Harsimrat Kaur Badal, the minister from Akali Dal for Food Processing Industries in Union Cabinet resigned yesterday in protest of the recent agricultural market reforms that had been brought through ordinances in June. The reforms are due to be passed in Parliament in coming days of current session. These reforms have attracted criticism of many groups of farmers in Punjab and Haryana. Akali Dal has protested against these reforms, while terming then anti-farmer.
The APMC mandi system
The major resistance to these reforms is coming from Punjab and Haryana. These states have strong lobby of farmers and well developed system of Mandis established under Agricultural Produce Market Committee (APMC) acts. It must be remembered that agriculture is a state subject and state governments can legislate in matters connected to agriculture. Accordingly, states have created APMC acts.
According to these acts, a farmer can sell his produce only in APMC mandis. These are regulated markets and “aaratiyas” or “wholesellers” buy the produce at the rates arrived at after an opaque process of bidding. The farmer pays about 5-10% on the price of produce in terms of mandi fee and commissions.
The system has led to a great disparity in rates between mandis and retail. The consumers pay exorbitant prices, while cartels of traders make good money by creating artificial scarcity. A report estimated that the price of vegetables and fruits etc. is jacked up by about 60% from mandis to retail market. We often hear about how onion and tomatoes are not getting remunerative prices and farmers dumped the same on roads. Sometimes the APMCs give prices such as 50 paisa per kg or Rs. 1.5 per kg for tomatoes and onions!
This is the reason why central government had been trying to push states to bring reforms in APMC acts since last 17 years. The model APMC Act was released in 2003 and states were urged to follow it so that both consumers and farmers get a better deal. However, the pace of reforms was too slow. Ultimately, central government had to push through the reforms through the ordinances. As these ordinances are regarding the agricultural trade and marketing, centre has the constitutional power to legislate on the same. However, states like Punjab are looking at a probable loss in revenue from mandi fees and thus have termed it a move against federalism.
There were 3 different ordinances that are part of these reforms : The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020; The Farmers (Empowerment and Protection) Agreement; and The Essential Commodities (Amendment) Ordinance, 2020.
These ordinances completely change the way agriculture marketing is done in the country. Now it is not required to sell the produce at APMC mandis. If a farmer wants it, he can sell his produce to any person, at any place, at a mutually agreed price and at no transaction charges. This ensures that the market distortions are removed and the supply chain become a veritable supply network. It gives farmers more choices in terms of buyers and a competitive market means better prices for them and also lower prices for the consumer.
This will ensure that private buyers from large agro companies such as ITC and Dabur to small restaurants can directly source produce from the farmers without worrying about govt regulations. In fact, farmers can also sell in retail market if they wish to.
Apart from that the Essential Commodities Act, which imposed limits on stockholding by private players has been amended by a new Essential Commodities (Amendment) Ordinance that removes cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. The amendment will deregulate the production, storage, movement and distribution of these food commodities and thus encourage storage facilities to be built by private players.
Currently a large amount of produce gets destroyed due to non availability of storage facilities. Private players desisted to enter this sector as the sword of ECA always dangled over their head. The ordinance requires that stock limit on agricultural produce must be based on price rise. A stock limit may be imposed only if there is a 100% increase in retail price of horticultural produce; and a 50% increase in the retail price of non-perishable agricultural food items.
These are the changes that had been advocated by most of the agriculture experts and economists for a very long time. But what is the reason these changes are being resisted so bitterly?
Reasons for protest
It is well known that the green revolution did not benefit all parts of the country in the same manner. Some places, specially Punjab, Haryana and West UP etc. were benefited most during the revolution. These places turned into dominant producers of foodgrains and crop cycle of rice-wheat replaced other foodgrains. The biggest reason was that rice and wheat were purchased by the govt at govt mandated Minimum Support Price or MSP.
These MSP are higher than the market prices of grains and this has led to a huge overproduction of grains in the country. State owned Food Corporation of India procures these grains and then these are pumped into the subsidized grain schemes. But a large amount of the grains also get destroyed due to over procurement and improper storage. This over-procurement happens due to political pressure as farmers are a large voting block in these areas.
The changes have now given rise to fear that government would remove the MSP mechanism. In Punjab, the production of vegetables is not the major source of incomes for farmers, wheat and rice is their major produce. The fears of corporate monopoly in this are being stoked by vested interests. The argument is that initially corporates will offer higher prices to destroy mandis and then obtain monopoly and give lower prices.
This is similar to those protests when govt liberalized other sectors. However, liberalization has brought down prices in every sector and corrected market distortions. It did have some negative impact on the traders who depended on profiting by greasing the wheels of licence-permit raj.
The fact is that old traders can also procure without transaction charges from the farmers and using their better relations with farmers. However, they will certainly lose their commissions. More buyers will also mean less margins and therefore such middlemen are also in opposition to the act.
The fact is that government is not removing the MSP system. However, new agriculture marketing system may give rise to diversity in crops as buyers might be offering more money for other crops than wheat and rice. The farmers who want the old system can actually continue selling their produce in APMC mandis. The fears of a corporate monopoly are unfounded in a country like Bharat where there are a large number of small businesses. In fact the move will give rise to new entrepreneurs in agro-marketing sector.
These reforms are likely to give a huge boost to our agriculture based industries as companies, now free from insane regulations and irrational fees, will invest more in agro-processing that will add value to the economy. This could also absorb some of our excess labour and reduce unemployment. New storage facilities will stop the loss of farmers and also provide the freedom to sell when the price is right.
There is a huge export market for processed food, which can be leveraged to increase the incomes of farmers. A positive environmental impact, specially on soil health and water levels, is also very much a possibility if farmers get better prices for less water intensive crops.
However, vested interests are opposing these significant reforms. Opposition parties have also joined their bandwagon despite promising the very same reforms in their manifestos! Every new economic reform brings forth protests from votaries of old system. The reforms of 1990s are now considered landmark, but at that time were widely opposed.
The government would do well to use all sources of communication at its disposal to dispel the misconceptions of farmers and secure their cooperation in working these reforms. This is the time to show firm resolve in the face of stiff opposition, while explaining the real benefits of these reforms.
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