Agriculture

DRAMA at the farm gate

  • Blog Post Date 24 December, 2020
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Jean Drèze

Ranchi University; Delhi School of Economics

jean@econdse.org

Describing the new ‘APMC (Agricultural Produce Market Committee) Bypass Act’ as a ‘Dual Regulation of Agricultural Marketing Act’ or DRAMA, Jean Drèze argues that the legislation's odd framework of dual control by the central and state governments is unlikely to serve farmers' interests. 

It is not difficult to take sides in the ongoing dispute between India’s farmers and the Government of India (GoI). On one side is a sea of brave, astute farmers who are giving us a beautiful example of solidarity and non-violent protest. On the other, an authoritarian government is doing its best to vilify and divide their movement. Naturally, one’s heart goes out to the farmers.

That, however, does not settle the merits of the case. Could it be that the farmers are mistaken or misled? That is what GoI and its supporters are trying to argue. The farmers, they claim, are confused about their own interests. Unbeknown to them, they stand to gain from the three Acts that the government magnanimously passed for their benefit, particularly the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.

The argument is something like this. Until now, farmers were forced to sell agricultural produce through mandis managed by the Agricultural Produce Market Committees (APMCs). These APMCs are controlled by people who exploit them. The Act – nicknamed ‘APMC Bypass Act’ – does not disband the APMCs, but it creates a new trade area outside the APMCs, where farmers will be free to sell to anyone they like. This will be a liberation for them.

Appealing as it may sound, this argument is misleading. For starters, the claim that farmers were not free to sell outside APMC mandis until now is incorrect. As informed scholars have pointed out, the bulk of agricultural marketing, in fact, takes place outside APMC mandis. It is true that in the case of specific commodities and areas, such as wheat and rice in Punjab, most of the marketing goes through APMC mandis. But that is because farmers get a good price there – the minimum support price (MSP). It is the wholesale traders, not the farmers or intermediaries, who are restricted from trading outside APMC mandis under some states’ APMC Acts.

Further, the presumption that the non-APMC trade area will be a sort of ‘free market’ is unfounded. Nothing in the ‘APMC Bypass Act’ prevents trade regulation. On the contrary, the Act can be seen as creating a new framework for trade regulation – an odd framework where APMC mandis will be regulated by the state government and other areas by the central government.

Indeed, the Act gives sweeping powers to the central government to regulate trade in the so-called ‘trade area’ – that is, outside the APMC mandis. The ‘APMC Bypass Act’ could also be described as a ‘Dual Regulation of Agricultural Marketing Act’, or DRAMA.

It is, of course, right to make space for regulation in the trade area. The idea that unregulated markets serve the public interest, quite flawed in general, is also odd in the case of agricultural marketing. Unregulated agricultural markets often raise problems related to uncertainty, equity, collusion, quality control, asymmetric information, economies of scale, contract enforcement and abuse of non-economic power, among other possible sources of so-called ‘market failure’.

That is why agricultural markets typically involve some regulation, or various forms of collective action such as farmers’ cooperatives. The success of dairy cooperatives in India illustrates the value of constructive departures from the free market in this field. So, the real question is not regulation versus free trade, but what sort of regulation we should expect in the trade area.

DRAMA does not answer this question. It merely lists possible regulation issues – such as ‘mode of trading, fees, technical parameters…, logistics arrangements, quality assessment, timely payment… and such other matters’ – and gives all the powers to the central government. In this respect, it is similar to the recent labour codes. It is worth noting that the power to make rules under DRAMA is exclusively assigned to the central government – the state governments are out of the game.

There is no prize for guessing that these powers will be largely exercised on behalf of agri-business and other corporate interests. The text of DRAMA suggests that the central government’s main focus is on electronic trade. The aim seems to be to create a national electronic trade ecosystem under the control of the Centre. Quite likely, it will involve things like mandatory Aadhaar,1 digital payments, data harvesting, fintech experiments, the so-called ‘agri stack’, and that sort of jazz – ostensibly to help farmers, but with business interests firmly in mind.

Judging from recent experiences of similar centralisation in other contexts, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA)2 and the goods and services tax (GST), there are likely to be serious ‘teething problems’ with this new ecosystem, at the very least. But more importantly, centralisation will make it harder for farmers and state governments to have any say in marketing arrangements in the trade area.

Seen in this light, DRAMA is hardly a liberation for farmers. Further, the future of APMC mandis is not clear in the new scheme of things. A mandi is a natural way of facilitating both regulation and collective action in agricultural marketing. It is a kind of public good. Perhaps the APMC Acts, despite recent reforms, have not done justice to this aspect of the mandis. But that is not immutable.

In the new regime, the mandis may find it harder to survive. To compete with the trade area, they may have to reduce their fees. A reduction in inflated fees would not be a bad thing. But beyond that, reduced fees will make it harder for mandis to provide public infrastructure and facilities – unless state governments or local authorities step in. The decline of mandis, if it happens, is unlikely to help the farmers.

None of this is to deny that there are serious issues of efficiency, equity, and sustainability with the current regime of agricultural marketing. But the ‘dual regulation’ framework is hardly an answer. It is poor economics, fails to address the core issues, and reduces farmers’ control on the marketing system. What they need is not the central government’s ‘tough love’ but a real say in reforms that concern them. And what the country needs is reforms that serve the interests of citizens – farmers and consumers. The private interests of agri-business, software companies and data brokers should have little weight if any. 

A version of this post first appeared in The Economic Times.  

Notes:

  1. Aadhaar or Unique Identification (UID) number is a 12-digit identification number linked to an individual’s biometrics (fingerprints, iris, and photographs), issued to Indian residents by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India.
  2. MNREGA guarantees 100 days of wage-employment in a year to a rural household whose adult members are willing to do unskilled manual work at the prescribed minimum wage.

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2 Comments:

By: Mike Courteau

A perfect example of peaceful protest by the farmers. Delhi needs to pay more attention to the reason for the protests and explain their proposed changes better. In every country of the world, farmers are the lifeblood of the country. They deserve better communications.

By: Rajaram V

Insightful. Sensitive and just. Need more such inputs and the government to take a more informed decision.

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