By K Nirmal Ravi Kumar and Suresh Chandra Babu
ANDHRA PRADESH, India / WASHINGTON D.C., Sep 30 2020 – Farm policy in India is in its own conundrum. If you ask, “what are the major challenges for increasing farmer income?”, any farmer in India would tell us that it is the low remunerative prices for their produces and he or she will add that most of the market margins goes to the middlemen.
Finally, the Government of India is getting the policies right to address these problems through passing three Ordinances viz., Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020; the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020; and the Essential Commodities (Amendment) Ordinance, 2020, which may have far-reaching implications for agricultural transformation in India.
Though progress in Indian agricultural market reforms has been slow, these ordinances could be a watershed moment for Indian agriculture if they are implemented well. Yet, their implementation solely rests with the state governments making the next move through developing their own contextualized strategies
And yet, the general public are at awe to see that farmers are protesting these policies, which may indeed be a boon to them in the long run. Among the myriad of writings on this issue in the media recently, we seek to inform the reader, “why these legislations have become so contentious and why the farmers are protesting them? We look at them in turn.
Ordinance 1 relates to The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020: The provisions of this ordinance intends to create an ecosystem, where farmers and traders enjoy the freedom to sell and buy the farm produce outside the markets notified under the Agricultural Produce Market Committee (APMC).
No market fee will be levied on any farmer or trader in these designated non-mandi trade areas. It also permits free intra-state and inter-state trade movements of farm produces.
The supporters of this legislation argue that it facilitates farmers to transact the produce anywhere in the country. The creation of non-mandi trade areas will provide farmers the freedom of choice to conduct trade for their produce.
The absence of market fees will reduces transaction costs in selling the farm produce. So, this legislation offers a win-win situation for all farmers, consumers and entrepreneurs and will further motivate APMCs to improve their efficiency of operations substantially to serve the farmers better.
The following are seemingly the reasons for the protests. As per Section 2(m) of this Ordinance, the creation of an additional non-mandi trade area may confine APMC mandis to their physical limits and allow big corporate buyers to operate freely.
As per Section 2(n) of this Ordinance, farmers contend that a “trader” cannot be trusted, as the “Arhatiyas” in mandis have the licence approval from APMCs.
Further, due to removal of market fees, it leads to loss of revenue to APMCs and this does not provide a level playing field to compete with private traders. This may lead to gradual collapse of existing APMC mandi system and may end up the MSP based procurement system. The failure of Bihar experiment (which repealed the APMC Act in 2006) may be repeated with this new law.
Ordinance 2 relates to The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020.
Through its provisions, the farmer or an FPO may enter into a contract with a sponsor only by written Farming Agreement and there is no provision for verbal agreement between them. This facilitates farmers to transfer market unpredictability to the sponsor and in the process, farmers can enjoy access to cost-effective production technologies, high-quality production systems, direct marketing of farm produce, full price realization and effective dispute resolution mechanisms.
This Ordinance promotes organized agriculture with assured buy-back arrangement with the sponsor, unlike the existing APMC system (led to a cartel formation by traders). This system further ensures regular supply of pre-determined quality of a produce on a steady seasonal basis to meet both domestic demand and international requirements.
However, the farmers opine that they will be the weak players in this sort of agreement, as they must deal with big corporate companies or sponsors. Further, the provisions allow dispute settlement at the Sub-Divisional Magistrate level, which is difficult for the farmers to fight against the big corporates.
Ordinance 3 relates to: The Essential Commodities (Amendment) Ordinance, 2020.
Provisions of this ordinance empower the Central Government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities and to regulate the production and supply of certain food items including cereals, pulses, potato, onion, edible oilseeds, and oils, only under extraordinary circumstances like war, famine, extraordinary price rise and natural calamity of grave nature.
Stocks limit may be imposed only if there is 100% increase in retail price of horticultural produces and 50% increase in the retail price of non-perishable agricultural food items. Thus, there will be no storage limit or movement restriction for these commodities.
Supporters of this bill argue that it can help liberalize business operations of private investors, promote ease of doing business, enhance market competition, safeguards the interests of farmers and consumers against irrational spikes in prices of essential commodities etc. It will promote investments in processing, cold storages and thereby, modernize the existing food supply chains.
However, the farmers fear that this ordinance will give corporates the trade advantage through hoarding of commodities and quoting higher prices. The terms used such as ‘extraordinary circumstances’, ‘extraordinary price rise’ or ‘natural calamity of grave nature’ in the Ordinance are subjective in nature which may result in interpretational disputes.
There we have it. While these policy moves are broadly in the right direction to make Indian agricultural sector competitive, they can be the sources of contention in a democratic set up.
Though progress in Indian agricultural market reforms (1990s and 2000s) has been slow, these ordinances could be a watershed moment for Indian agriculture if they are implemented well. Yet, their implementation solely rests with the state governments making the next move through developing their own contextualized strategies.
K Nirmal Ravi Kumar, Professor & Head, Department of Agril. Economics, Agricultural College, Bapatla, Acharya NG Ranga Agricultural University (ANGRAU), Andhra Pradesh, India
Suresh Chandra Babu, Senior Research Fellow, International Food Policy Research Institute, Washington, D.C.
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