For decades now, most political parties had been vocal about ending the monopoly of APMCs in buying farmers’ produce. Now that the NDA government has brought in the requisite legal framework, the same political bodies have conveniently chosen to forget their hitherto stated positions.
The enactment of three new laws on the marketing of farm produce during the recent short Parliament session has stirred up a bigger political storm than the Narendra Modi administration could have ever anticipated. The manner and speed with which the ruling party floor managers had these endorsed, particularly by the Rajya Sabha, where the balance of voting is still not clearly in favour of the BJP and its allies, was somewhat questionable. That said, at the same time, the opposition to the laws too is based predominantly on political considerations and exaggerated apprehensions. Many a political affiliation, which had hitherto been at the forefront of demanding such legislative action, has now turned turtle with their outdoing one another in arousing the emotions of farmers and getting them onto streets and railroads to protest.
The ever increasing human pressure on land in India has been rapidly reducing the average size of a landholding—from 2.28 hectares in 1970 71 to 1.08 h in 2015 16 with wide regional skewness. 86% of all landholdings are small (between 1 and 2 h) and marginal (less than 1 h) with average size among marginal being 0.37 h. (A study in 2015 had revealed that a holding smaller than 0.63 h does not provide income above the poverty threshold). The near stagnant land productivity combined with inter generational reduction in holding size, has drastically reduced the significance of streamlining the marketing channels for the estimated 130 mn households currently pursuing farming and for whom non farm employment contributes to about 60% of household income. Not only has the average holding size become financially unviable, but the further fragmentation of holdings into spread out land parcels has severely handicapped investing in tube wells, drip irrigation and other technologies. On an average, a small Indian farmer with under 3 acres of total holding currently ends up cultivating at least six small pieces of separately located land pieces.
On the other hand, to the 15% of the bigger tillers who cultivate about a third of the 190 mnh of arable land, the avenues of marketing are of importance in determining their farm incomes. Similarly, to those who have assured means of irrigating their farmlands and are capable of having multiple crops instead of just one crop annually, marketing remains a key driver. The few growers, both small and large, of commercial crops such as cotton, onion, soyabean, edible oils and pulses also need robust markets to sell their produce. Geographically, it is mostly farmers in Punjab, Haryana, western Uttar Pradesh, coastal Andhra Pradesh, Karnataka and Tamil Nadu who have sizeable marketable surplus, be it of paddy, wheat, maize, soybeans, pulses, mustard or groundnuts. The small and marginal farmers are barely able to meet their own personal food needs with very little left to sell.
For decades now, most political parties across the political spectrum had been vocal about ending the monopoly of Agriculture Produce Committees (APMCs) in buying farmers’ produce. For long their high compulsory charges ranging from 6.5% to 8.5% of the value of produce sold—without the corresponding value added services or providing robust access to markets have been faulted. Politicians, both national and regional, had been promising to repeal the state laws creating the APMCs, while the Central government, for over a decade, has been suggesting adoption of a model APMC law prepared by it.
Now that the NDA government, first by 3 Presidential ordinances in June 2020 and then through as many parliamentary approved bills, has brought in the requisite legal framework, the same political bodies have conveniently chosen to forget their hitherto stated positions. Almost suddenly they have begun to see faults and issues so far not visible to them, and are resurrecting arguments for continuance of APMCs and the Essential Commodities Act,1955 as applied to a handful of food products.
In a nutshell, the new law Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Act, 2020 has allowed farmers to bypass state controlled market yards run by APMCs without the payment of the exorbitant service charges, cesses and surcharges and instead sell their crops anywhere in the country including through electronic markets (like eNAMs). Under the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, farmers now have the choice of entering into contracts for selling produce, up to five years in duration, with agri businesses. To attract private investments in cold storages and other warehouses, supply of several commonly consumed food items under the amended EC Act, can be regulated by the state governments in extraordinary conditions of wars and famines, and strict stock limits imposed only when market prices increase steeply.
The new marketing regime, which many agri experts are comparing to the watershed 1991 liberalisation for manufacturing and trade, provides farmers with an alternative option to sell, besides envisaging the development of an elaborate countrywide technology based network of marketplaces, warehouses and cold supply chain. To support such post harvest measures and processing facilities through 10,000 new Farmers’ Producer Organisations, states and individual entrepreneurs, the Central government has launched a Rs 1 trillion (one lakh crore) Agricultural Infrastructure Fund Provision of options to sell the produce to buyers other than APMCs, can potentially increase the values a farmer can realise from his sales which, in wheat, are currently estimated by researchers at IIM, Ahmedabad at a mere 2.7% of marketable surplus for marginal farmers and 30% for medium and large farmers.
The protesting political parties and farmers’ groups argue that the possible ending of APMC monopolies will in fact result in farmers being deprived of their assured purchases under the central Minimum Support Prices (MSP) facility currently available to 23 commodities (14 Kharif, 7 Rabi and 2 calendar crops) at the 7,300 APMC “mandis” and other notified purchase centres. They apprehend that the MSP arrangement itself might soon be wound up since there is no mention of MSP in the new statute on sales of produce (though even at present, there is no statutory basis afforded to the MSP scheme in position since early 1960s for main staples of paddy and wheat, and later extended to crops like cotton, coarse cereals, pulses and oilseeds). The opponents are promoting the fear that this deregulation will make farmers vulnerable to market forces manipulated by deep pocketed agri businesses and drastically reduce their bargaining power. Farmers in states of Punjab, Haryana and Madhya Pradesh (who together account for about three-fourth of wheat procurement) and additionally in Andhra Pradesh, Karnataka and Tamil Nadu (who along with Punjab and Haryana contribute 85% of total paddy bought by FCI) are being worked on to favour the continuation of a fiscally supported MSP regime operating under government-run APMCs since MSPs can’t be forced on private buyers.
Another apprehension centres on subsistence farmers being short changed by the commission agents (arthiyas) who might shift their bases of operation out of APMC yards to the unregulated newer markets. Last February, the Union Agriculture Minister Narendra Singh Tomar had informed the Lok Sabha that the existing 22,000 gramin” haats” would be developed into full fledged agriculture markets. In Bihar, where the APMCs were statutorily dismembered about a decade ago, most small and marginal farmers have ended up selling their petty marketable surplus at their farm gates but at prices far lower than the open market prices, let alone the MSP. The arahtiyas, a majority of whom also act as moneylenders for buying seeds, farm operations, and even children’s education, take advantage of the new arrangement since they keep a hawk’s eye on farmers during the harvest season, claiming a first right on the borrower’s produce.
Several politicians and farmers’ organisations also doubt the motives of MNCs and other big agri-players when it comes to making investments in agri infrastructure, linking the Indian farmer to global supply chains or bringing mass usage of technologies for growing, preserving or manufacturing of agricultural product. The fact that the new regime has been warmly welcomed by large food companies like Cargill has only made them more circumspect.
Many of the suspicions at hand could perhaps have been avoided if the Central government had agreed to the suggestion made in the Rajya Sabha to refer these bills to a Select Committee of MPs. By awaiting its recommendations before converting the proposals into laws at the imminent winter session, the government might have chosen a more prudent approach. Regardless, it is unclear whether the government could have avoided judicial scrutiny since opposing states and many farmers’ bodies are challenging the constitutionality of the new statutes, the Central government, which had invoked the Concurrent list entry 33 in Schedule VII of Constitution on “trading” to legislate on agriculture, a State List subject, is on the thin end of the wedge.
Any sweeping law that disrupts the status quo will always have merits and challenges, and similarly, proponents and opponents. That should not foreclose the option of pushing ahead with radical changes—in fact, given our reliance on agriculture, this is an area in desperate need of transformative change.
Dr Ajay Dua, a public-policy specialist and a development economist by training, is a former Union Secretary.
Part II of this article on using the agri-reform laws to assist in doubling farmer incomes by 2022 will appear next week.