening the input delivery system, rapidly expanding irrigation facilities, technological advancement, agri investment and building capacity among growers to face volatile markets deserve attention

The government has recently taken several ‘historic’ steps that are expected to not only reform the moribund farm sector, but also boost the fortunes of the 130 million growers in the country.

The initiatives include amendment to Essential Commodities Act with the objective of keeping essential food commodities of mass consumption such as cereals, pulses, oilseeds, edible oil, onion and potato outside the purview of the law. Storage and movement of these goods will not be controlled. In other words, only under exceptional circumstances will the government invoke the draconian law.

Another reform move is the issue of an ordinance called ‘The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020’, which seeks to promote barrier-free inter- and intra-State trade in agricultural produce. This law is sure to help improve the marketability of the harvested produce, and seeks to advance the idea of ‘One nation, one agri market’.

The third reform relates to promoting contract farming by encouraging groups of farmers on the one hand and processors, aggregators or large retailers on the other, to enter into agreement for crop production and purchase. Another ordinance called ‘The Farmers (Empowerment and Protection) agreement on Price assurance and Farm Services Ordinance 2020’ has been issued for this.

Some of these initiatives were tried out in the past in some form or other, but inadequate political will to implement them vigorously put paid to hopes of lasting reforms. Despite objections by several interested groups, principally, these reforms are expected to benefit growers if implemented in letter and spirit.

Sticking points

Will these reforms transform the farm sector anytime soon? Not really. Each one of the value chain participants — farmers, input suppliers, output buyers (processors and aggregators), service providers (finance, logistics) and so on — must first believe and perceive that there is something for each one of them in this reform initiative.

It is not going to be easy to gain the trust of all the stakeholders in the value chain. Primarily, there is little confidence about the stability of the government policies, predictability of intervention, seriousness of implementation and transparency of operation. It may take several seasons/years for the reform process to stabilise.

Take the law that seeks to promote contract farming. Corporate houses (large processors), for instance, would be wary of dealing with hundreds of farmers individually, given the onerous challenge it poses. This arrangement will work better if buyers were to enter into an agreement with farmer-producer companies instead of individual farmers.

Price can become a sticking point. When will prices be decided — before sowing, during crop progress or closer to harvest? Can the pre-agreed price under this agreement be less than the minimum support price that the government announces every season? Will the contract be valid and enforceable if the agreed price is below MSP? There is no clarity. (See Needed, a holistic contract farming law).

Similarly, in case of exemption to specified essential food commodities under the ECA, the government has reserved the right to invoke the law during war, famine, natural calamity and extraordinary price rise.

Reserving this right to regulate the market is not the problem; but it is critical that trade and industry know well advance what are the trigger points, especially in terms of price rise. Will the trade be given adequate notice or will the law apply immediately? (See Govt must spell out criteria for invoking ECA).

Structural reforms

Notwithstanding their current inadequacies, the aforesaid reform initiatives are necessary to strengthen the country’s agri markets and are, therefore, welcome. While these reforms are indeed a necessary condition for agriculture, they are not sufficient to transform agriculture from its current moribund state. By themselves, these initiatives are unlikely to lift the fortunes of growers anytime soon.

Genuine and sustained farm resurgence and farmers’ welfare can be achieved if and only if the structural challenges of the country’s farm sector are addressed with a sense of urgency. Strengthening the input delivery system, rapidly expanding irrigation facilities, infusion of multiple technologies, investment in agri infrastructure and building capacity among growers to face volatile markets deserve even greater commitment and attention.

There seems to be a smug feeling among policymakers that we are food self-sufficient. It is a chimera. It is dubious to claim food self-sufficiency without meeting the food needs of people. It is critical to recognise that Indian agriculture is fragile and vulnerable. We are only one bad monsoon away from a farm disaster.

So, our policies will have to be designed to ensure sustained growth in farm output, taking into account land constraints, water shortage and climate change, as well as sustained all-round growth in consumption, taking into account nutritional needs of people.

The writer is a policy commentator and agribusiness specialist. Views are personal

Published on June 08, 2020

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