For a country that has set itself the objective of realizing inclusive growth, food price inflation in the past couple of years has done enough to upset many a projection. But what’s worse is that there has been little agreement among policymakers on the source of the problem. As a result, a systematic response has not been forthcoming.
When markets turn unstable, the obvious response should be to examine the role of those who control them. In the case of agriculture, the reality is that agricultural commodities lack markets of the kind that most economists would like to see— wherein producers and consumers interact to determine the prices. In India, on the contrary, the two groups are separated by a long distance, only to be served by a chain of middlemen.
These middlemen determine the prices at which producers must sell their produce. Often, the prices that producers receive are not all that remunerative. At the other end, consumers remain saddled with high prices, since they have to bear the heavy burden passed on by the rent-seeking middlemen.
It may be pointed out that the role of middlemen and traders in causing the current food price inflation has not been examined in right earnest by the government. This lacuna persists even as each episode of price spike involving specific commodities brings forth evidence of price manipulation and speculation. Even if the authorities use this proof to confront speculators during specific episodes of intolerable price hikes, the status quo returns as soon as the exigency passes.
That the functioning of agricultural markets need to be seriously reviewed to allow both producers and consumers the advantage of the “right prices” is obvious. From the producers’ point of view, the market needs to be responsive to the needs of the peasants who are forced to remain below subsistence levels and pushed into a vicious cycle of poverty and debt. Left with no resources, there is hardly any opportunity for these producers to invest in farming, a syndrome that has dealt a body blow to Indian agriculture.
In most of the major commodities, productivity levels have gone downhill, reducing India’s efficiency among the major agricultural producers. These declining productivity levels, if allowed to continue, will seriously affect domestic production of major commodities, leaving India at the mercy of international markets. A large consumer such as India can scarcely afford this.
What are the steps that need to be taken to change the dynamics of agricultural markets? The first and the foremost is the proactive role that the government must play to ensure a decision-making role for farmers in these markets. Given the current market conditions, such a step would require putting in place institutional mechanisms coupled with appropriate infrastructure, which would allow farmers to get remunerative prices.
The most ideal outcome in this regard would be to provide infrastructural and other support to farmers’ markets at the local level. This would enable such markets to reach as near the consumers as possible. Such models exist in many industrialized countries; in the US, farmers’ markets have become so large and resourceful that they are increasingly providing the wherewithal for running the hugely successful domestic food aid programmes operated by the government.
A second-best solution would be to get farmers to participate in agricultural produce marketing committees (APMCs). These form the backbone of the agricultural marketing system in the country, having been set up through the APMC Act.
An oft-mentioned criticism of the Act is that it has allowed these committees to be converted into opaque organisations that allow rent-seeking activities to prosper. Faced with such criticism, the central government took steps to amend the Act nearly a decade ago. An expert committee on market reforms constituted by the ministry of agriculture suggested amendments. These included the significant establishment of farmer-consumer markets and private or cooperative markets.
More recently, the government has also drafted a model Act on agricultural marketing, which the states could consider while implementing the amendments to the APMC Act in their jurisdictions.
The model Act provided inter alia for the establishment of direct purchase centres and farmers’ markets for direct sales to consumers, transparency in the pricing system, and payments to farmers on the day of the sale.
It is perhaps not surprising that in most states, the amendments to the APMC Act have not gone through. The change in market dynamics has not gone down well with those controlling the markets. This is where the government needs to intervene on behalf of the farmers and consumers. Such a step alone will serve the larger public interest.
Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi.
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