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GS Paper: GS3-06.Storage, transport and marketing of Agricultural produce and issues and related constraints

  • Correcting the agri market

    The article analyses the highlights the importance of post harvest infrastructure for the better price realisation of agri-commodities. It also suggests the two areal which could help the farmers in this regard.

    Purpose of Agriculture Infrastructure Fund

    • Creating post-harvest physical infrastructure is as important as the changes in the legal framework (like the recent ordinances).
    • The recently announced Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) will be used over the next four years.
    • This fund will be used to build post-harvest storage and processing facilities.
    • NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare, largely anchored at FPOs.
    • The creation of the AIF presumes that there is already large demand for storage facilities and other post harvest infrastructure.

     Reforms in 2 areas which could help farmers get better price realisation

    1) Negotiable warehouse receipt

    • More and better storage facilities can help farmers avoid distress sellingimmediately after the harvest.
    • But small farmers cannot hold stocks for long as they have urgent cash needs to meet family expenditures.
    • Therefore, the value of the storage facilities at the FPO level could be enhanced by a negotiable warehouse receipt system.
    • FPOs can give an advance to farmers, say 75-80 per cent of the value of their produce at the current market price.

    How NABARD can play an important role

    • Since NABARD is also responsible for the creation of 10,000 more FPOs, it can create a package that will help these outfits realise better prices
    • FPOs will need large working capital to give advances to farmers against their produce as collateral.
    • NABARD can ensure that FPOs get their working capital at interest rates of 4 to 7 per cent.
    • Currently, most FPOs get capital from microfinance institutions at rates ranging from 18-22 per cent per annum which is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.

    2)Improving Agri-futures markets

    • A vibrant futures market is a standard way of reducing risks in a market economy.
    • Several countries — be it China or the US — have agri-futures markets that are multiple times the size of those in India.

    Way forward

    • 1) NABARD  should devise a compulsory module that trains FPOs to use the negotiable warehouse receipt system and navigate the realm of agri-futures to hedge their market risks.
    • 2) Government agencies dealing in commodity markets — the FCI, NAFED, State Trading Corporation (STC) — should increase their participation in agri-futures.
    • That is how China deepened its agri-futures markets.
    • 3) The banks that give loans to FPOs and traders should also participate in commodity futures as “re-insurers” for the healthy growth of agri-markets.
    • 4)  Government policy has to be more stable and market friendly.
    • In the past, it has been too restrictive and unpredictable.

    Consider the question “Creating post-harvest physical infrastructure is as important as the changes in the legal framework. In light of this, highlight the importance of recently announced Agriculture Infrastructure Fund and suggest the measures to increase the price realisation of agri-products by farmers.” 

    Conclusion

    India needs to not only spatially integrate its agri-markets (one nation, one market) but also integrate them temporally — spot and futures markets have to converge. Only then will Indian farmers realise the best price for their produce and hedge market risks.

  • [pib] First “Kisan Rail” flagged off

    Indian Railways introduced the first “Kisan Rail” from Devlali (Maharashtra) to Danapur (Bihar).

    Try this question for mains:

    Q.Discuss the role of agricultural marketing and logistics for doubling farmer’s income by 2022.

    Kisan Rail

    • From Maharashtra’s Devlali to Bihar’s Danapur, the train will cover the journey of 1,519 kilometres in over 31 hours.
    • It will take stops at Nasik Road, Manmad, Jalgaon, Bhusaval, Burhanpur, Khandwa, Itarsi, Jabalpur, Satna, Katni, Manikpur, Prayagraj Chheoki, Pt. Deendayal Upadhyay Nagar and Buxar.
    • This train will help in bringing perishable agricultural products like vegetables, fruits to the market in a short period of time.
    • The train with frozen containers is expected to build a seamless national cold supply chain for perishables, inclusive of fish, meat and milk.
    • It is a step towards realizing the goal of doubling farmers’ incomes by 2022.

    Other facts

    • Indian Railways have earlier run single commodity special trains like Banana Specials etc.
    • But this will be the first-ever multi-commodity trains and will carry fruits like Pomegranate, Banana, Grapes etc and vegetables like Capsicum, Cauliflower, Drumsticks, Cabbage, Onion, Chilies etc.

  • [pib] 15th Finance Commission submits report on Agricultural Exports

    The High-Level Group on Agricultural Exports set up by the Fifteenth Finance Commission has submitted its report to the Commission.

    Try this PYQ from CSP 2019

    Q.In India, which of the following reviews the independent regulators in sectors like telecommunications, insurance, electricity, etc.?

    1. Ad Hoc Committees set up by the Parliament
    2. Parliamentary Department Related Standing Committees
    3. Finance Commission
    4. Financial Sector Legislative Reforms Commission
    5. NITI Aayog

    Select the correct answer using the code given below.

    (a) 1 and 2

    (b) 1, 3 and 4

    (c) 3, 4 and 5

    (d) 2 and 5

    Why focus on Agri-exports?

    • India’s agricultural export has the potential to grow from USD 40 billion to USD 70 billion in a few years.
    • The estimated investment in agricultural export could be in the tune to USD 8-10 billion across inputs, infrastructure, and processing and demand enablers.
    • Additional exports are likely to create an estimated 7-10 million jobs.
    • It will lead to higher farm productivity and farmer income.

    Highlights of the report

    (A) The HLEG has made its recommendations, major among which are:

    • Focus on 22 crop value chains – demand-driven approach.
    • Solve Value Chain Clusters (VCC) holistically with a focus on value addition.
    • Create a State-led export plan with participation from stakeholders.
    • Private Sector should play an anchor role.
    • The centre should be an enabler.
    • The robust institutional mechanism to fund and support implementation.

    (B) State-led Agri Exports

    The Group has recommended a State-led Export Plan –  a business plan for a crop value chain cluster. It will lay out the opportunity, initiatives and investment required to meet the desired value chain export aspiration.

    The Group has also said that for its success, the following factors needed to be considered:-

    • Plans should be collaboratively prepared with private sector players and Commodity Boards.
    • Leveraging of state plan guide and value chain deep dives.
    • The private sector should play an anchor role in driving outcomes and execution.
    • The centre should enable state-led plans.
    • Institutional governance should be promoted across the state and centre.
    • Funding through the convergence of existing schemes, Finance Commission allocation and private sector investment.

    Back2Basics: Finance Commission (FC)

    • The FC is a constitutionally mandated body that decides, among other things, the sharing of taxes between the Centre and the states.
    • Article 280 (1) requires the President to constitute, “within two years from the commencement of this Constitution.
    • And thereafter constitute FC at the expiration of every fifth year or at such earlier time as the President considers necessary.
    • An FC “which shall consist of a Chairman and four other members”.

    Divisible Pool of Taxes

    • Under Article 280(3) (a) the FC must make recommendations to the President “as the distribution between the Union and the States of the net proceeds of taxes which are to be, or maybe, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds”.
    • Accordingly, the FC determines a formula for tax-sharing between the states, which is a weighted sum of the states’ population, area, forest cover, tax capacity, tax effort and demographic performance, with the weights expressed in percentages.
    • This crucial role of the Commission makes it instrumental in the implementation of fiscal federalism.

  • APMC Act is not the main problem

    The APMC Act, which is often blamed for the woes of the farmers is not the main problem. This article argues that the root of the problems of Indian agriculture lies somewhere else.

    Agriculture post-1991

    • The priority post-1991 has been given to industry as well as services.
    • Middle-class consumers have been favoured by at the expense of farmers.
    • This neglect of agriculture resulted in an equally unprecedented gap between the standard of living in the rural and urban parts of the country.
    • As a result, the urban/rural ratio, in terms of monthly per capita expenditures, has jumped from 1.84 to 2.42 between 2012 and 2018.
    • This means that an average urban-dweller today can consume almost 2.5 times more than an average person in a village.

    Reforms by the government

    • Government has decided to liberalise India’s agriculture by amending the APMC Act and the Essential Commodities Act.
    • Contract farming will also be introduced in such a way that the buyer can assure a price to the farmer at the time of sowing.

     APMC Act in the context of Shanta Kumar Committee report

    • The argument against the APMC Act is that it does not allow the free market to function due to government intervention.
    •  It denies farmers the opportunity to determine the prices of crops in the marketplace.
    • In theory, this is a valid argument.
    • But, Shanta Kumar Committee observed in 2015 that only 6 per cent of farmers get the Minimum Support Price (MSP).
    • This is because of barriers to access for farmers as only 22 crops are procured under MSP.
    • Infrastructure is also inadequate as there are only an estimated 7,000 APMC mandis across India.
    • Procurement depends on the stocks required by the state.

    Why the APMC Act is not the problem

    1) Farm Pricing is the problem

    • The living costs of farmers was considered while determining agricultural pricing by the Agricultural Prices Commission (APC).
    • CACP that replaced the APC in 1985 added a 10 per cent mark-up over the MSP to account for entrepreneurial costs.
    • Such practices have been gradually eroded post-1991.
    • The problem, therefore, is not state intervention but the way the government deals with agriculture.

    2) APMC Act helped India build up food stocks

    • India managed to weather the 2008 global food crisis only because it had enough food stocks as Indian agriculture was not linked to the international futures market.
    • This was possible due to the procurement done through the APMC Act.

    3) APMC Act reformed already by States

    • Since agriculture is a state subject, the Act has been modified in 17 states.
    •  On the contrary, the condition of peasants has often been affected when the APMC Act has been diluted.
    • Bihar is a case in point.
    • The APMC Act was revoked in 2006 with the same rationale that further deregulation will attract private investment in infrastructure.
    • Not only has that not materialised, but the existing APMC market infrastructure was also dismantled.

    Reforms that Indian Agriculture needs

    1) Subsidy Reforms

    • Indian Agriculture is still too heavily subsidised in favour of the big players.
    • In the Union Budget 2019-20, the allocation for the Ministry of Agriculture was Rs 1,30,485 crore and the fertiliser subsidy alone was estimated at Rs 79,996 crore.
    • But these subsidies are concentrated on a few crops.
    • Agriculture economist Bruno Dorin has shown, only three crops receive more than 60 per cent of the so-called “non-product-specific” support to agriculture — rice, wheat and sugarcane.
    • This has led to environmental degradation like the depletion of groundwater levels and monocultures which are a threat to biodiversity.
    • It has also led to the industrialisation of agriculture, that results in the strengthening of a handful of multinational companies, which supply chemical inputs.
    • Liberalisation would only strengthen the role of large companies — including those in the agri-food sector.

    2) Agriculture needs to be ecologically viable

    • Structurally, farming needs to be made economically and ecologically viable in India.
    • State intervention for better pricing, investments in water harvesting and an agroecological transition could ensure a more resilient system to weather shocks like the current one.
    • The government could draw inspiration from the Andhra Pradesh Community Managed Farming model.
    • It promotes agroecological principles with the use of locally-produced, ecologically-sustainable inputs focusing on soil health..
    • Since the agro-ecological system of farming is more biodiverse in nature, it will make the system more resilient overall.
    • It will provide a safety net for farmers in case of crop damage due to various factors such as climate change or droughts.

    Consider the question “Though the APMC Act has been blamed for the farmers’ issues, it has historically been part of the solution. Critically analyse.”

    Conclusion

    By investing again in agriculture and following, at last, the recommendations of the M S Swaminathan Committee, the Government of India would also help bridge the drastic urban-rural divide.

    To read more about the issue:

    Marketing of Agricultural Produce in India: Definition; Role; APMC Act, Model APMC Act, 2003

    Original article:

    https://indianexpress.com/article/opinion/columns/rural-india-coronavirus-farm-trade-ordinance-apmc-act-6515414/

  • Aatamnirbhar in Agriculture

    India has been the net exporter of agricultural commodities since 1991, however, there is scope for increasing its net export. This article suggests the strategy to achieve this.

    Foreign exchange reserve: then and now in terms of grains

    • In the mid-1960s the country had about $400 million.
    • If India had spent all its foreign currency reserves just on wheat imports, it could have imported about seven million tonnes (mt) of wheat.
    • Today, India has foreign exchange reserves of more than $500 billion.
    • Even if the country has to buy 20 mt of wheat at a landed cost of $250/tonne, it will spend just $5 billion it is just one per cent of its foreign exchange reserves.
    • In that sense, the biggest reform in the last three decades that has led to “aatma nirbharta” in food is the correction of the exchange rate.
    • Another factor is coupling and the gradual integration of India with the world economy.
    • This has helped India increase its foreign exchange reserves from $1.1 billion in 1991 to more than $500 billion today.

    India: Net exporter of agricultural products

    • India has been the net exporter of agricultural products ever since the economic reforms began in 1991.
    • The golden year of agri-trade was 2013-14 when net agricultural trade surplus was $24.7 billion.
    • In 2019-20, agri-exports were just $36 billion, and the net agri-trade surplus at $11.2 billion.
    • With this dull performance doubling agri-exports by 2022 looks almost impossible.

    Let’s look at what India exports

    • Marine products with $6.7 billion exports top the list.
    • The second is rice at $6.4 billion of which basmati is at $4.6 billion and common rice at $2.0 billion.
    • Next is spices at $3.6 billion.
    • Other items are buffalo meat at $3.2 billion, sugar at $2.0 billion, tea and coffee at $1.5 billion, fresh fruits and vegetables at $1.4 billion, and cotton at $1 billion.

    Strategy to increase export

    • If one chalks out a strategy we would need to keep in mind the principle of “comparative advantage”.
    • That means exporting more where we have a competitive edge, and importing where we lack competitiveness.
    • Together power and fertiliser subsidies account for about 10-15 per cent of the value of rice and sugar produced on a per hectare basis.
    • So, we should offer similar incentives for exports of high-value agri-produce like fruits and vegetables, spices, tea and coffee, or even cotton, as we do for rice and sugar?

    Decreasing the edible oil imports

    • On the agri-imports front, the biggest item is edible oils — worth about $10 billion i.e. more than 15 MT.
    • India needs to decrease imports through augmenting productivity and increasing the recovery ratio of oil from oilseeds and in case of palm oil, from fresh fruit bunches.
    • The maximum potential of increasing production lies in oil palm.
    • This is the only plant that can give about four tonnes of oil on a per hectare basis.
    • India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil.
    • But it needs a long term vision and strategy.

    Issue of subsidy to rice and sugar

    • Rice and sugar cultivation are subsidised through free power and highly subsidised fertilisers, especially urea.
    • It is leading to the virtual export of water because of their high water requirements.
    • One kg of rice requires 3,500-5,000 litres of water for irrigation, and one kg of sugar consumes about 2,000 litres of water.
    • This leads to increased pressure on scarce water and highly inefficient use of fertilisers.
    • It may be worth noting that almost 75 per cent of the nitrogen in urea is not absorbed by plants.
    • It either evaporates into the environment or leaches into groundwater making it unfit for drinking.

    Consider the question “While India has been the net exporter of agricultural products ever since the economic reforms of 1991, it is far from realising its potential to become the leading agri-produce exporter. In light of this, suggest the strategy that India should follow to increase India’s net agri-exports.”

    Conclusion

    The government must focus on augmenting export and decrease import dependence in agricultural products which will further its goal of aatmanirbharta and doubling the farmers’ income.

  • Agri reforms and way forward

    At a time when the economy is going through the crisis, anything that could provide revenue to the government will be a real godsend. This article suggests two such areas to tap into. It also examines the effects of recently issued 3 ordinances related to agriculture.

    Rs. 1,50,000 crore: Value of excessive grain stock

    • There is one area which the government can tap to raise more than Rs 1,00,000 crore.
    • As on June 1, FCI had unprecedented grain stocks of 97 million metric tonnes (MMT) in the Central Pool (see Figure).
    • Even on July 1, when the procurement of rabi ends, FCI is likely to have grain stocks of about 91-92 MMT.
    • This will be against a buffer stock norm of 41.12 MMT that are required for the Public Distribution system (PDS), and some strategic reserves.
    • So, compared to this norm, on July 1, FCI will have “excess stocks” of at least 50 MMT.
    • Even if one takes a conservative and lower ballpark figure of Rs 30,000/tonne  as the combined economic cost of rice and wheat, the value of this “excessive stock”, beyond the buffer norm, is Rs 1,50,000 crore.
    • This is unproductive capital locked-up in the Central pool of FCI.
    • Unlock this by liquidating “excess stocks” through open market operations.
    • It will not recover its full economic cost, as they are much higher than the prevailing market prices, but by not liquidating it.
    • But FCI will keep incurring unnecessary interest costs of about Rs 8,000-10,000 crore per annum.
    • This is simply not a good food policy.

    How will amendment to ECA 1955 will help

    •  Amendment of the Essential Commodities Act, via the ordinance route, can instil confidence in the private sector for building large scale storage.
    • Now, stocking limits will not be imposed on the private sector, except under exceptional circumstances.
    • The government, however, delete the clause of “extraordinary price rise”.
    • Removing it will lead to private sector building large and modern storage facilities (silos).
    • It will propel investments in building more efficient food supply lines.
    • The only condition could be to register large storage facilities under the Warehousing Development and Regulatory Authority (WDRA) to know how much stock is there with the private sector, and where.

    How will amendment to APMC Act will help

    • The ordinance on APMC creates multiple channels for farmers to sell their produce outside the APMC mandi system.
    • It also helps towards an unrestricted all India market for agri-produce.
    • Of course, it will be resisted by many states that are taking undue advantage of the APMC mandis’ virtual monopoly power.
    • But if the central ordinance is implemented in its true spirit, it will be a game-changer.

    How will the ordinance on contract farming will help

    • It aims to encourage contract farming.
    • The basic idea behind this is that farmers’ sowing decisions should be made in view of the expected prices of those crops at the time of harvest.
    • It is forward looking and more aligned to the likely demand and supply situation.
    • The current practice, where farmers’ sowing decisions are more influenced by last year’s price, often leads to the problem of boom and bust.
    • Although honouring an assured price remains a challenge when actual market conditions differ widely at the time of the harvest.

    Relook at food subsidy is needed

    •  In the Union budget of 2020-21, a sum of Rs 1,15,570 crore has been provisioned for food subsidy.
    • This number is highly misleading as FCI has been asked to borrow from the National Small Savings Fund (NSSF).
    • As on March 31, 2020, borrowings from the NSSF were Rs 2,54,600 crore, on which FCI pays an interest rate of 8.4 to 8.8 per cent per annum.
    • So, the real food subsidy bill for 2020-21 amounts to Rs 3,70,170 crore.
    • The Economic Survey has suggested- 1) reducing the coverage under PDS; 2) linking issue price to at least half of the procurement price; 3) move gradually towards cash transfers.
    • These steps will save a minimum of Rs 50,000 crore annually.

    Consider the question “There was a mention of reforms related to agri-sector in the recently announced stimulus package. Examine the issues with segments of agri-sector which necessitated these reforms.”

    Conclusion

    Liquidating the excess grain stock and rationalising the PDS could provide the government with much needed resources at a time when it needs it the most. Also, reforms in the related to agriculture could remove the stumbling blocks in the way towards the prosperity of farmers.

  • Issues with the ordinances on agriculture

    Following the announcement of reforms in the agri-sector, the government issued ordinances to make good on its promise. These ordinances deal with- ECA-1955, APMC Act and Contract farming. The author in this article examines whether these ordinances deliver on the promises made or not.

    1) Ordinance for amendment of APMC Act

    • ‘Farming Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020.’ seek to address the problems farmers face in selling their produce.
    • Due to the unionisation of middlemen (arhatias) and their financial clout, politicians in the states have been reluctant to amend agriculture marketing laws which are exploitative and don’t allow farmers to receive a fair price.
    • Rather than coax the states financially to correct the markets, an unregulated marketplace has been created where 15 crore farmers will be exposed to the skulduggery of traders.
    • Imagine the mayhem in stock markets if ROC and SEBI were similarly made redundant.

    Issues and benefits

    • Rather than replicate Punjab’s successful agriculture mandi model, now states will lose vital revenue to even upgrade and repair rural infrastructure.
    • The ordinance may be challenged by the states for its constitutional overreach.
    •  But, on the flip side, over time, the largest informal sector in the country will begin to get formalised and new business models will develop.
    • A different breed of aggregators will create the much-needed competition to the existing monopoly of local traders.
    • Additionally, henceforth, when farmers sell agricultural produce outside of APMC market yards, they cannot legally be charged commission on the sale of farm produce.
    • To survive, the APMCs across the nation will have to radically standardise and rationalise their mandi fee structure and limit the commission charged by traders on sale of farmers’ produce.

    2) ECA 1955: Not enough has been done

    • Here, the amendment was supposed to allay the genuine fears of traders emitting from the bureaucracy’s draconian powers to arbitrarily evoke stockholding limits etc.
    • Rather than forego its own powers for the larger good, the amendment’s fine print makes it ambiguous and leaves space for whimsical interpretations as before.
    • The trader’s uncertainty is compounded by the arbitrary import-export policy decisions which dilute the purpose of the amendment itself.

    3) Ordinance on Contract farming

    •  “The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020” tries to placate the fears of both the farmer and the contractor when they sign an agreement.
    • For the farmer, the legal recourse is never a practical choice as the persuasive powers of the aggregators’ deep pockets cast a dark shadow over the redressal process.
    • Likewise, the tediously stretched legal proceedings are dissuasion enough to either not seek redressal or settle for unfavourable terms.
    • That produce derived from contract farming operations will not be subject to any obstructionist laws is a very good step.
    • Farmer-producer organisations and new aggregators will get a boost with these laws, and become harbingers of prosperity in some small corners of the countryside.
    • There are green shoots in the ordinances, but the downside dwarfs the upside.

    So, what are the implications of these 3 reforms?

    • The union of the three ordinances appears to be a precursor to implementing the Shanta Kumar Committee recommendations to dilute and dismantle FCI, MSP & PDS which will push farmers from the frying into the fire.
    • It may also be interpreted to mean that now the sugar industry needn’t pay farmers the central government FRP or the state government SAP price for sugarcane.

    Consider the question ” There was a mention of reforms related to agri-sector in the recently announced stimulus package. Examine the issues with segments of agri-sector which necessitated these reforms.”

    Conclusion

    The reforms in these 3 areas if carried out earnestly could go a long way in helping the farmers get out of the misery and help achieve the goal of doubling of farmers income in the set time frame.

    Back2Basics: Agriculture Produce Marketing Committee Regulation (APMC) Act.

    • All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as “regulated markets”.
    • With the exception of Kerala, J & K, and Manipur, all other states have enacted the APMC Act.
    • It mandates that the sale/purchase of agricultural commodities notified under it are to be carried out in specified market areas, yards or sub-yards. These markets are required to have the proper infrastructure for the sale of farmers’ produce.
    • Prices in them are to be determined by open auction, conducted in a transparent manner in the presence of an official of the market committee.
    • Market charges for various agencies, such as commissions for commission agents (arhtiyas); statutory charges, such as market fees and taxes; and produce-handling charges, such as for cleaning of produce, and loading and unloading, are clearly defined, and no other deduction can be made from the sale proceeds of farmers.
    • Market charges, costs, and taxes vary across states and commodities.

    Essential Commodities Act 1955

    • The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people.
    • The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc.
    • It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
    • Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
    • The list of items under the Act includes drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products.
    • The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.

    How ECA works?

    • If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
    • The States act on this notification to specify limits and take steps to ensure that these are adhered to.
    • Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
    • A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
    • This improves supplies and brings down prices. As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
    • The excess stocks are auctioned or sold through fair price shops.

  • Getting closer to doubling income of Farmers

    agriculture plays an important role in decreasing rural poverty in developing countries. Improved irrigation methods, seeds, and fertilizers have led to increased agricultural production in rural areas. The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people. The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc

  • Alleviating the farmers’ pain

    The article discusses the recently announced reforms in the agri-marketing. The legal changes promised are expected to deal with problems farmer face in selling their products and a law dealing with contract farming. These legal reforms are expected to increase farmers’ income.

    Some of the issues faced by the farmers

    • If any class of economic agents of our country has been denied the constitutional right of freedom of trade, it is farmers.
    • They don’t have the freedom of selling their produce even in their neighbourhood.
    • Remunerative price is still a mirage for them.
    • Their farm incomes are at the mercy of markets, middlemen and money lenders.
    • For every rupee that a farmer makes, others in the supply chain get much more.
    • Both farmers and consumers are the sufferers of the exploitative procurement and marketing of farm produce.
    • The public investments in irrigation and other infrastructure has increased.
    • The institutional credit and minimum support price given over the years has been increasing.
    • Yet, farmers are shackled when it comes to selling their produce.

    Restriction on the farmers: Echoes from the past

    • This exploitation of farmers has its roots in the Bengal famine of 1943, World War II, and the droughts and food shortages of the 1960s.
    • The Essential Commodities Act, 1955, and the Agricultural Produce Market Committee (APMC) Acts of the States are the principle sources of violation of the rights of farmers to sell their produce at a price of their choice.
    • These two laws severely restrict the options of farmers to sell their produce.
    • Farmers continue to be the victims of a buyers’ market.
    • This is the principal cause of their exploitation.
    • Renowned farm scientist M.S. Swaminathan has for long argued for the right of farmers to sell their produce as they deem fit.

    Balancing the interest of consumers and the farmers

    • Given the economic disparities in the country, the interests of consumers need to be protected.
    • But that should not happen at the cost of the producers of the very commodities that the consumers need.
    • For various reasons, a balance in this regard could not be struck.
    • The restrictive trade and marketing policies being practised with respect to agricultural prices have substantially eroded the incomes of farmers.

    Let’s have a look at a study on agricultural policies in India

    • A study on agricultural policies in India by the Indian Council for Research on International Economic Relations-Organisation for Economic Co-operation and Development (2018), co-authored by the renowned farm economist Ashok Gulati, was published with startling revelations.
    • It concluded that the restrictions on agricultural marketing amounted to ‘implicit taxation’ on farmers to the tune of ₹45 lakh crore from 2000-01 to 2016-17.
    • This comes to ₹2.56 lakh crore per year.
    • No other country does this.

    Reforms to remove the hurdles in farmer getting remunerative price

    • Recently announced package has approximately ₹4 lakh crore support for farming and allied sectors, aimed at improving infrastructure and enhancing credit support.
    • But the most welcome feature of this package is the firm commitment to rewriting the Essential Commodities Act and the APMC laws.
    • The revision of these restrictive laws is long overdue and will remove the hurdles that farmers face in getting a remunerative price for their produce by giving them more options to sell.
    • This long-awaited revision needs to be undertaken with care and responsibility so that no space or scope is left for farmers to be exploited yet again.
    • While allowing several buyers to directly access the produce from the farmers, a strong and effective network of Farm Producers’ Organisations should be created to enhance the bargaining power of farmers.
    • This will ensure that individual farmers are not exploited.
    • An effective law on contract farming is also the need of the hour.
    • Law on contract farming will secure incomes of farmers besides enabling private investments.
    • Yet another unique feature of this package has been its comprehensiveness towards improving the incomes of farmers through a range of activities.
    • A study by the National Institute of Agricultural Extension Management has revealed that of the 3,500 farmers’ suicides examined, there was no farmer who had supplementary incomes from dairy or poultry.
    • The huge support to animal husbandry and fisheries in the stimulus package underlines the need for diversifying the income sources of farmers.

    Consider the question “The APMC Acts of the has been blamed for poor price realisation by the farmers. Recently announced reforms promise to do away with such issues in the APMC Act. In light of this, examine the issues with APMC Acts and how the promised reforms are expected to resolve such issues.”

    Conclusion

    It is time to allow our farmers to sell their produce anywhere for their benefit. All stakeholders should be taken on board while revising restrictive agri-marketing laws.

  • Hardly the 1991 moment for agriculture

    Reforms in agri-marketing has been long overdue. So, the government recently announced three reforms in this regard. This article examines the problems of agri-marketing. And it concludes that the said reforms are far from being the silver bullet for these problems. So, why these reforms are not going to be effective? Does demand play any role in the problems agriculture is facing currently? Read to know about these issues.

    Announcement of reforms regarding agricultural marketing

    • The announcement of reforms in agricultural marketing by Finance Minister in May, has been hailed by some as the “1991” moment for agriculture.
    • The three reforms regarding agricultural marketing were the reforms in the 1) Agricultural Produce Marketing Committee (APMC) Act, 2) the Essential Commodities Act, 3) Contract farming.
    • All of these have been in discussion for almost two decades, with the APMC Act having already seen substantial reforms in many States.
    • The first comprehensive model act on APMC was proposed during 2003, and since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.

    So, let’s a look at provisions of APMC Act and issues with it

    What is the main argument against APMC Act?

    • Two main arguments against the APMC Act are-
    • 1) It creates barriers to the entry and exit of traders.
    • 2) Makes the sale and purchase of agricultural produce compulsory for farmers as well as traders.

    Different steps taken by the state governments to address the issues

    • So, as many as 17 State governments have amended the APMC Act to make it more liberal.
    • In fact, the regulations and the functioning of mandis vary a great deal across States.
    • Kerala does not have an APMC Act.
    • Bihar repealed it in 2006.
    • But several others such as Maharashtra, West Bengal, Odisha, Gujarat, and Andhra Pradesh deregulated fruits and vegetables trade, allowed private markets, introduced a unified trading licence and have introduced a single-point levy of market fee.
    • Tamil Nadu has already reformed its APMC with no market fee.
    • Several others such as Jharkhand, Himachal Pradesh, Uttarakhand, Haryana and Rajasthan have undertaken one or more of these reforms.
    • Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana), the Raitha Santhe (Karnataka), the Apni Mandi (Punjab) and the Krushak Bazaar – (Odisha).

    So, why the mandis are still blamed for farmers’ problems?

    • Despite the above-stated reforms, APMC mandis continue to be vilified for-1)  all the ills plaguing marketing infrastructure 2) the low prices received by the farmers for their produce.
    • What is the problem? The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets.
    • These are more obvious in case of large mandis specialising in commercial crops and fruits and vegetables, where production is regionally concentrated.
    • But even with these deficiencies, APMC mandis continue to play an important role in providing access to the market for farmers.

    What the Bihar example teaches us?

    • Bihar repealed the APMC Act in 2006.
    • The general argument in favour of reforms is that 1) it will allow private investment in marketing infrastructure and 2) provide more choices to farmers, leading to better prices received by farmers.
    • But in the case of Bihar,  no investment came in building market infrastructure.
    • The loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure in the State.
    • The revenue collected from the APMC earlier was used not only for the modernisation of these market yards but also for the laying of roads and construction of other infrastructure to provide farmers better access to markets.
    • But after the repeal, there have been no takers for these market yards, with no investment in creating private mandis.
    • On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage.
    • Even in other States where there is deregulation to allow private traders, there is hardly any investment to create market spaces let alone provide other facilities.
    • There is also no evidence that farmers have received better prices in private mandis outside the APMC.
    • While there have been instances of collusion and corruption in the running of the APMC, they continue to provide essential services to farmers.

    Inadequacies of the regulated market

    • As against the recommendation that a regulated market should be available to farmers within a radius of 5 km currently regulated markets is in the radius of 12 km.
    • There are more than 7,000 regulated markets and 20,000 rural markets when the need is at least twice these figures.
    • Most of the existing ones require investment in upgradation of infrastructure.

    Price received is more a function of demand than access to market

    • The argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed.
    • More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis.
    • For a majority of farmers, prices received are more a function of the demand for agricultural commodities than access to markets.

    So, let’s come to decline in demand for agriculture produce

    • For much of the period during the last two years, terms of trade have moved against agriculture.
    • Agricultural commodity price inflation had been negative for a large part of the last two years.
    • With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers.
    • The argument for choice of markets is only valid as long as there are buyers with purchasing power in the market.
    • No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.

    What is solution to decline in demand?

    • The primary task of the government should have been to increase fiscal spending to revive demand in the economy.
    • This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead.
    • With international prices also showing declining trend, the urgency is to protect the farmers from the decline in commodity prices.

    Consider the question “Though the APMC Act has often been blamed for the woes of the farmers in price realisation, the act is not the sole reason for price realisation problems faced by the farmers. Critically examine.

    Conclusion

    The announced reforms are less likely to be effective if carried out without consulting the states. And on the demand side, government needs to increase fiscal spending to create demand in the economy. These two steps will go a long way in ensuring higher incomes to farmers.

    Back2Basics: Agriculture Produce Marketing Committee Regulation (APMC) Act.

    • All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as “regulated markets”.
    • With the exception of Kerala, J & K, and Manipur, all other states have enacted the APMC Act.
    • It mandates that the sale/purchase of agricultural commodities notified under it are to be carried out in specified market areas, yards or sub-yards. These markets are required to have the proper infrastructure for the sale of farmers’ produce.
    • Prices in them are to be determined by open auction, conducted in a transparent manner in the presence of an official of the market committee.
    • Market charges for various agencies, such as commissions for commission agents (arhtiyas); statutory charges, such as market fees and taxes; and produce-handling charges, such as for cleaning of produce, and loading and unloading, are clearly defined, and no other deduction can be made from the sale proceeds of farmers.
    • Market charges, costs, and taxes vary across states and commodities.

    Essential Commodities Act 1955

    • The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people.
    • The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc.
    • It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
    • Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
    • The list of items under the Act includes drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products.
    • The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.

    How ECA works?

    • If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
    • The States act on this notification to specify limits and take steps to ensure that these are adhered to.
    • Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
    • A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
    • This improves supplies and brings down prices. As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
    • The excess stocks are auctioned or sold through fair price shops.