Agriculture Reform or Not?

Policy changes are boring and I do not know how to think about them or interpret them. Unfortunately, most policy maker language is written in such unapproachable gibberish that, at the expense of sounding politically correct, it misses transmitting knowledge to the common man. In a country like India where 60 to 70% of Indians depend on the agriculture sector, understanding these changes is very important, which is unfortunately difficult.

In September 2020, the government has enacted reforms that promise accelerated growth in the agriculture sector through private sector investment, with an intention to help small farmers bargain for their produce to get a better price in addition to investing in technology to improve the productivity of farms.

As we entered into the modern era with the success of the green revolution, agriculture was seen as a driver of growth; especially in the early stages of industrialization, which made policy regulation in agriculture very relevant.

A very intuitive paper on Agriculture policy by FAO says, “Creating an enabling business environment for agricultural sector performance is important and government policies and regulations play a key role in shaping the business environment through their impact on costs, risks and barriers to competition for various players in the value chain. However, the political economy that characterises regulation is complex and social goals typically compete with interest groups that distort regulations to capture economic rents.”

This can be confirmed from the fact that as regulations impose economic costs on businesses, it automatically creates incentives for firms to work outside the legal framework. Thus, overregulated markets can also lead to a large informal economy and high unemployment because they increase barriers to formal employment, and make markets too rigid to adjust to changing conditions.

The new reforms in agriculture policy of India are also an apparent attempt to adjust to changing circumstances of the market. Whether these changes really bring a sense of positive change or a problematic transformation, is up to the experts’ opinion. We at The Mitti Collective, want to look at it from our lens and bring both the content of the reforms and their criticisms together, in an attempt to get a better perspective of these changes. 

Let’s take a look at them and what they are trying to offer.

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020

The act allows trading “outside trade area” such as farm gates, factory premises, warehouses, silos and cold storages. Earlier agricultural trade could be conducted only in the APMC’s (agricultural produce market committee) yards or mandis. This was established by the Indian government to protect farmers from exploitation by large retailers.

The act is expected to facilitate lucrative prices for the farmers through competitive alternative trading channels, and to promote barrier-free inter-state and intra-state trade of agricultural goods. It also permits the electronic trading of farmers produce in the specified trade area, it will also facilitate direct and online buying and selling of such produce through electronic devices and the internet. In addition, the act prohibits state governments from levying any market fee on farmers, traders and electronic trading platforms for trading farmers in an outside trade area. 

The Essential Commodities (Amendment) Bill – Amends the Essential Commodities Act, 1955

The amended act restricts imposing stock limits unless under exceptional circumstances such as famine or other calamities. This means there will be no stock limit for processors and supply chain owners based on their capacity, or for exporters based on the export demand. The amendment also facilitates deregulation of agriculture produce such as pulses, onion, potato, cereals, edible oils and oilseeds with the aim of better price realisation for farmers.

(Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 facilitates creating a national framework for contract farming through an agreement between a farmer and a buyer before the production or rearing of any farm produce. It helps protect farmers engaging with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce by a mutually agreed lucrative price framework in a fair and transparent manner through a contract.

The Act provides for a three-level dispute settlement mechanism by the conciliation board, Sub-Divisional Magistrate and Appellate Authority. The agreement must provide for a conciliation board as well as a conciliation process for settlement of disputes.

On the outset, the policy language could quell some of the traumas inherited from the old system’s restriction. However, there is a lot to unpack here about the possible fears that are hidden under a veil of optimism. 

Through a very insightful discussion with Sudha Narayanan (Associate Professor at the Indira Gandhi Institute of Development Research) and Arindam Banerjee (Associate Professor at the School of Liberal Studies at Ambedkar University), The Hindu published a very informative article. From what we understood and have come across through our own research, we were able to consolidate the following criticisms:

1. Non-transparent: There is no regulation of data, and transactions seem to be invisible in the new trade area, thus undermining farmer interests. In the current APMC systems, even with its flaws, at least there is some recording and grievance redressal.

1. Balkanization: There is a trial to create an alternative that’s outside the APMC, which is on advantageous terms where you don’t have to pay fees or taxes. But private players traditionally looked to the APMC for a reference price to conduct their own transactions. Now, new players will prefer to trade outside the APMC yard because they don’t have to pay charges and APMC traders also might prefer to trade outside for the same reason. So, instead of unifying the national market, there is a possibility of little bargaining islands where people are randomly setting prices.

1. Skewed market view: The current bill is hinged on farmers getting better prices for their produce because they are going to get greater choices. But market prices are not simply dependent on market structures. Farmer organizations are thus concerned that other demands are being ignored; particularly during the current difficult economic situation where farmers find themselves stuck between rising cost of cultivation and sluggish prices.

1. Re-intermediation: Traders in India have a deeper relationship with the farmers. Other than the sale of crops, traders develop trust, extend credit and tolerate different quality levels of crop. Private players on the other hand (based on observed behaviour) could first out-crowd their competitors, in a hurry to engage with as many farmers as possible, but then they tend to co-opt cooperatives that will aggregate produce for them. This becomes a new kind of intermediation to reduce their spending on working with a large number of farmers.

1. Strategic move to agriculture trade: With the removal of restrictions on essential commodities, the new thrust area seems to be the grain trade in India, and that is where procurement by the government happens. With more than 90 million tonnes of foodgrain in our stocks, it is clear that there is a massive market to play around with, only if there is a relative shift of weight from government regulation to private players. Given that the pandemic has caused massive disruption of jobs globally, it has caused a massive disruption for capital and profits as well. Agricultural goods on the other hand have suffered less because these are necessary items in consumption, making the shift towards agricultural commodity trade on a bigger scale an attempt to recover some of its lost profits.

1. MSP (minimum support price): Although the pricing becomes unpredictable with the arrival of private players, introduction of MSP in the framework could be a relief. But given the possible outcome of these Bills, an MSP would be complex to consider. Insisting private players what price they deal with, is self-defeating both for the MSP as well as for private participation.

The Policy literature and the ensuing criticism although can continue to be more extensive than what has been presented by us so far, it is pretty evident that a brief glimpse into it offers great perspective on the potential risks both at an economic as well as social level.

What do you think about these reforms and do you have any unique concerns or opinions of your own?

Do tell us in the comments below !!!