Coronavirus relief package: Covid agri-reforms are half-baked

20 May 2020

If Bihar’s example is anything to go by simply repealing the APMC Act is not enough to benefit farmers. There is a need to move from notional to functional FPOs

Opinion: Sanjib Pohit

In the Covid-19 relief package finance minister Nirmala Sitharaman has focused on a number of capacity building measures for the agriculture sector—such as the Agriculture Infrastructure Fund for strengthening the so-called farm-gate infrastructure including logistics and storage support for perishable farm produce formalisation of micro food enterprises support for marine aquaculture animal husbandry and herbal cultivation and an additional emergency working capital to farmers through NABARD among others. Most of these are part of the recommendations of the DFI committee that have been lying with the finance ministry for quite some time.

The FM also took this opportunity to reform the Agriculture Produce Marketing Committees (APMC) structure and the creation of an enabling legal framework for farmers. The expectation is that reforming/repealing the Act will enhance price realisation for farmers by deregulating select agriculture food stuffs including cereals pulses edible oils oilseeds onions and potato. The formulation of a central law to bring about agriculture marketing reforms is expected to provide marketing flexibility to farmers to sell their product at their chosen market where the price is high. The private investment will flow into the sector for creating capacity in storage etc—this is currently not forthcoming due to the presence of the APMC Act. This is another overdue recommendation of the DFI committee.

While there are fallacies in the APMC Act repealing/reforming it is only a small part of the game. More concrete steps are needed to derive benefits from it. What is certain is that in the present crisis private investment is unlikely to flow for capacity building in agri-infrastructure. It will be at least a year before private investment will flow. More worrying is that private investment may not flow at all and farmers may be worse off if we go by Bihar’s example!

Let me explain. The Bihar government took a bold decision to repeal the APMC Act in 2006. Traders are allowed to purchase agricultural commodities directly from farmers and the market fee is not levied on purchases.

Did these reforms improve price efficiency in the Bihar’s agri-markets? With the abolition of the APMC Act one would expect that the state’s grain markets are integrated within Bihar and also with national markets. Farmers are free to sell to traders in any part of Bihar and elsewhere in the country. This would imply that there is effective price transmission between the grain markets within the state and hence better price is received by farmers. Sadly NCAER’s study Agricultural Diagnostics for the State of Bihar in India indicates that this did not happen till 2019 a span of nearly 13 years.

After the APMC Act was abolished in 2006 it was expected that private investment would take place creating new markets and strengthening facilities in existing ones. On the contrary the situation at the ground level has not improved. Focus group discussions with farmers and traders revealed that agricultural markets are located far away from the villages. It has also been reported that the storage cost in private warehouses is very high and it is difficult for most farmers particularly marginal and small ones to afford it.

Even after the repeal of the APMC Act over 90% of the output of crops including paddy wheat maize lentil gram mustard and banana is sold within the village to traders and commission agents. Farmers reported that they do not get a fair price for their agricultural produce. Most farmers reported that their poor economic conditions and the need for immediate cash after harvest compel them to sell to traders at a lower price. Further government market facilities are not available near the village. Even if farmers take their produce to a distant market yard they face the problem of paying extra (bribes) to commission agents.

Farmers also cannot store produce at their homes due to lack of space and necessary storage conditions—doing so would risk spoilage of grains. Therefore they are forced to sell at the price that traders are willing to offer. Of course the situation is worse in Bihar due to the low level of participation of government agencies in procurement. This situation may be obtained in other states of India too if government procurement activities come to a standstill due to the repeal of the Act.

As such the bargaining power of a farmer is minuscule vis–a-vis a trader’s. To increase their bargaining power the government needs to promote and strengthen farmer producer organisations (FPOs). Group marketing not only reduces the length of marketing channels and marketing costs but also increases farmers’ voice. There is a need to move from the stage of “notional FPOs” to “functional FPOs”.

Contract farming provides a secure market with assured prices for agricultural products. This is important particularly for the growing of perishable products such as vegetables. While the FM has been proactive in reforming the APMC Act she could well have introduced the Model Contract Farming Act. This would have provided a level playing field for both producers and agro-commercial firms.

The author Sanjib Pohit is Professor at the National Council of Applied Economic Research. Views are personal.

Published in:  Financial Express, May 20, 2020