Reforms that promise farmers a rich harvest

The long wait of farmers is finally over with Parliament passing two Bills on agricultural market and contract farming and also amending the Essential Commodities Act. This move is definitely going to resurrect and speed up the growth of the farm sector that has been passing through a painful phase even before the coronavirus-induced lockdown.

These are monumental reforms which independent India has never seen before. These are aimed at transforming the farm sector into a self-reliant one by, among other things, strengthening the logistics and storage infrastructure, which farmers have been demanding for many years. It is expected that these reforms in the immediate term will provide an impetus to the farm sector to get over the Covid-19 shock, while in the long run they will strengthen the country’s food security and supply chain.

Many believe that the reforms are bold and progressive that will enable farmers to escape from the clutches of middlemen and trader cartels, open up new channels, foster competition in the supply chain and provide strong stability to an occupation beleaguered with volatility for many years.

However, critics, who have been saying all along that big market reforms are needed to improve farm income, are of the opinion that in the light of the Covid-19 crisis, immediate relief in the form of cash transfers, loan waivers, and compensation for unsold produce should have come before these reforms.

Let us decode what the Bills can do for the farm sector.

One of the much awaited radical reform was the Essential Commodities (Amendment) Act, 2020, involving deregulation of most of the agricultural commodities, including cereals, edible oils, oilseeds, pulses, onions and potato, and scrapping of the stock limits.

This is possibly the watershed moment of Indian agriculture — similar to the economic reforms of 1991 — as it would ensure supply chain continuity and trade flows in the event of short supplies. While promoting the export of agri-commodities, it is expected to enable companies, traders, and farmers to store the commodities when prices in the market are low without any restrictions and freely sell their produce in any market that will provide remunerative prices.

This move is expected to bring more private investment into warehouses, cold storage, processing and post-agricultural infrastructure, which are necessary to increase farmers’ income.

APMC markets

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, was passed with radical changes in the Agricultural Produce Marketing Committee (APMC) Act, which had been pending for long. Many studies show that APMC markets are highly exploitative, middlemen dominated, and do not help farmers get remunerative prices.

The Bill will now permit traders and others to buy farm produce directly from farmers anywhere in the country, and even outside the regulated market yards. Farmers will also have a choice to take their produce to the most lucrative market, ushering in barrier-free inter-State trade, eliminating the role of middlemen and other intermediaries who have been ruthlessly exploiting farmers for over centuries.

The other major Bill — the Farmers' (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 — is connected with contract farming . With over 80 per cent of Indian farmers being marginal and small, who lack resources as well as technical knowhow, contract farming will pave the way for consolidation of a majority of small and marginal holdings.

Firms engaged in contract with farmers will not only assist farmers in procuring better quality seeds but also train them in better methods of farming, which can improve yields. This move will also encourage the firms to invest in agriculture infrastructure; storage, food processing, research and development, and harvest to market linkages. Besides, a farmer can lock in on a price before the crop is sown, thereby providing him with an assured income instead of being left to the vagaries of market.

Since the passing of these Bills, some critics have been saying that these reforms are going to ruin farmers and the States will lose revenues collected in the form of mandi fees. They also say that MSP-based procurement done by State agencies over the years will be stopped . How come these apprehensions are arising now, and were not raised when the farm Bill announcements were made by the Finance Minister, explaining Prime Minister Modi’s economic package 2.0 during May 2020? The apprehension is misplaced. For their own good, no political party will dare to remove the MSP system, also there is no evidence that the States will lose its revenue because of introduction of these reforms.

Pro-consumer

One must understand that these reforms have been introduced to help farmers who have all along been exploited by unfavourable policies and high mandi taxes. In fact, Ashok Gulati, former Chairman of CACP, has aptly underlined in an article that the agricultural marketing and trade policies in India are highly distorted, restrictive and pro-consumer, often at the cost of farmers.

He says, “Indian farmers have been ‘implicitly taxed’ through restrictive marketing and trade policies that have an in-built consumer bias of controlling agri-prices. If one calculates the sums involved in this ‘implicit taxation’, it amounts to ₹2.65 trillion per annum, at 2017-18 prices, for 2000-01 to 2016-17. Cumulatively, for 17 years, this comes to roughly ₹45 trillion at 2017-18 prices. No country in the world has taxed its farmers so heavily as India has done during this period. This is nothing short of plundering of the farmers’ incomes by ₹45 trillion!”.

Against several clarion calls from economists and agricultural experts to ease the logjams in the process of selling of produce and providing farmers with more avenues for sale, the government has finally taken a right step, thanks to Covid-19.

These reforms are definitely a watershed moment in Indian agriculture that will result in big gains for farmers, providing them the right to right prices, thereby creating an enabling environment to increase farm income which is pathetically low.

The government should send a strong signal that it is fully committed to implementing the announced reforms. What is worrying is that despite talking about the reforms in agriculture over the last four months, the government imposed a ban on onion export on September 14, three days before these Bills were passed.

Narayanamoorthy is former Member (Official), CACP, New Delhi, and Alli is Senior Assistant Professor in Economics, Vellore Institute of Technology. Views are personal

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