market-failure-on-agriculture-sector-reforms

 

After reading this article, answer the following question for Mains answer writing practice. Also you can get your answer checked free of cost by clicking on the following link.

For Mains:https://www.jatinverma.org/home/typepost/dailymainsanswerwriting

Image source: finacialecpress.com

Context: Recently the Parliament passed the three farm reform Bills that have seen widespread protests particularly in Haryana and Punjab. 

Background

  • Indian Agriculture is characterized by fragmentation due to small holding sizes and has certain weaknesses such as weather dependence, production uncertainties and market unpredictability. 
    • This makes agriculture risky and inefficient in respect of both input & output management.

The three controversial Bills are:

A.Bill on agri market

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill : Key features

  • Farming agreement: It provides a framework for farmers to enter into direct contracts with those who wish to buy farm produce.
  • So far, a farmer cannot directly sell his produce to consumers or food processing companies; he has to go through a licenced trader as per the APMC Act.
  • But from now on, any farmer may enter into a contract with any person or company to sell his produce. 
  • Sale, lease or mortgage of farmers’ land is totally prohibited and farmers’ land is also protected against any recovery.
  • Pricing of farming produce: The price of farming produce should be mentioned in the agreement.  
    • For prices subject to variation, a guaranteed price for the produce must be specified in the agreement.
  • Dispute resolution: Instead of using the regular judiciary for dispute resolution between parties, the ordinance delegates dispute resolution to the executive (sub-divisional magistrate), who will not be bound by rules of procedure.
    • This gives the government more powers than the parties in the case.
    • Suo motu cases: These are cases where neither of the parties to a farming contract has raised a dispute, but the authority still can enter into the contract and make changes. 

Benefits:

  • Farmers will be freed from the monopoly of APMC mandis and evade the rent-seeking behaviour of the traditional intermediaries (called arhatiyas). 
  • It will open more choices for the farmer, reduce marketing costs for the farmers and help them in getting better prices. 
  • This will supplement the existing MSP procurement system which is providing stable income to farmers.
  • It will pave the way for creating One India, One Agriculture Market.

Opposition

  • Federalism issue: Agriculture and markets are State subjects.
    • Revenue loss: States will lose revenue as they won’t be able to collect Mandi fees for trade done outside APMC Markets.
    • Credibility issue: In the present mandi system, arhatiyas (commission agents) have to get a licence to trade in a mandi.
    • Arhatiyas have credibility as their financial status is verified during the licence approval process. But how can a farmer trust a trader under the new law.
  • Market fee provision: Farmers say that by removing the fee on trade, the government is indirectly incentivising big corporates as this provision does not provide a level playing field to APMC mandis.
    • It may eventually end the MSP based procurement system.
    • MSPs work in the formally regulated APMC mandis, and not in private deals.
  • Electronic trading like e-NAM uses physical ‘mandi structure’. What will happen to e-NAM if ‘mandis’ are destroyed in absence of trading.
  • Market accessibility: Small farmers form the majority and their access levels to markets under the APMC system are at the rate of one for an area of 434.48 sq. km on average — well below the recommendation of the National Commission on Farmers (NCF), at one market for 80 sq. km. 

B.Bill on Contract Farming

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill: key features

  • Farming agreement: It provides a framework for farmers to enter into direct contracts with those who wish to buy farm produce.
    • So far, a farmer cannot directly sell his produce to consumers or food processing companies; he has to go through a licenced trader as per the APMC Act.
    • But from now on, any farmer may enter into a contract with any person or company to sell his produce. 
    • Sale, lease or mortgage of farmers’ land is totally prohibited and farmers’ land is also protected against any recovery.
  • Pricing of farming produce: The price of farming produce should be mentioned in the agreement.  
    • For prices subject to variation, a guaranteed price for the produce must be specified in the agreement.
  • Dispute resolution: Instead of using the regular judiciary for dispute resolution between parties, the ordinance delegates dispute resolution to the executive (sub-divisional magistrate), who will not be bound by rules of procedure.
    • This gives the government more powers than the parties in the case.
    • Suo motu cases: These are cases where neither of the parties to a farming contract has raised a dispute, but the authority still can enter into the contract and make changes. 

 

Benefits

Opposition

  • It will transfer the risk of market unpredictability from the farmer to the sponsor and also enable the farmer to access modern technology and better inputs. 
  • Farmers will get access to technology and advice for high value agriculture and get a ready market for such produce.
  • Farmers will engage in direct marketing thereby eliminating intermediaries resulting in full realization of price.  
  • It will reduce the cost of marketing and improve income of farmers.
  • It will act as a catalyst to attract private sector investment for building supply chains for supply of Indian farm produce to national and global markets.
 
  • Farmers can influence the most powerful governments through the electoral process but vis-a-vis big companies, they are exposed as minor players, incapable of bargaining effectively.
 
  • The sponsors may not like to deal with a multitude of small and marginal farmers.
 
  • Being big private cos, exporters, wholesalers and processors, the sponsors will have edge in disputes.
 
  • Farmers say the ordinance does not allow them to approach a civil court.

C.Bill relating to commodities

The Essential Commodities (Amendment) Bill, 2020 for amending the Essential Commodities Act to deregulate trading practices in agricultural markets (mandis).

  • The changes to the Essential Commodities Act, 1955, will “deregulate” various agricultural commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from stock limits, except in case of natural calamities like famine.  
  • It will allow farmers to sell their crop to anyone.
  • This will remove fears of private investors of excessive regulatory interference in their business operations.

 

Benefits 

Opposition

  • It will attract the private sector/FDI into the farm sector due to removal of excessive regulatory interference in business operations.
  • Price limits set for extraordinary circumstances are so high that they are likely to be never triggered.
  • It will help farmers and consumers while bringing price stability.
  • Big cos will have freedom to stock commodities-it means they will dictate terms to farmers, which may lead to less prices for the cultivators.
  • It will create a competitive market environment and cut wastage of farm produce.
  • Recent decisions on onion imports creates doubt on its implementation.
  • In doing so, the government prioritised the interests of the consumers over the interest of the farmers (the producers).

Concerns:

  • An unwarranted fascination with MSPs in India: The last Agriculture Census (2015-16) showed that 86% of all land holdings were small and marginal (less than 2 hectares). 
    • These are such small plots that most farmers dependent on them are net buyers of food. 
    • When MSPs are raised they tend to hurt the farmers the most.
    • Data that shows more and more farm produce is being sold to private players — instead of the government via MSPs — already.
  • The lack of information with farmers inhibits their ability to make the best decision for themselves. How will an average farmer figure out the right price for his or her produce?
  • In the absence of adequate infrastructure to store their produce, farmers may not have the capacity to bargain effectively even if they knew the right price.

Way forward: The new laws are not shutting down APMC mandis, nor are they implying that MSPs will not be functional. If the private deal is not distinctly better, a farmer can carry on as before.

  • Strengthen competition: The center should massively fund the expansion of the APMC market system, 
    • Remove trade cartels 
    • Provide farmers good roads, logistics of scale and real time information. 
  • Recommendation of the National Commission on Farmers (NCF): The emphasis should be on empowering farmers through State Farmers Commissions recommended by the NCF, to bring about a speedy government response to issues. 

The laissez-faire policy needs strong institutional arrangements to protect lakhs of unorganised small farmers, who have been remarkably productive and shored up the economy even during a pandemic.

Agriculture Produce Market Regulation (APMC) 

  • From the 1960s, there have been concerted efforts to bring all wholesale markets for agricultural produce in various states under the Agriculture Produce Market Regulation (APMC) acts.  
  • All states, except Kerala, Jammu and Kashmir and Manipur, enacted such laws.
  • APMCs were set up with the objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce.
  • The APMC Acts mandated that the sale/purchase of agricultural commodities is carried out in a specified market area, and, 
    • Producer-dealers or traders pay the requisite market fee, user charges, levies and commissions for the commission agents (arhatias). 
    • These charges were levied irrespective of whether the sale took place inside APMC premises or outside it 
    • regulate the trade of farmers’ produce by providing licenses to buyers, commission agents, and private markets, 
    • provide necessary infrastructure within their markets to facilitate the trade.

Assessment of APMCs

  • Till 1991, APMC acts helped remove malpractices and freed the farmers from the exploitative power of middlemen and mercantile capital. 
  • Inadequate marketing facilities: By 2006, there was a palpable loss in growth in market facilities as it declined to less than one-fourth of the growth in crop output.
    • Due to poor market infrastructure, more produce is sold outside markets than in APMC mandis. 
    • The net result was a system of interlocked transactions that robs farmers of their choice to decide to whom and where to sell, subjecting them to exploitation by middlemen.
  • Marketing barriers: There were restrictions for farmers in selling agri-produce outside the notified APMC market yards. 
    • The farmers were also restricted to sell the produce only to registered licensees of the State Governments. 
    • Barriers existed in free flow of agriculture produce between various States owing to the prevalence of various APMC legislations enacted by the State Governments.
  • Burden on Centre: Over time, APMC markets have been turned from infrastructure services to a source of revenue generation. 
    • In Haryana and Punjab, mandi fees and rural development charges for wheat and non-basmati rice purchased by FCI are four to six times the charges for basmati rice purchased by private players. 
    • This not only results in a heavy burden on the Centre but also increases the logistics cost for domestic produce and reduces trade competitiveness.
  • The Centre says that it was persuading states to implement the Model APMC Act, 2002-03. But the states did not fully adopt it. 
  • Therefore, the Centre had to adopt the Bill route. It will lead to helping farmers realise a better price. 

 

After reading this article, answer the following question for Mains answer writing practice. Also you can get your answer checked free of cost by clicking on the following link.

For Mains:https://www.jatinverma.org/home/typepost/dailymainsanswerwriting

Q) Critically analyse the performance of Agriculture Produce Market Regulation (APMC) acts in India. Also suggest a way forward for improving the APMC system. (250 words)