For FPOS, it’s back to square one
The repeal of the three farm laws has erased the small gains that would have accrued
ACurrently, the FPOS operate on thin margins owing to the outside-mandi trade taxes that several states, including Punjab, impose
round the middle of September last year, Sushil Hanote, a young farmer from Mali Silpati village in Betul district of Madhya Pradesh, was unsure how the farm laws, which had just been passed, would benefit him or fetch him a better price than the licensed mandis.
On a telephone call, Hanote did, however, say he would prefer his paddy crop to be collected directly from his field because the traders in Betul mandi paid him only after deducting their share of taxes.
That is why over the past few years, Hanote has been associated with a local Farmers-producer Company (FPC) and has been selling paddy and maize through it.
Farmer-producer companies and farmer producer organisations (FPOS) are collectives and cooperatives that have come up over the past decade or so and offer farmers an alternative mode of selling their produce than through mandis .In fact, ever since the three, now repealed, farm laws came into operation, several commentators and sector observers have pointed out that the benefits from liberalising outside-mandi trade will accrue if farmers were to organise themselves through FPOS.
There were three major arguments on how the laws would benefit the FPOS.
First, they would do away with the requirement of taking a licence or permission to buy crops directly from farmers in states and in crops
where such permission is mandatory. Second, they would lower transaction cost by excluding mandi taxes. Third, in the case of the farm contract laws, there were some benefits for aggregators as well.
But not all agree with this analysis.
“It would be wrong to say that FPOS were looking at the three farm Acts as some kind of magic wand that would boost their operations and push them into a firm growth trajectory,” Pravesh Sharma, former managing director of Small Farmers Agribusiness Consortium (SFAC), told Business Standard.
Sharma, who has been associated with FPOS for years, cites three reasons.
“Take the now repealed Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act. FPOS did not think it to be a big solution to their problems because several of them already sell directly to corporations, which give them a better price than the mandis. The savings they make on transportation and storage by selling to companies is passed on to the FPOS in the form of income,” he pointed out.
The second Act, which amends the Essential Commodities Act to relax stock-holding limits, was meant to encourage big investment in storage and warehousing space. Sharma said FPOS do not hold large quantities of any produce, so they were not expected to benefit from economies of scale.
As for the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, it made no difference to FPOS because such arrangements are already in place for milk or sugarcane.
“As far as direct procurement from farmers outside the mandis is concerned, which the Trade Act sought to facilitate and ease, I feel that direct procurement would not have got a boost because there was a law. It will happen only if there is trust and significant monetary benefits,” Sharma pointed out.
“For FPOS, easier access to funds, treatment on a par with traders in building infrastructure and so on will definitely boost their incomes, not the laws,” he added.
Shubendhu Dash, a project director with Access Development Services, a resource centre that supports and mentors FPOS across the country, feels differently. Dash, who operates in Andhra Pradesh, Telangana, West Bengal and Odisha, said the laws would have definitely given FPOS greater flexibility to work and operate.
He explained that over the years, in most states, resistance from mandis and state officials towards direct procurement by FPOS and also allowing them operations in mandis has been going down.
“After the Acts were passed, we thought the security deposit that
FPOS have to pay to mandis in some states would go down as direct tax-free purchases would be allowed outside mandis. But with the repeal of the Acts, the situation will go back to what it was,” Dash said.
The new laws would also have bolstered FPO margins. Currently, these organisations operate on thin margins owing to the outside-mandi trade taxes that several states, including Punjab, impose. Had those been scrapped as the new laws mandated, FPO margins would have gone up, G V Ramanjaneyulu, executive director, Centre for Sustainable Agriculture (CSA) pointed out. CSA has promoted FPOS in Andhra Pradesh and Telangana for over 10 years.
He said as far as selling outside the states is concerned, which the laws would have eased as well, it is difficult to judge the impact as several FPOS transport processed food after sourcing raw materials. “The Contract Act would have facilitated arbitration for FPOS, which wanted to enter into written agreement with buyers because going to court to settle disputes is not an option for many,” he pointed out.
Overall, he said, these Acts would have been beneficial for the FPOS. But given that some states have already gone ahead and allowed direct sourcing, repealing these laws has not made much material change on the ground.