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Mainstream, VOL LVIII No 28, New Delhi, June 27, 2020

Whither Agricultural Produce Marketing: Reform or Regression? | Rajinder Chaudhary

Friday 26 June 2020

by Rajinder Chaudhary

On the face of it, no one can take exception to the goal of “Giving freedom to the agriculturalists to sell their produce to the buyers and at the place & time of their choice, to whom so ever and wherever they get better prices” as an official document of the Government of India puts it. Echoing this, while announcing the promulgation of three ordinances to further free up the trade in agricultural produce, the Union agriculture minister is reported to have called it Independence Day for farmers. But wasn’t this the case before Agriculture Produce Marketing (Regulation) Acts, popularly known as APMC Acts came on the scene in the 60’s and 70’s? There was a private trader in each village buying from the farm gate with no state intervention. While the younger generation in Haryana and Punjab may not have seen those days; those above 50 years would definitely recall this. With no APMC act, no ‘regulated’ mandi, to strangulate him, theoretically the farmer was free to sell to whomsoever he wanted and whenever he wanted, actually farmer was at the mercy of the trader and was not only offered pittance but was also cheated in weighing and payment. It is to overcome this situation and ‘to ensure reasonable gain to the farmers by creating an environment in markets for fair play of supply and demand forces, regulate market practices and attain transparency in transactions’ that APMC Acts regime came into being. This thus enabled to bring the farmer-trader transaction in public domain from purely private domain. With the passage of recent ordinances, this has been undone; now even for commercial purposes (for own consumption it was already allowed) anyone with a PAN can purchase farmer’s produce anywhere. Thus the farmer-trader transaction is back to private domain.

 Through three recent ordinances, the government of India has ostensibly freed the farmer from the clutches of ‘regulated markets’ and allowed private enterprise a freer run in the marketing of agricultural produce. Even without these ordinances, trade in agricultural produce was in the hand of private enterprise. All commission agents and other functionaries of anaj mandi are private enterprises. The difference is that the mandi or trade itself is regulated by a market committee which has provision for elected representatives of farmers as well as traders. What has changed now is that private players need not come to this public domain and can keep the transaction private and buy anywhere from the farmer, at farm gate or get the farmer to its premises. Already, since 2007 after release of model APMC Act, many states have already made provision for setting up of private mandies, though it is yet to be operationalised at any significant scale. So, rather than leave it to the discretion of states, at one go, this central ordinance now allows private players to bye-pass all state regulation on marketing of agricultural produce all over the country.

 What has changed in the farmer-trader dynamics that the government has now allowed a trader to bye-pass all mandis and associated regulation, particularly when farmer has become smaller? If even with regulated mandi’s, the government is not able to ensure actual operation of minimum support prices (MSP) to farmers in all notified commodities and in all markets, as is officially admitted by the Government of India, what is the scope of ensuring remunerative prices to farmers in private trade beyond the public gaze? If government has not been able to actually operationalise eNAM (electronic National Agriculture Market), launched in 2016 with great fanfare and ostensibly operative in 1000 mandies, to overcome market fragmentation and hassle-free inter and intra state trade in order to ensure ‘better prices, transparency and timely payment’, what hope is there of it being able to do so by greater privatization of agricultural marketing? It needs to be underscored that already there are no restrictions on inter-state or intra-state trade between traders. There are restrictions only on such trade between farmer and trader. Restrictions on interstate movement are mainly on account of two reasons, and these are plausible- special bonus over and above MSP provided by individual states and because government purchase for MSP operation is not uniform across states. So, states feel that extensive and hugely demanding efforts that go into their MSP operations or financial outlay on bonus over and above MSP, should benefit their own farmers and not farmers or traders from other states.

 The other ordinance, again bye-passing states, seeks to centrally promote contract farming all over the country in order to ensure better deal for farmers. While public memory is known to be short, hopefully it would still be possible to recall that just last year 4 potato growers of Gujrat were taken to court by Pepsi and asked to pay more than one crore each on the charge of violation of contract and bio-piracy. Their fault? These farmers had the audacity to sell leftover stock, which was not bought by Pepsi because it was ostensibly not up to the required standards, in the open market and was used as seed. It was active intervention by farmers’ organizations and resultant public outrage during election season that made the corporate house withdraw the case against the farmers. So, much for contract farming per se being in farmers’ interest! Actually, in the garb of promoting ‘contract farming’ the ordinance seeks to promote ‘corporate farming’ as the contract is not limited to marketing of produce alone but can cover whole range of farm services too. Moreover, it has provision relating to payment to farmer for services provided, which clearly indicates that farmer may just be land and labour provider. While formally it seeks to prohibit leasing of land, the very next provision deals with permanent construction on the farmland indicating farm operations by corporate ‘sponsor’. Some kind of contract farming already exists in the country; the present ordinance seeks to take it all the way to ‘corporate farming’. It does not stop at that; the ordinance even keeps these private players outside the preview of watered down provisions of Essential Commodities act that will only come into force for food stuff in few limited conditions.

 But why should state seek to regulate the agriculture produce markets? Often farmers too say, we should be free to fix our own price? Why should government fix price of our produce, why MSP? At times like this, I recall my very first lecture of Agricultural Economics as an undergraduate student in Panjab University. To justify study of agriculture economics as a separate course, we were told that unlike industrial production, agricultural production has much greater dependence on nature; consequently there is greater variability in its production. Moreover, food being a necessity, there isn’t much variability in its demand and so it has low price as well as income elasticity; low elasticity in plain words means that demand for food does not change much in response to either changes in prices or income. When these two specific features of agriculture, high variability in supply due to its dependence on nature/weather conditions, and low variability of demand, are combined, this leads to two significant consequences. On the one hand huge volatility in food prices, which while distressing the consumers do not benefit farmers as a community; for a farmer with a destroyed crop, higher market prices don’ t bring much cheer nor does good yield with rock bottom prices. Second consequence is that due to low income elasticity, the demand for farm produce does not keep pace with the growth of the economy and hence, relatively speaking, income of farmers lags behind. These two characteristics of agriculture are the basic reason that agriculture markets all over the world have state intervention of one kind or the other. And as long as these specific features of agriculture remain, agriculture should not be left to market forces alone.

 Anyway, there are already agricultural commodities where such market regulation is not there, e.g., fruits and vegetables or milk; here trade is purely private. What is the fate of farmers producing these commodities? Every year or two, you find some vegetable or fruit being dumped on the road or ploughed back on the farm itself. What stops private enterprise from entering the market for these commodities and ensuring more remunerative prices to farmers? What stops private players from ensuring remunerative prices for farm produce in states like Bihar where APMC act does not exist? If can be safely surmised that if farmers in Bihar were to get MSP, there would be much less migration from there.

 What Government needs to do is to improve the functioning of ‘regulated markets’ rather than do away with the regulation. If it cannot improve the functioning of markets it is regulating and where private players are small, where is the hope of ensuring that the big sharks directly dealing with farmers will take better care of farmers? Primary need is to democratise the functioning of APMC markets; make these markets collectively and democratically managed as is already provided for in the Act rather than make it a structure that is totally manned either by bureaucrats or by nominated persons. In spite of shortcomings, democratic functioning remains the best alternative.

 Opening the gates to further privatization of agriculture marketing, and not just trade in agriculture, which is already private, would lead to what has happened to school education. A well off section is served well by the private sector and hence moves out of the public sphere, and what is left to be served by government schools, do not have a voice and are neglected. Private mandies, direct purchase and contract farming may serve the interests of big farmers who can have some bargaining power, leaving small farmers at the mercy of APMC which in turn may also be neglected or become non-viable as is happening with government schools.

Rajinder Chaudhary is Former Professor, Department of Economics, MD University, Rohtak

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