AGRICULTURE: RELIEF BEFORE REFORM
The announcements relating to fundamental reforms in India’s agricultural markets were a particular highlight of Union finance minister Nirmala Sitharaman’s recent stimulus-cum-reforms package, delivered in five instalments. Most commentators have received the agri reforms, three in particular, quite effusively: the decision to amend the Essential Commodities Act (ECA), 1955; a national law for agricultural markets; and a legal framework to enable contract farming.
Ever since India embarked on economic reforms in 1991, agricultural market reforms have been a vexatious issue. A big challenge is that both ‘agriculture’ and ‘market’ are state subjects, even though the Centre has overarching powers, via Article 301, to ensure that trade within the country is free of barriers. Thus, state-specific laws under the Agricultural Produce Marketing Committee (APMC) Acts regulate agricultural trade within states. These typically mandate purchase of ‘notified’ agricultural commodities through government-regulated markets (mandis), on payment of specified commissions and marketing fees. There is, however, substantial variation across states in the scope and stringency of these Acts, and this variation has led to fragmented markets that have impeded the emergence of a single national market. Consequently, on the journey from farmer to end-consumer, commodities change hands five to six times, and the farmer gets no more than 25-50 per cent of wholesale prices. Removing interstate barriers to trade, one estimate suggests, can increase farmer prices by 11 per cent.
The ECA, on the other hand, allows the Centre to impose restrictions on storage and movement of certain ‘essential’ commodities by private parties, mainly to protect consumers. Here too, states are free to set stocking limits based on the Centre’s notifications. The ECA is a hurdle to private investment in post-harvest storage, warehousing and processing, especially because these controls are not even predictable.
Efforts at harmonising state-level laws have so far taken the form of appeals by the Centre, urging the states to reform the APMC along prescribed lines. The electronic National Agricultural Market (e-NAM)—an effort to enable crosscountry trade by establishing an online trading platform that would integrate markets across states—too was predicated on states aligning their laws to enable e-NAM. This might change with the Centre now revealing its willingness to wrest control and supersede state governments.
THE UNCERTAIN ROAD
But their merits apart, the euphoric response to the new initiatives is premature for a variety of reasons. First, these are still only expressions of intent; the devil, as they say, lies in the details. At this point, it is unclear what these specific regulatory changes will be. For example, will a national framework for agricultural markets invalidate all state APMC Acts? How far would the ECA amendments go? Would the rules for sugarcane pricing, the backbone of the sugar industry, also be removed? Further, many of these changes cannot be considered in isolation. For instance, while the deregulation of ECA has obvious merits, what levers would the government use instead to protect consumers against price rises?
Second, there is little evidence of the incremental impact a national framework for agricultural markets
or a contract farming law might have. A large number of major agricultural states already allow contract farming, direct marketing and private mandis. With the introduction of GST, toll collection has been streamlined to facilitate interstate movement of trade. In 2014, ‘fruits and vegetables’ were either fully or partially denotified and deregulated in many states. Bihar abolished the APMC Act altogether way back in 2006. Despite these changes, mandis and informal private traders are still the dominant buyers for a large number of small holders. The e-NAM too, often touted as a success, has had limited impact on the ground. Independent research as well as government evaluations suggest that many mandis still trade as they did before and merely record the transactions on the e-NAM portal. Farmers share a complex relationship with commission agents in mandis, relying on them for credit, storage, information and sale. Unless these services are available to farmers, it is unlikely that new laws will dislodge old relationships. It will take big investments and innovative institutions to create conditions where the farmer has a meaningful choice of potential buyers. The legal framework can set the rules of the game, but the larger constraints in playing the game lie elsewhere.
The potential for a contract farming law to be a gamechanger is even more sobering. In general, contract farming failure rates in India are high; it has only succeeded at scale in niche commodities for exports or for sectors such as poultry and seed production. It has not gained traction where domestic spot markets offer competition mainly due to difficulties in enforcing contracts. The small size of farms implies that companies have to negotiate with a large number of farmers, increasing transaction, compliance and monitoring costs. Both farmers and client firms are, therefore, reluctant to sign formal, legally enforceable contracts. Even when they exist, contracts tend to be notional, with both parties relying more on trust and using the contract mainly to express a seriousness of intent or to protect themselves from legal action. A national contract farming law, in this scenario, may well be honoured simply by being ignored.
RELIEF BEFORE REFORMS
The recent announcements make it amply clear that the government is using the COVID-19 pandemic as an opportunity to push through politically difficult reforms that have been in a state of suspended animation for a long time. Yet, the need of the hour is not expressions of reformist zeal or changes in regulation but a sharp focus on relief. Here, the government seems to be consistently all at sea.
Narratives in mainstream media and government seemed to take the view that farmers and Indian agriculture are resilient, will bounce back and lead us out of the economic shock. The reality, however, is different. Even if farmers are relatively cushioned as opposed to the harsh economic impact on migrant workers, it is useful to recollect that as per the National Sample Survey’s 2013 Situation Assessment Survey for agricultural households in India, 32 per cent of household income comes from wages. Another 12 per cent is derived from animal rearing, a sector that has been severely hit during the lockdown.
Atelephone survey of farmer households in nine states, conducted by Mumbai–based IGIDR (Indira Gandhi Institute of Development Research) in April-May, found there was widespread distress. Narrative accounts from villages documented by the Society for Social and Economic Research (SSER) present a similarly worrying picture. Widespread farmer distress will have serious repercussions both for rural recovery, in terms of wages and consumption demand, as well as for food security in the country. Flexibility in loan repayments and cash transfers will likely have a limited impact. These need to be supplemented with an effective expansion of the employment guarantee under MNREGA; decentralised public procurement and distribution of fresh produce; provision of cooked meals, input packages, kitchen garden kits; fodder supply and asset transfers (of fish, poultry, small ruminants etc.).
It is imperative the Government of India shows the same zeal for relief as it has so far for reform. ■
SUDHA NARAYANAN is a PhD in Agricultural Economics from Cornell University, USA, and currently Associate Professor at IGIDR, Mumbai. Her research interests include agricultural markets, supply chains, contract farming, rural labour and human development in India
THE EUPHORIC RESPONSE TO THE NEW REFORMS IS PREMATURE. THESE ARE STILL ONLY EXPRESSIONS OF INTENT; THE DEVIL, AS THEY SAY, LIES IN THE DETAILS