Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

The perils of deregulated imperfect agrimarkets

Note4Students

From UPSC perspective, the following things are important :

Prelims level : FPTC Act 2020

Mains level : Paper 3- Agri marketing and related issues.

The article examine issue of agriculture produce marketing. The passage of FPTC Act 2020 sought to address the challenges faced by the farmers. However, these are several issues the Act fails to resolve. These issues are discussed here.

Why do farmers sell outside mandis?

  • Official data show that even for paddy and wheat, respectively, only 29% and 44% of the harvest is sold in a mandi.
  • In other words a large proportion of Indian harvest is not directly sold in a mandi.
  • Farmers are forced to sell outside the mandis for two reasons.

1) There are not enough mandis

  • The National Commission on Agriculture (NCA) had recommended that every Indian farmer should be able to reach a mandi in one hour by a cart.
  • Thus, the average area served by a mandi was to be reduced to 80 km2.
  • For this, the number of mandis was to increase to at least 41,000.
  • But there were only 6,630 mandis in 2019 with an average area served of 463 km2.
  • Using another set of criteria, a government committee in 2017 had recommended that India should have at least 10,130 mandis.
  • So, by all counts, India needs not less but more mandis.

2) Transport cost

  • Most small and marginal farmers, do not find it economical to bear the transport costs to take their harvests to mandis.
  • Thus, they end up selling their harvest to a village trader even if at a lower price.
  • Even if private markets replace mandis, small and marginal farmers will continue to sell to traders in the village itself.
  • The situation will change only if economies of scale rise substantially at the farm-level.

Why there is poor private investment in markets?

  • Already, 18 States have allowed the establishment of private markets outside the APMC; 19 States have allowed the direct purchase of agricultural produce from farmers; and 13 States have allowed the establishment of farmer’s markets outside the APMC.
  • Despite such legislative changes, no significant private investment has flowed in to establish private markets in these States.
  • The reason for poor private investment in markets is the presence of high transaction costs in produce collection and aggregation.
  • When private players try to take over the role of mandis and the village trader, they incur considerable costs in opening collection centres and for salaries, grading, storage and transport.
  • Corporate retail chains face additional costs in urban sales and storage, as well as the risk of perishability.
  • This is why many retail chains prefer purchasing from mandis rather than directly from farmers.

Issue of mandi tax

  • Many commentaries treat taxes in mandis as wasteful. This assertion is not fully true for two reasons:
  • 1) Much of the mandi taxes are reinvested by APMCs to improve market infrastructure.
  • A fall in mandi taxes would reduce the surplus available with APMCs for such investment.
  • 2) In States such as Punjab, the government charges a market committee fee and a rural development fee.
  • The Punjab Mandi Board uses these revenues to construct rural roads, run medical and veterinary dispensaries, supply drinking wate etc.
  • Such rural investments will also be adversely affected if mandis are weakened.

Weakening of MSP regime

  • Many policy signals point to a strategic design to weaken the MSPs.
  • 1) Rising input and labour costs necessitates a regular upward revision of MSPs to keep pace with costs of living.
  • However, MSPs are rising at a far slower rate over the past five to six years than in the past.
  • 2) The government has not yet agreed to fix MSPs at 50% above the C2 cost of production.
  • As a result, farmers continue to suffer a price loss of ₹200 to ₹500 per quintal in many crops.
  • 3) The Commission for Agricultural Costs and Prices (CACP) has been recommending to the government that open-ended procurement of food grains should end.
  • These policy stances have set alarm bells ringing among farmers.
  • The farmers Punjab, Haryana and western Uttar Pradesh feel that if mandis weaken and private markets with no commitment to MSPs expand, they fear a gradual erosion of their entitlement to a remunerative price.

Steps to be taken

  • 1) India needs an increase in the density of mandis, expansion of investment in mandi infrastructure and a spread of the MSP system to more regions and crops.
  • 2) This increase in density should happen hand-in-hand with a universalisation of the Public Distribution System.
  • 3) APMCs need internal reform to ease the entry of new players, reduce trader collusion and link them up with national e-trading platforms.
  • The introduction of unified national licences for traders and a single point levy of market fees are also steps in the right direction.

Consider the question “The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 was passed with a view to address the challenges faced by the farmers in selling their produce. However, there are concerns with the provision of the Act and its efficacy to addresss these challenges. What are the issues with the Act? Suggest the measures to address these issues.” 

Conclusion

The government’s must try to allay the fears of farmers over the Farm Bills and it is never too late to rethink. Unconditional talks with farmers would be an appropriate starting point.

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