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Reforms in Agricultural Marketing

The agriculture sector continues to be a vital part of our economy that absorbs nearly half of the labor force making the country self-sufficient in food grains production, ensuring food security to the nation. While it contributes only 16.5 per cent to the country’s GDP, experts recognize that the sector has much bigger potential. Lack of reforms has stifled the sector’s growth; especially the demand side factors remained mostly unaddressed. 

While most of our plan efforts have been on the supply side, farmers have failed to scale up production and be competitive due to large land fragmentation. On the demand side market regulations through Agricultural Produce Marketing (Regulation) Act and Essential Commodities Act have resulted in market fragmentation, and thereby denying fair prices to the smaller producers. Another key negative fallout of this process is inadequate investment in the post-production segment, such as better farm harvesting practices and storage, transportation and processing which are essential for value addition. 

The establishment of the Agriculture Produce Marketing Committee (APMC) in the 1960s and 1970s in different states had its own merits. It protected small-scale farmers from the exploitation of large-scale retailers and ensured price stability. The “Mandi” system benefited a large segment of small-scale farmers across the nation, although the benefits of the minimum support price (MSP) scheme were limited mostly to farmers in Punjab, Haryana, and Western Uttar Pradesh.  

However, this system had its operational flaws— first, among the twenty-two items under the MSP the actual buying was skewed towards two items, wheat and rice; second, the lack of transportation for the small-scale farmers constrained their ability to sell in the Mandis; third, the high cost of middlemen impacted their profit margin, which was not sufficient to encourage future investment; fourth, the large-scale retailers could still collude and buy their produce either at MSP or even much below; and fifth, the Mandis turned into a source of revenue collection in some states, without investing sufficient resources on marketing infrastructure.

The Model State/UT Agriculture Produce and Livestock Marketing (Promotion & Facilitation) Act 2017 highlights several inefficiencies in the structure, conduct and performance of the agriculture marketing system in the country. Currently, there is only one APMC Mandi for every 485 square kilometers, which was insufficient to cover the vast geographical area. The model act had suggested setting up and operating private wholesale market yards to enhance competition among different markets and market players for the farmer’s produce. Recognizing the requirement for a larger wholesale market, the government operationalized the electronic National Agricultural Market (e-NAM) in 2016, which was met with very little success.

It was in this backdrop that the central government passed three new laws: (1) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act; (2) Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act; and (3) Essential Commodities Act amendment. Most economists have welcomed these laws, some dubbing these as “1991 moment for Indian Agriculture”. These acts are considered essential to deregulate the agriculture market and facilitate private sector investment, thus increase efficiency in the sector. 

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act will allow farmers to sell their produces outside APMCs; freeing them of mandi taxes other levies imposed by the state governments. The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act allows farmers to do contract farming and market their produces freely. And, the Essential Commodities (Amendment) Act frees items such as foodgrains, pulses, edible oils, and onion for trade.

However, the sector’s dependency on the existing structure has created concerns about its sudden dismantling. There is a fear that private competition will lead to the death of APMCs as they cannot survive without the tax revenues paid by the farmers and traders. This may lead to price manipulation by large monopsonists, forcing farmers to sell at prices below the MSPs. Many researchers often cite the case of Bihar as an example, where farm prices declined sharply, post scraping the APMC laws. Similarly, there are apprehensions that contract farming laws have been drafted in a manner heavily tilted in favour of rich businessmen and corporations.

Many experts also contend that agriculture and livestock account for 18 per cent of gross national greenhouse gas emissions in India. A large chunk of these emissions is caused by intensive use of agricultural inputs like water, fertilisers, and pesticides, especially for the cultivation of rice and wheat. These laws have the potential to win away farmers from the cultivation of these crops towards more environment friendly cropping practices.  

These apart there is a larger fiscal concern as well. Food subsidies have been growing astronomically in recent years at a time when the government’s debt to GDP ratio has reached an unsustainable level of 90 percent post pandemic. If market reforms can lead to rationalization in cropping patterns and reduce future subsidy burden, it must be welcomed.  

Without doubt, there are considerable merits in these reforms; but as we are familiar with the literature, every reform has its cost; and in this case, the livelihood of millions of farmers is at stake. Farmers will need handholding to transit to a new system and the government must work out an attractive fiscal package with consultation with aggrieved farmers.

This article was written by Aliva Smruti an undergraduate student of Economics.  

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