Diluting the APMC, MSP regimes isn’t a good idea

Devinder Sharma | Updated on May 11, 2020 Published on May 11, 2020

Thanks to the procurement undertaken by APMC mandis, India has escaped food crises. And the MSP continues to be a better mechanism for price discovery than the markets

A general impression has been created by mainline economists that the main reason behind the agrarian distress is the denial of freedom to farmers to sell to anyone, anywhere. This is essentially an argument seeking to demolish the massive procurement operations being undertaken for crops like wheat and paddy in regulated APMC (Agricultural Produce Market Committees) mandis. Minimum Support Price (MSP) too has been touted as a monopolistic price which deprives farmers of what the economists call as price discovery. Markets alone are being projected as the way forward to provide farmers with a better price.

For almost a decade now, serious attempts have been made to systematically dismantle the procurement structures, built assiduously over the years to achieve food security. Former Chief Minister of Punjab, Prakash Singh Badal, had a number of times said how in the name of liberalising farmer markets he was increasingly coming under pressure from economists and policy-makers to dismantle the APMC market network.

Capt Amarinder Singh’s government too has time and again appealed to the Centre not to phase out the one-ended crop procurement system which has provided farmers with income security. A high-powered committee had earlier recommended splitting the Food Corporation of India (FCI) and shifting its focus to food exports and commodity trading. Like the story of camel and tent, allowing private players in the APMC regulated markets is now being suggested by free-market evangelists to bring in competition.

Market failure

Five weeks into the lockdown and all promises of markets being the saviour have come crashing down. It is only the surplus food reserves that have come in handy at these difficult times. Imagine, if the food reserves had been curtailed to meet the demand of only 20 per cent population as some economists had envisaged. Would the markets have stood up to meet the challenge?

Also, take a look at the dairy industry, which has a sizeable private sector presence. At a time when the dairy prices have slumped following a crash in demand, and with private dairies refusing to buy any extra milk, it is only the cooperative milk dairies that are buying surplus milk to be converted into milk powder and cheese. Amul alone is procuring 50 lakh litres a day. So are State cooperatives like Verka in Punjab and Vita in Haryana.

Maharashtra has been procuring 10 lakh litres of surplus milk every day at an assured price of ₹25 per litre to offset the losses farmers are suffering. Kerala Cooperative Milk Marketing Federation is providing free milk to migrants as a solution to reduce the glut in procurement. Wonder why the private dairies couldn’t do the same.

Coming back to normal times, the idea of encouraging competition by liberalising the agricultural markets is the underlying objective of market reforms. But what remains unexplained is that why the private players should be only eyeing the well-laid out market infrastructure of the regulated APMC markets? Considering that only 6 per cent farmers receive MSP (as per the Shanta Kumar high-powdered committee) the remaining 94 per cent of India’s farmers are in any case dependent on markets.

Instead of forcing amendments to the APMC Act seeking entry of private players, the best way to upset the strong cartels that operate in the APMC markets is to set up parallel private market networks in the areas where the regulated mandis do not exist. After all, 94 per cent farmers do not have access to regulated markets.

Take the case of Bihar, which had revoked the APMC Act in 2006. The idea was to attract private sector investments in marketing infrastructure where efficient markets were expected to provide for better price discovery. Unfortunately, nothing like that happened. So much so that unscrupulous traders are illegally transporting quite a sizeable quantity of wheat and paddy after every harvest to Punjab and Haryana, which at least provide an assured MSP.

In any case, there are less than 7,000 regulated APMC markets in India. What India needs is vast network of 42,000 markets if a mandi has to be provided in five kilometres radius. The opportunity therefore is huge, all it requires is the ability to take up the challenge and chart a promising direction by first investing in essential infrastructure like cold chains, storage, grading, transportation, etc.

Now comes the issue of price discovery. If markets were so efficient, there is no reason why farmers should be committing suicide in such a large number. After all, as said earlier, since 94 per cent farmers are dependent on free markets, their economic conditions should have improved over the years. However, Economic Survey 2016 tells us that the average income of a farm family in 17 States of India, which means half the country, is less than ₹20,000 a year.

US farmers

Even in America, from where we borrow the failed economic prescriptions for agriculture, markets have left farmers in the lurch. According to the Chief Economist of US Department of Agriculture, real farm incomes have been on a decline since 1960s. What had saved farming all these years was the economic support through massive subsidies. Further, despite commodity trading and the dominance of multi-brand retail, the American Farm Bureau Federation in 2019 said that 91 per cent US farmers are bankrupt and 87 per cent farmers say they are left with no other alternative but to abandon farming.

While India is trying to hook agriculture to commodity futures, I wonder why in the US with the biggest commodity stock exchanges, farmers should be carrying a debt of $420 billion. If commodity trading hasn’t worked for US farmers (and for European farmers where direct income support is still in vogue) how it will be a panacea for Indian farmers has never been explained.

In any case, at the time of global food crisis in 2007, when 37 countries had faced food riots several experts had pointed to commodity trading for being primarily responsible for food crisis the world encountered. While poor went hungry, agri business companies had made a killing on the exchange.

The reason why India escaped the global food crisis was (and even now at the time of an ongoing lockdown) is because it had not linked its agriculture to the commodity trading system and at the same it had enough food stocks to tide over the crisis, thanks to APMC.

Whether we like it or not, the fact remains that despite MSP not covering the cost of production for most crops, it is the only instrument that provides for price discovery. Dilute the MSP regime, and prices for agricultural commodities would register a fall. Any effort to dismantle the procurement system therefore is fraught with unforeseen dangers. The need is to improve the working of the APMC mandis rather than turning these redundant.

The writer is a commentator on Indian agriculture

Published on May 11, 2020

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