In December 2020, the India Programme of the International Growth Centre (IGC) and Asian Development Research Institute (ADRI) organised a webinar on ‘Putting Farmers First’. The panel comprised Siraj Hussain (Senior Visiting Fellow, Indian Council for Research on International Economic Relations (ICRIER)), Sudha Narayanan (Research Fellow, International Food Policy Research Institute (IFPRI)), Vikas Rawal (Professor, Jawaharlal Nehru University), and N. Vijaya Lakshmi (Principal Secretary, Government of Bihar). The event was moderated by Sukhpal Singh (Professor, Indian Institute of Management, Ahmedabad). 

There has been considerable debate and discussion around the recent announcements of agricultural reforms with regard to the Agricultural Produce Market Committee (APMCs), contract farming, and the Essential Commodities Act. This webinar was organised to understand the structure and dynamics of agriculture markets along the lines of the new reform announcements and its impact on the livelihood of farmers.

Are the new farm laws a step towards transformational change?

Siraj Hussain stated that there was a general consensus about rethinking the APMC (Agricultural Produce Market Committee) systems,¹ which were considered restrictive in terms of competitiveness and price realisation. However, he also noted the variation in the efficiency of APMCs across states – they function well in Madhya Pradesh, Gujarat, and Rajasthan, while it is weak in other states such as West Bengal, Jharkhand, Orissa, and Chhattisgarh. It has long been maintained that agriculture is a state subject and a constitutional amendment is needed to bring it to the concurrent list.² Thus, this raises questions about the way reforms – that require a contextualised approach – are being proposed to be implemented at the same pace across the country. He also added that the farmers are at the mercy of markets and price volatility and thus, there is some apprehension about these market reforms.

Sudha Narayanan highlighted that the perspective of sellers is missing in designing the APMC Bypass Act (Farmers’ Produce Trade & Commerce (Promotion & Facilitation Ordinance) 2020), which is currently being seen only from the viewpoint of supply-chain actors or buyers. Irrespective of the narrative around this new Act, the farmers have always had the option to choose the buyer – not necessarily the best buyer – but this choice has always existed in the system. However, evidence suggests that there is a huge spatial inequality regarding where buyers procure: near urban centres with high demand and where irrigation is available, even the smallest landholder will find multiple buyers. However, if we go to places that are rain-fed and not very urbanised, with limited connectivity to roadways or cities, there are limited buyers. Hence, a blind spot of the Act is that it is based on the assumption that buyers are distributed evenly, and this is a concern for marginal farmers in marginal settings. Furthermore, she contended that the contract farming Act (Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020) does not make much of a difference to tenant and women farmers, as the nature of the contract is such that it is carried out with the male members of the family who own the land. It is also important for such legislations to consider other entities involved in the supply chain such as the invisible family labour, especially of women.

Dr. N. Vijaya Lakshmi emphasised that there is no one-size-fits-all solution, especially when it comes to a sector like agriculture, which is complex and has several players and stakeholders. Bihar was the first state to repeal the APMC Act in 2006. However, mandis (agricultural markets) still exist in Bihar, and auctions take place daily in the mandis. The difference between the nature of the mandis now and prior to 2006 is the control of market. Prior to 2006 people in the mandis would put barricades and regulate the market by charging 1% extra levy from the farmers. This triggered the government to repeal the APMC Act in order to eliminate the additional levy charges and commissions. However, she also emphasised the role that the mandis – traders in particular – play in providing farmers the access to informal credit for their following sowing cycle, a symbiotic relationship which has been existing between traders and farmers.

Vikas Rawal stated that there is a lack of uniformity across APMCs and they function in different capacities across different states.. The way forward, which has been put forth by many academicians, is to increase investment to establish and strengthen market infrastructure. In January 2019, the Standing Committee on Agriculture of the 16th Lok Sabha, specifically highlighted that the marketing and other ancillary infrastructure of mandis in Bihar has eroded with time. Rawal expressed reservations about repealing the APMC Act for states that have weak infrastructure as he believes that doing so will further reduce farmers’ access to good marketing infrastructure. He further stated that these laws by themselves are inadequate to mobilise large-scale private investment in supply chains, as has been seen in states like Bihar that have low public investment in basic market infrastructure. Additionally, he said that he is apprehensive about whether these laws are intended to create greater competition or greater monopoly power.

What should the government do to create enabling conditions for farmers to benefit from the laws?

Siraj Hussain stated that regions with good investment climate will be more attractive to the private sector for investing in supply chains. For example, over the last couple of years, more than 50 private mandis have been set up in the state of Maharashtra. On the other hand, in the case of Bihar, under the Private Entrepreneurs Guarantee Scheme, the Food Corporation of India had to float tenders – multiple times for a project where the government guaranteed returns. This was because of challenges around electricity, rural roads, and law and order in poorer states – actors that impact investment decisions. Nevertheless, the amendment in the Essential Commodities Act may see more investment coming in for both the perishable and non-perishable sectors, and the entry of e-commerce will allow private players and start-ups to aggregate and link directly with the farmers. If differentials in taxes continue between mandis and trade areas outside, this may bolster more start-ups in the outside trade areas. 

Vikas Rawal added that there might be a process of consolidation of market power – with several small players becoming agents of bigger traders and agribusinesses. This trend may be seen across many commodities in the future. Small traders would work both as independent agents and also as part of a closely linked network of traders that are further integrated with larger agribusiness companies. However, this may also lead to a process of capitalist differentiation where larger traders would consolidate and the smaller traders would lose out. 

Sudha Narayanan outlined the existing group differentiation in terms of corporate initiatives: the first group includes several new start-ups with the right intentions and social commitment; the second group comprises old agribusinesses such as ITC Ltd. that have invested in the sector and have developed relationships with farmers for generations; and the third group that are more opportunistic and using agribusiness input/output markets for data consolidation rather than as a space to do business. While there are substantial investments around big data, the International Panel of Experts on Sustainable Food Systems has warned the EU that they should block mergers that would result in the over-consolidation of farm data. Further, she said that although the new acts speak about deregulation, they, may end up leading to over-centralisation of trade areas through regulations and data consolidation. Citing the report on  ‘Doubling Farmers’ Income’ she referred to the idea of electronic platforms such as Krishi apps, which will provide services such as agricultural advice to farmers  and agricultural data and this information can be monetised in a public-private partnership. The nature of these services may put smallholder farmers in a vulnerable position due to the issues that they may face in accessing these services.

Potential for crop diversification and better farmer incomes

Discussing the laws in the context of crop diversification, Sudha Narayanan contended that there may not be much room for diversification given the current income distribution, existing infrastructure, and water and soil constraints. With very low margins and high volatility in horticulture and food grains, agribusinesses in this space suffer from management contract enforcement problems. However, FPOs (farmer producer organisations) may succeed in the space of very high-value niche crops. Thus, due to the failure of public extension systems, farm engagements through FPOs can have important productivity gains, and social enterprises are also increasingly focussing on sustainability as a goal.

Siraj Hussain cited the CACP (Commission of Agricultural Crops and Prices) Report (2017-18), which mentions that paddy gave a return of around Rs. 43,000 per hectare; maize gave a negative return of Rs. 15,000; and sugarcane gave a return of Rs. 94,000 per hectare. Thus, how farmers should be compensated for diversifying production, would be a challenge for the government. Hussain suggested the need to draft a 10-year plan in order to diversify and increase investment in research for better productivity of pulses. If coupled with direct investment income support to farmers, there is possibility that farmers will be willing to diversify.

In this regard, Vikas Rawal emphasised on three aspects. First, when we refer to diversification it is important to differentiate between diversification that is driven by market forces and one that is planned in certain direction in different parts of the country. Second, for any kind of diversification to happen, whether market-driven or planned, a critical requirement is that the alternative crops that farmers grow should be equally remunerative. The government has lost the instruments that it had to intervene in relative remuneration measures for crops. There is a limit to which MSP (minimum support price) can be used as only rice and wheat are being procured. Third, the remuneration that farmers get from production of crops such as maize has to improve if farmers are to shift to such crops.

Dr N. Vijaya Lakshmi stated that the scenario is indeed complicated as it requires reducing the production of foodgrains and increasing the production of oilseeds, pulses, and other horticulture crops – while keeping the interests of the farmers in the centre. Although complex, it can be done through planning and strategising for every district; it is also possible to organise as per the 11 agro-climatic zones in the country for the purpose of planning. This can be a regular annual exercise where 10 days prior to the agricultural sowing season can be set aside for planning and strategy.

In conclusion, Sukhpal Singh shared his views on the agricultural reforms. He expressed reservations about how the market was to be opened up for farmers. Any individual with a PAN card can become a wholesale trader; they may lack the knowhow to understand the value of the produce, particularly when the farmers have invested six months of hard labour. Second, the role and treatment being given to FPOs is problematic where the FPO is seen as a farmer, one type of farmer as a group who is restricted to the supply side and is not a buying entity or involved in farm production. Furthermore, contract farming is being incorrectly mixed up with corporate farming. Third, there have been discussions suggesting that APMC mandis were not efficient in price discovery. However, in the contract, it states that prices would have to be benchmarked against mandi prices or trading market price. Contract farming should discover its own prices, and not necessarily go back to APMC price discovery. Further discovery could go beyond pricing mechanisms – to new technologies, new crops, lower input costs, better quality produce, and so on. Fourth, the contract farming Act says that sharecroppers can be a party to a contract, whereas it should be seen as a pure business arrangement between two entities only. Fifth, the 2003 APMC Act had clearly specified mandatory aspects of a contract, a minimum set of clauses with a model contract farming Act in 2003, and a model Act which all the states had adopted. However, the new version of the Act does not have these directives but it is open to the two parties deciding on everything. Moreover, it does not cover contract cancellation – who will bear the damage in case of delayed deliveries at the factory gate for perishable produce? Hence, the Acts are a shift towards promotion and facilitation but not necessarily regulation. The acts come across as promoting and facilitating corporate entry rather than protecting farmer interest adequately.

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Notes:

1. Agricultural marketing in India is a state subject and is regulated under the Agricultural Produce Marketing Committee (APMC) Act. The Act mandates that purchase of certain agricultural commodities occur through government-regulated markets (mandis) with the payment of designated commissions and marketing fees.
2. State governments have exclusive authority to pass laws on subjects included in the state list. Both state governments and the central government can make laws on subjects in the concurrent list; however in case of any conflict in laws passed, the central government prevails.