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Photo: Mint

Opinion | The long wait of Indian farmers for a better remuneration deal

The ongoing reforms won’t help if they remain deprived of market access and suffer low demand

Earlier this week, as part of the package for Aatmanirbhar Bharat, the Cabinet approved the proposals for agricultural marketing reforms announced in May by finance minister Nirmala Sitharaman. The government has approved the The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, along with amendments to the Essential Commodities Act. It has also okayed an ordinance to promote contract farming. The purpose of these is to grant farmers greater choice in accessing markets, encourage investment in storage infrastructure and allow greater flexibility for contract farming. It is expected that these will free farmers from various regulations and let them realize better prices through a market mechanism. These moves are part of reforms pushed by successive government since 2003, including the National Democratic Alliance dispensation, which proposed a model Agricultural Produce Marketing Committee (APMC) Act in 2017 and a Contract Farming Act in 2018.

The issue isn’t whether these reforms are necessary, but whether they’re sufficient to raise farmers’ price realization on their produce. Part of the reason such ideas have not found favour with state governments or have not helped farmers so far is the complexity of agricultural markets. Uniquely, these are characterised by vast heterogeneity, not just in terms of the regional spread and practices, but also the variety of products. The prices farmers get is not just determined by their access to markets, but also by domestic demand and supply along with international rates. An assumption that inefficient markets are the only or primary reason for farmers earning too little would be faulty.

Although APMCs are vilified as the prime reason for their inability to get remunerative prices, only a small proportion of them sell their produce in APMC mandis. In a country where small and marginal farmers are over 80% of their count, a large majority farm the land just for subsistence. While more recent evidence is not available, the National Statistical Office (NSO) survey on Situation Assessment of Farmers for 2012-13 offers some indicators. On an average, less than half of all farmers of most food crops reported selling their produce in markets. But it also varies depending on the crop. While the proportion of farmers who sell in mandis is higher for cash crops such as cotton and jute, that of farmers who use these markets is less than 15-20% for the majority of food crops. For example, while 22% cotton farmers sold their produce in mandis in 2012, less than 20% sold their cereals and pulses here. For potato, 12% farmers sold their produce in mandis and 14% in the case of onions. Most farmers sold their produce to local private traders. Except for sugarcane, the bulk of which was bought by government agencies and mills, for almost all other crops, farmers sold their produce largely to local private traders. Clearly, then, mandis are only a small part of India’s agricultural market.

While that is no reason for not reforming the APMC structure, our reforms have not been accompanied by the creation of alternative structures. By pushing for legislative reforms, state governments as well as the Centre appear to have abdicated their responsibility of creating the marketing, storage and logistical infrastructure necessary for market reforms to succeed. The example of Bihar, which abolished the APMC Act in 2006, is a good example of that. Neither did that lead to better price realization for farmers, nor did it result in more investment by the private sector. Even the other reforms, such as contract farming, are unlikely to succeed in the absence of fiscal support and guarantees from the government.

That’s because there is no guarantee that farmers will get remunerative prices if there is no demand for agricultural commodities. At a time when the economy is slowing down on account of declining demand to a significant extent, the country’s priority should be to effect a revival through fiscal expansion. What Indian farmers want is not just free and fair access to markets, but buyers for their produce. Given that the economy is likely to contract this year, the best way to ensure better prices for farmers is to shore up demand in the economy.

Promising legislative reforms without any financial commitments to invest in market and storage infrastructure will not get very us far. It’s the government’s job to provide farmers free and fair market access, and it should go alongside a large fiscal stimulus to revive demand. That would hold out hope for India’s farmers.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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