From UPSC perspective, the following things are important :
Prelims level : APMC Act, ECA-1955
Mains level : Paper 3- Reforms in agri-marketing.
The finance minister proposed package for the farmers. The package has 11 points. But this article discusses only 3 points which the author hopes would be the game-changer for agri-marketing. The three points pertain to the ECA, APMC Acts and contract farming. So, how can these three proposed laws transform agri-marketing and be a boon to farmers and consumers at the same time? Read the article.
1. Amending the Essential Commodities Act 1955
- Background of the ECA: The ECA of 1955 has its roots in the Defence of India Rules of 1943.
- At that time, India was ravaged by famine and was facing the effects of World War II.
- It was a scarcity-era legislation.
- By the mid-1960s, hit by back-to-back droughts, India had to fall back on PL480 imports of wheat from the US and the country was labelled as a “ship to mouth” economy.
- Importer to exporter: Today, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China.
- Our granaries are overflowing.
So, how ECA hurts farmers as well as consumers?
- Our legal framework is of the 1950s, which discourages private sector investment in storage.
- How ECA discourage investment? The ECA can put stock limits on any trader, processor or exporter at the drop of a hat.
- Such limits discourage investments in storage facilities. As a result, the country lacks storage facilities.
- When farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet. All this hurts the farmer.
- In the lean season, prices start flaring up for the consumers.
- So, both lose out because of the lack of storage facilities.
How the amendment will help?
- The amendment announced last week, if implemented in the right spirit, will remove roadblocks in investment and help both farmers and consumers.
- It will bring relative price stability.
- It will also prevent the wastage of agri-produce that happens due to lack of storage facilities.
2. Central law to allow farmers to sell outside APMC
- Issues with APMC Acts: Our farmers suffer more in marketing their produce than during the production process.
- APMC markets have become monopsonistic with high intermediation costs.
How the proposed Central law to allow farmers to sell to anyone outside the APMC yard will help?
- 1. It will bring greater competition amongst buyers.
- 2. It will lower the mandi fee and the commission for arhatiyas (commission agents).
- 3. It will reduce other cesses that many state governments have been imposing on APMC markets.
- 4. The proposed law will open more choices for the farmers and help them in getting better prices. So their incomes should improve.
- 5. By removing barriers in inter-state trade and facilitating the movement of agri-goods, the law could lead to better spatial integration of prices.
- 6. This will help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
- 7. India will have one common market for agri-produce, finally.
3. Legal framework for contract farming
- The legal environment for contract farming, with the assurance of a price to the farmers at the time of sowing, is a step in the right direction.
- It will help them take cropping decisions based on forward prices.
- Normally, our farmers look back at last year’s prices and take sowing decisions accordingly.
- The new system will minimise their market risks.
2 Supplementary notes for success of above 3 measures
- Big buyers like processors, exporters, and organised retailers going to individual farmers is not a very efficient proposition.
- They need to create a scale.
- 1. And for that, building farmer producer organisations (FPOs), based on local commodity interests, is a must.
- How FPOs will help? This will help ensure uniform quality, lower transaction costs, and also improve the bargaining power of farmers vis-à-vis large buyers.
- NABARD has to ensure that all FPOs get their working capital at 7 per cent interest rate — a rate that the farmers pay on their crop loans.
- Currently most of them depend on microfinance institutions and get loans at 18-22 per cent interest rates.
- This makes the entire business high-cost.
- 2. Another thing to watch out for is the fine print of the legislation.
- Certain conditions to reimpose the ECA restrictions if the prices of commodity go up in the proposed legislation could be counterproductive.
- That would be unreasonable and all the reforms would be undone.
- One needs to understand how much is the “extra burden” inflicted by the price increase on the food budget of a household.
The UPSC asked a direct question about the APMC Act in 2014- ” There is also a point of view that Agriculture Produce Market Committees (APMCs) set up under the State Acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine.”
The reforms, announced last week could be a harbinger of major change in agri-marketing, a 1991 moment of economic reforms for agriculture. But before one celebrates it, let us wait for the fine print to come.
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.
- The US President Dwight D. Eisenhower signed into law the Agricultural Trade Development and Assistance Act of 1954, commonly known as PL–480 or Food for Peace.
- Prior to that, the United States had extended food aid to countries experiencing natural disasters and provided aid in times of war, but no permanent program existed within the United States Government for the coordination and distribution of commodities.
- Public Law 480, administered at that time by the Departments of State and Agriculture and the International Cooperation Administration, permitted the president to authorize the shipment of surplus commodities to “friendly” nations, either on concessional or grant terms.
- It also allowed the federal government to donate stocks to religious and voluntary organizations for use in their overseas humanitarian programs.
- Public Law 480 established a broad basis for U.S. distribution of foreign food aid, although reduction of agricultural surpluses remained the key objective for the duration of the Eisenhower administration.