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Farmers fear that by weakening mandis and leaving them to market forces, the government will gradually withdraw from open-ended procurement of paddy and wheat at MSP. (Photo: Mint)
Farmers fear that by weakening mandis and leaving them to market forces, the government will gradually withdraw from open-ended procurement of paddy and wheat at MSP. (Photo: Mint)

Will the new ‘freedom to trade’ Act benefit farmers?

  • The haste with which the bills were passed shows the lack of confidence of the government to open this up to debate and scrutiny. It knew that delving into the details would have shown the bills to be anti-farmer, say farmer groups

NEW DELHI: Resetting the way farm produce is traded within India, the Parliament on Sunday passed a set of bills which aims to liberalise agriculture markets. Despite repeated agitations by farmers and the minister of food processing industries Harsimrat Kaur Badal resigning in protest, the passage of the contentious bills marks a new beginning—farmers will now have the freedom to sell their produce to any buyer outside state regulated wholesale markets and such transactions will not attract any taxes or fees.

The new set of laws allows direct purchase of produce from farmers outside state regulated mandis (also known as Agricultural Produce Market Committees or APMCs) which have enjoyed a monopoly till now—and where trader cartels often manipulated wholesale prices to the disadvantage of farmers. Produce can now travel freely across states, and farmers, the government hopes, will receive a better price as trade opens up to competition. After amendments to the decades old Essential Commodities Act removed stock limits on traders and exporters, agri-businesses are expected to invest in post-harvest infrastructure like storage, transport and value chains.

However, farmers fear they will be left at the mercy of large corporate buyers minus any regulatory oversight and monitoring. This has led to a wave of protests in Punjab, Haryana and western Uttar Pradesh— the erstwhile green revolution states.

“The haste with which the bills were passed in the Parliament shows the lack of confidence of the government to open this up to debate and scrutiny. It knew that delving into the details would have shown the bills to be anti-farmer," said Kavitha Kuruganti, convenor of ASHA, a farm policy advocacy group.

The changes are in the right direction but unfortunately the debate took a political turn, said Siraj Chaudhry, CEO of National Collateral Management Services Ltd., and former chairman of Cargill India. “Now that all hurdles to trade are gone, corporate players have to invest in building a relationship of trust with farmers. It may take a few years (to show results) since states have to be aligned and the ability of private players to invest is limited."

Farmers are genuinely worried, said Ajay Vir Jakhar, chairman of the Punjab Farmer’s Commission. They fear that by weakening mandis and leaving them to market forces, the government will gradually withdraw from open-ended (unlimited) procurement of paddy and wheat at minimum support prices (MSP), the mainstay of farmers in northwestern India.

While there may not be an immediate impact on MSP operations, experts are concerned on the impact of new laws on agriculture markets. “The legislations appear to be more business friendly and it is not clear how farmers will benefit," said Sudha Narayanan, associate professor at Indira Gandhi Institute of Development Research, Mumbai.

According to Narayanan, trade of farm produce is likely to move out of regulated APMCs (to save on taxes and fees) but if out-of-mandi transactions remain invisible (transactions between a private buyer and farmer are not recorded) it will be difficult to ascertain if farmers are benefitting or losing out.

“In the absence of data it is easier to push the narrative that farmers are doing great... but a greater worry is that the state is retreating from its regulatory role. There is no clarity how price discovery will happen and the proposed dispute resolution mechanism is weak and difficult for farmers," Narayanan said.

In addition, after all stock limits are removed following amendments to the Essential Commodities Act, lack of data on privately held stocks may seriously impact inflation management and trade policy decisions.

In a month’s time when the kharif harvest reaches the market, it may be easier to assess the impact of the new laws on farm-gate prices—whether free markets help farmers get a better price. As of now, ground reports suggest that just harvested wholesale Basmati rice prices are significantly lower year-on-year despite higher international prices.

It may be sobering to recall the experience of Bihar which abolished regulated mandis back in 2006. A November 2019 study by the National Council of Applied Economic Research showed that a liberal regime in Bihar (with little or no government procurement at support prices) did not bring in private investments in the creation of new markets, or strengthening of facilities in existing ones. Farmers in Bihar are often fleeced by traders and sell their harvests at prices significantly lower than MSPs, the study showed.

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