state-intervention-for-reforming-agriculture

Context: The present migrant workers’ crisis has shown that peasants would not want to stay in rural India. The magnitude of the problem may worsen if these workers have to continue living in their villages.

Background:

  • Post-1991 government policies: Middle-class consumers were preferred by successive governments at the expense of farmers, who could not sell their crops at a fair price anymore. 
  • Neglecting farm pricing: The Agricultural Prices Commission (APC) that was established in 1965 gradually included the living costs of farmers to assess the terms of trade between agriculture and industry while determining agricultural pricing. 
    • The Commission for Agricultural Costs and Prices (CACP) that replaced the APC in 1985 added a 10 percent mark-up over the MSP to account for entrepreneurial costs. It helped to contain the urban/rural divide. 
    • Such practices have been gradually eroded post-1991. 
  • Rural-urban divide: The urban/rural ratio, in terms of monthly per capita expenditures, was reduced for the first time since 1974, it has jumped from 1.84 to 2.42 between 2012 and 2018. 
    • This means that an average urban-dweller today can consume almost 2.5 times more than an average person in a village.
  • Flaws with the APMC Act: It does not allow the free market to function due to government intervention, thereby denying farmers the opportunity to determine the prices of crops in the marketplace. 
    • APMC Acts provide that first sale in the notified agricultural commodities produced in the region only under the aegis of the APMC, through its licensed commission agents. 
    • Then onwards, the area will be managed and regulated by an APMC.
    • Further no agency or person will be allowed to carry on wholesale marketing without permission. The act created a monopoly of the APMC in the market area.

Assessment of the APMC Act: The APMC Act is not the main problem but a part of solution.

  • Build food stocks: 
    • As of June, the Food Corporation of India (FCI) had 832.69 lakh tonnes of rice and wheat in stock, the most since 2005. 
    • India managed to weather the 2008 global food crisis only because it had enough food stocks as Indian agriculture was not linked to the international futures market. 
    • This was possible due to the procurement done through the APMC Act.
  • Modified Act is better
    • Since agriculture is a state subject, the Act has been modified in 17 states. 
    • Some of the initiatives include Uzhavar Sandhai in Tamil Nadu, the Rythu Bazaar in Andhra Pradesh and Telangana, the Apni Mandi in Punjab, the Raitha Santhe in Karnataka and the Krushak Bazaar in Odisha. These modifications are doing well.

Therefore, it is incorrect to describe the APMC Act as an impediment in alleviating rural distress. 

Recent govt. initiatives:

  • Liberalising India’s agriculture by amending the Agricultural Produce Marketing Committee (APMC) Act and 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.
  • Contract farming will also be introduced in such a way that the buyer can assure a price to the farmer at the time of sowing. This has been touted as the “1991 moment” for the agriculture sector.
  • The Union Agriculture Ministry’s Model Agricultural Produce and Livestock Marketing (APLM) Act seeks to expand farmers’ marketing choices — by allowing private markets (as against only APMCs), permitting direct bulk purchases from the farmgate
    • declaring warehouses or cold storages as deemed markets and
    • demolishing the existing concept of a “market area”.

Essential Commodities Act: It has been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.

  • The ECA gives consumers protection against irrational spikes in prices of essential commodities.

Concerns with reforms: The problem, therefore, is not state intervention but the way the government deals with agriculture.

  • Private unregulated markets: Reforms have “led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage”.
  • Low reach of MSP: A High-Level Committee headed by Shanta Kumar observed in 2015, only 6 percent of farmers get the Minimum Support Price (MSP) — 94 percent already face the whims of the market. 
    • This is because of barriers to access for farmers as only 22 crops are procured under MSP. 
  • Insufficient infrastructure: There are only an estimated 7,000 APMC mandis across India, and procurement depends on the stocks required by the state.
  • The dilution of APMC Act: In Bihar, the APMC Act was revoked in 2006 with the rationale that further deregulation will attract private investment in infrastructure. Not only has that not materialised, but the existing APMC market infrastructure was also dismantled. 
  • APMC flaws: APMCs technically have multiple buyers, but the system of open auctions for determining prices through transparent bidding is, in practice, non-existent.
  • ECA flaws:There can be genuine shortages triggered by weather-related disruptions in which case prices will move up. So, if prices are always monitored, farmers may have no incentive to farm.
    • With too-frequent stock limits, traders also may have no reason to invest in better storage infrastructure. 
    • Also, food processing industries need to maintain large stocks to run their operations smoothly. Stock limits curtail their operations. In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities.
  • Unbalanced fertiliser subsidy: In the Union Budget 2019-20, the allocation for the Ministry of Agriculture was Rs 1,30,485 crore and the fertiliser subsidy alone was estimated at Rs 79,996 crore. 
    • Only three crops receive more than 60 percent of the “non-product-specific” support to agriculture — rice, wheat and sugarcane, whose market prices are attractive and competitive. 
    • This has led to environmental degradation like the depletion of groundwater levels and monocultures which are a threat to biodiversity. 
    • It has also led to the industrialisation of agriculture, that results in the strengthening of a handful of multinational companies, which supply chemical inputs. 
    • Liberalisation would only strengthen the role of large companies — including those in the agri-food sector.

Way forward:

  • Structural reforms: Structurally, farming needs to be made economically and ecologically viable in India. 
    • State intervention: Instead of further liberalisation of agriculture, state intervention for better pricing, investments in water harvesting and an agroecological transition could ensure a more resilient system to weather shocks like the current one. 
    • Sustainable agriculture: The govt. should take a cue from the Andhra Pradesh Community Managed Farming model, which promotes agroecological principles with the use of locally-produced, ecologically-sustainable inputs focusing on soil health, instead of depending on chemical fertilisers. 
    • Bio-diversity as safety net: Since the agro-ecological system of farming is more biodiverse in nature, it will make the system more resilient overall and provide a safety net for farmers in case of crop damage due to various factors such as climate change or droughts.
    • Implementing recommendations of the M S Swaminathan Committee: The commission concluded that farmers needed to have assured access and control over basic resources including land, water, bio-resources, credit and insurance, technology and knowledge management, and markets.

These steps would also help bridge the drastic urban-rural divide. These structural reforms would represent for farmers what the MGNREGA has been for landless peasants — who would most probably benefit from these reforms as well.

SWAMINATHAN COMMISSION: The Swaminathan Commission was tasked with finding solutions to the problems faced by farmers. The commission submitted five reports between December 2004 and October 2006.The Swaminathan Commission identified certain causes for farm distress. These are:

  •     Unfinished agenda in land reform
  •     Quantity and quality of water
  •     Technology fatigue
  •     Access, adequacy and timeliness of institutional credit
  •     Opportunities for assured and remunerative marketing
  •     Adverse meteorological factors aggravate these problems

RECOMMENDATIONS: 

  • To distribute ceiling-surplus and waste land among farmers: The share of the bottom half of the rural households in the total land ownership was only 3 per cent and the top 10 per cent was as high as 54 per cent. 
    • One of the demands of the agitating farmers today is that they should be made the owner of the land they have been tilling for years.
  • To prevent diversion of prime agricultural land and forest to the corporate sector for non-agricultural purposes.
  • To ensure grazing rights and seasonal access to forests to tribals and pastoralists, and access to common property resources.
  • To establish a National Land Use Advisory Service: This would have the capacity to link land use decisions with ecological meteorological and marketing factors on a location and season-specific basis.
  • To set up a mechanism to regulate the sale of agricultural land, based on quantum of land, nature of proposed use and category of buyer
  • To give farmers a minimum support price at 50 per cent profit above the cost of production classified as C2 by the Commission for Agricultural Costs and Prices (CACP)

About C2

  • The CACP defines production costs of crops under three categories -- A2, A2+FL (standing for family labour) and C2.
  • A2 is the actual paid-out expenses incurred by farmers -- in cash and kind -- on seeds, fertilisers, pesticides, hired labour, fuel, irrigation and other inputs from outside.
  • A2+FL includes A2 cost plus an imputed value of unpaid family labour.
  • C2 is the most comprehensive definition of production cost of crops as it also accounts for the rentals or interest loans, owned land and fixed capital assets over and above A2+FL.
  • Swaminathan Commission recommended this to be the basic cost and prescribed MSP 50 per cent above C2.
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