Positive trends are imminent in the Indian agricultural sector

N Srinivasan/PVS Suryakumar | Updated on July 19, 2020

Changes in regulation through three important ordinances will persuade farmers and the private sector to invest in the post-harvest space and power the agri-market engine

The din created in celebrating our democratic freedoms generates not just myriad expert views on every subject, but most times also drowns out positive developments. The positive potential of three recent landmark ordinances should not be lost sight of in this din. The remit of this article is to focus on big picture — trends in Indian agriculture and the direction required to realise the potential of our farmers and farming.

The Covid pandemic brought attention to agriculture as migrants returned to their villages. The Government of India announced a slew of measures for agriculture: payments under PM-Kisan and its convergence with KCC; expansion of KCC to fisheries and animal husbandry; ₹1-trillion fund for agriculture infrastructure; free movement of agricultural produce; special sub-sector schemes; and formation of farmer producer organisations, etc.

The pandemic sharply brought out farmers’ difficulties, such as finding buyers amidst the lockdown, lack of reliable long-term arrangements, logistics and stocking limits under Essential Commodities Act etc. The government responded by promulgating three far-reaching ordinances.

The first ordinance on produce marketing allows trade in agricultural produce anywhere by anyone (overriding APMC regulation). Price payments and a dispute resolution mechanism are part of the law. The changes to the APMC Act now make it possible for the private sector to set up trading platforms and physical markets. There are about 82 such markets in four States. The Dalwai Committee estimated that India requires about 10,200 agri-markets, based on population, volumes traded and distance. But we have about 6,600 APMCs, which are inadequate. There is space for 3,600 markets for the private sector, integrated with warehousing as per the Warehouse Regulation and Development Authority standards, quality assessment, certification, integration of logistics, primary processing wherever required and electronic trading platforms. Private investments are thus a way forward, when fiscal space is limited.

The ordinance on contract farming allows farmers to enter into (upto five-year) contracts for production and sale of agricultural produce, ushering in certainty for farmers. It removes the need for registration of such contracts with the APMC and exempts contract trade from market fees. The buyer can thus invest in technology, crop varieties and provide agri-advisories to orient production for markets. The law provides for a clause in contracts to deal with price variations — a reference price, based on which the final values can be settled and a dispute resolution mechanism.

Many people opine that contract farming is only for niche products, but with the new norm to be traceability of food and food safety, contract farming will soon become mainstream.

The ordinance on the Essential Commodities Act curtails the powers of government to impose arbitrary regulations and stock limits. Controls will now be imposed in extraordinary circumstances and in public interest (when prices rise by 100 per cent for vegetables and 50 per cent for cereals and pulses). This renders private trade by farmers and enterprises alike.

States, which mediated between the unforgiving market and ill-informed farmers, will give up their role to markets with necessary oversight, and this will auger well for the economy. The State Agricultural Marketing Directorates have to unlearn and re-learn to make this new paradigm work.

The governments’ hold over trade tends to keep out investments from the private sector. The private sector thrives only if farmers make more money; but without private sector efficiencies, farmers cannot make more money! It’s good to see this reality reflected in the ordinances.

In the near future, certain trends are likely to come up: most farmers will become members of FPOs to reap rewards of aggregation; the FPOs in turn will specialise in commodities, federate to achieve economies of scale, and facilitate primary processing and supply markets at every geographic level. Such value chains will offer huge opportunity for financing institutions and investors.

The government’s role is in overseeing contract enforcement and sustaining good market environment. Strong FPOs and FPO-federations would facilitate the government to enforce orderly conduct in the market. Changes in these laws signal a clear policy stance that persuades farmers and the private sector to invest in the post-harvest space and power the agri-market engine.

This welcome change is not just in policy, but future trends too.

Srinivasan is a development consultant and Suryakumar is Deputy Managing Director, NABARD. Views are personal

Published on July 19, 2020

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