Agri Reforms and the Way Forward
- 1. 1 ATAMNIRBHAR KRISHI May 2021 | Haryana Kheti Mr. Sumit Jangra, B.Sc. (Hons) Agriculture CCS HAU, Hisar AGRI REFORMS AND THE WAY FORWARD griculture has moved from a production driven system to a demand driven system. Connecting farmers with consumers is very Critical which is now possible due to digital tools. Matching the demand and supply will ensure better prices for the farmers. Currently the agricultural supply chain is too long. Farmer gets hardly 30% of the consumer price. The Mandis, where the farmer has been mandated to sell his produce all along, are dominated by cartels of middlemen who have been exploiting the farmers. The MSP does not always prevail at Mandis. Many crops operate at market prices, determined by the demand and supply situation, both inside and outside the mandis. Out of the 23 crops covered by MSP government mainly buys Rice and Wheat at MSP. It is estimated that if the government buys all the 23 crops it will cost them Rs. 17 lakh crores annually!! Government procures about 70 million tons of food grains annually for public distribution system and welfare programmes – mostly from Punjab and Haryana. This assured outlet of rice and wheat made the farmers of Punjab and Haryana prosperous but also dependent on this system. This resulted in over production of rice and wheat, depletion of water resources and reduced fertility of soils due to over use of fertilizers. In this context the two new Acts that redefine the rules of agri commodity marketing in the country are welcome. They will reduce government’s role in agri output markets and bring in private investments into this space. These reforms were recommended in the ‘Report on Policies and Action Plan for a secure and sustainable agriculture’ submitted to the Principal Scientific Adviser to the Government of India, by a committee headed by Dr RS Paroda in August 2019. Similar reforms were also suggested in “Getting Punjab back on high growth path: sources, drivers, policy lessons” submitted by Dr Ashok Gulati, Ranjana Roy and Siraj Hussain. Here is a detailed analysis. The Farmers’ Produce Trade & Commerce (Promotion & Facilitation) Act 2020 (FPTC Act) gives freedom to the farmer to sell his produce anywhere in the country (Section 3). Private industry is allowed to set up mandis in villages. It also provides for an electronic trading platform which can be used by the farmers to sell to customers who are in far off markets (Section 5). Government’s E- NAM and other private electronic platforms will help the farmers with this. Quality assessment of the produce will also be digitized so that the farmer gets a fair A
- 2. 2 May 2021 | Haryana Kheti ATAMNIRBHAR KRISHI assessment of the quality (Section 5(1). Farmer can sell at his farm gate and save on transportation costs. This will shorten the supply chain from the current 8-9 links to 2-3 and improve the share of the farmer in the consumer price to 50-60%. The private mandis provide a market mechanism in addition to the APMC mandi system. It is not a replacement. When private airlines and private insurance companies were allowed those measures benefited the consumer. We can expect the same here. Some concerns are expressed by some stakeholders. The apprehensions and the answers to them are given below. 1. MSP system will be abolished: The Government assured that MSP will continue as an administrative practice like before. 2. Procurement by government will stop: Govt has to procure 70 m tons of food grains every year through Mandis for PDS & welfare programmes. 3. Mandis will collapse since no farmer will sell in Mandis: Govt. has balanced both private and govt. mandis after imposition of same tax pattern in private mandis as well. This will make them competitive and modern. Procurement & MSP operations will still happen through Mandis and farmers will continue to use them. 4. Private buyers outside Mandi will not be paying Mandi tax – loss of revenue for states: As per Section 6 of the Act this can happen. The central government has compensated the states for this in private mandis. 5. Private buyers outside the Mandi will exploit by forcing farmers to sell at lower prices – farmers will not have capacity to negotiate – MSP should be made mandatory for those transactions: Competition among many private players which will give better prices to farmers. Making MSP mandatory will defeat the purpose of the reform and will keep private industry away from this system. Currently a lot of trade takes place below MSP in mandis and outside mandis. 6. Fly by night operators will enter and exploit farmers, will not pay him and run away: Section 17(2) of the Act provides for registration of private buyers. Also in 2021, All traders would have to be registered and verified on a government portal in order to make any purchase. 7. No information about prices prevailing in private mandis outside the APMC Mandis leading to information asymmetry: Private digital e commerce platforms will have to be used along with E-NAM to capture all transactions as per Section 7 of the Act. A new system of logging price information from Mandis & Private players on digital platforms is to be developed. IV. Farmers (Empowerment & Protection) Agreement of Price Assurance & Farm Services Act 2020 (FAPAFS Act) makes it possible for the farmer to enter into forward contracts for his produce with process ors, wholesalers, aggregators, large retailers, exporters etc., on a level playing field. This will facilitate contract farming. This is purely voluntary. Section 5 of the Act gives minimum price assurance to farmers through the contract even before sowing of crops. In case of higher market price, farmers will be entitled to this price over and above the minimum price. Transfers the risk of market unpredictability from the farmer to the sponsor (contractor). Reduces cost of marketing for farmers since the Sponsor has to pick up produce from farm gate as per Section 6(1) of the Act. Payment terms are specified under Section 6(3) of the Act. The contracts can be linked to the flow of insurance and credit facilities for the farmer from financial institutions as per Section 9 of the Act. This will be a big benefit for the farmers. The contracts have to be registered with a designated registration authority as per section 12 of the Act which ensures that all sponsors are held responsible for the contracts they sign. Quality specifications of the inputs to be used and the output to be produced would be described in the contract as per Section 4(2) of the Act. Production of any value added products like organic foods, nutrition fortified crops, etc have to be cultivated under contracts so that the identity preserved supply chain system can operate from farm to fork and farmers get higher incomes. Promotion of contract farming will increase private investments in infrastructure, local processing facilities and generate rural employment. Large corporates will depend on small local players to bridge the last mile and provide services to the farmers and help corporates in achieving large volumes. This will help in generating rural entrepreneurship and economic activity Some concerns are expressed by stakeholders. Here are the answers. 1. The contractors may not pay MSP for the produce:
- 3. 3 ATAMNIRBHAR KRISHI May 2021 | Haryana Kheti Mandating MSP will kill this initiative and will keep the private sector away. Sufficient price protection is provided under section 5 of the Act which prescribes that the guaranteed price has to be mentioned in the agreement and it should be benchmarked against the prevailing prices in the APMC Mandi. 2. Corporates will form price cartels and exploit the farmers: Private industry players have to compete with each other. Farmers and FPOs will have sufficient bargaining power with different private players. Section 5 provides protection to the farmers. 3. Farmers are not equipped to deal with large private corporates: FPOs will have adequate strength to negotiate contracts. Institutional mechanism may have to be put in place to help the farmers and FPOs. 4. Corporates will take away farmers land: Section 8 of the Act specifically prohibits any transfer including sale, lease or mortgage of farmers land or premises under the contract. 5. Dispute Settlement mechanism is inadequate: An elaborate dispute settlement mechanism is described under Sections 13, 14 and 15 in Chapter III. SDM & Appellate Authority (District Magistrate) are empowered to resolve disputes – no need for farmers to travel to courts and spend money. Also in 2021, Govt. has granted permission to states for allowing the stakeholders to approach civil courts in case of dispute. It is important that these reforms succeed. However a level playing field has to be created between the public and private players with some safety net for the farmers. Here are some suggestions on creating the ecosystem. 1. Effective implementation of these Acts will require the joint effort of the Central govt and the State governments. It is essential that the governments of all States and different political parties agree on implementing these Acts with full vigour. Appropriate consultations may be held with States and other political parties at the highest level in the Central government. Some of the states have made good progress with APMC reforms in the last five years and hence should be on board. 2. The implementation of the Act and setting up of necessary infrastructure by the government as well as by the private industry will take a few years. It would be good to give at least 2 years transition time to implement these Acts and meanwhile focus on the following: a) Governments may announce a large fund to upgrade APMC Mandis, which need better infrastructure, technology and modern storage facilities. They are located at very good locations and should use that advantage. The cartels of middlemen should be dismantled in these Mandis. These mandis will continue to play an important role in achieving a balance in the markets and in facilitating procurement by the government. Promotion of contract farming will increase private investments in infrastructure, local processing facilities and generate rural employment. Large corporates will depend on small local players to bridge the last mile and help them in achieving large volumes. This will generate rural entrepreneurship and economic activity
- 4. 4 May 2021 | Haryana Kheti ATAMNIRBHAR KRISHI b) Announce a major budget to conduct a large scale capacity building campaign for farmers and FPOs to educate them about the new laws, on making contracts, using digital platforms, etc. The entire country should be covered in the two year period. c) Set up a national digital platform consisting of ENAM and selected private platforms so that this grid can be seamlessly used by farmers to sell their produce. Integrate quality assessment facilities on the same platform. However setting up physical aggregation centres and quality grading systems is also very important. d) Encourage private industry to invest in setting up private mandis and other infrastructure during this two year period and scale up operations quickly after that. State level policy support, funding support from banks & Value chain strategies will facilitate this. e) State governments may set up an Agri Business Office in each district which will advise the farmers with trading, making contracts, sharing commercial knowledge and information and similar support activities. f) Safety net of MSP may be needed for some of the farmers for this decade. This assurance may be given by the government in writing. g) Set up a large fund to make FPOs effective. Each FPO may need some seed fund from the government and also help in setting up a professional leadership team for FPOs of certain minimum size. This will help in making the FPOs achieve critical mass in operations with good governance standards. h) Set up a designated authority in each district for registration of all the contracts being entered into under section 12 of FAPAFS Act. i) Announce massive incentive programmes for farmers to undertake crop diversification in Punjab and Haryana and take up cultivation of Oilseeds, Maize, Vegetables and other crops which are under demand. j) Launch a major public education campaign about the reforms and create an appreciation for the need for reforms among common people. The two Acts will need a few amendments to make them more effective. Here is a list that the government may consider. a) A regulatory body may be set up, under these Acts, to oversee the operation of the markets and to prevent any price cartelization by the private buyers in the markets. A fear of such a regulatory body is necessary to keep the private sector within reasonable boundaries of price, service and efficiencies. b) Based on the powers provided under Section 4 of the FPTC Act, the Central government may set up a Digital registration system to register all the private buyers who are entering the market. a national registration number should be given to each buyer based on their background, track record, financial capacity, etc. The proposal in the Act that anyone with a PAN number can buy the produce from farmers is not adequate. c) Dispute settlement mechanism as per Sections 13, 14 and 15 of Chapter III of the FAPAFS or Sections 8,9 and 10 of the FPTC Act is not adequate. The Act should give farmers the freedom to go to court if they are unhappy with the order of the SDM or the Appellate Authority. d) Govt may stagger bringing different crops under the coverage of FPTC Act. It is not necessary to bring all crops under coverage immediately. Over a period of next 3-4 years crops can be brought under coverage in batches. This will make it a smooth process for farmers in different parts of the country and will not create a panic among them. These reforms hold the key to the future of Indian agriculture and the farmers. It is time for all stakeholders to show lexibility and resolve the issues through a dialogue. It is in the interest of the Indian farmer to do so.