The Centre introduced three Farm Bills in 2020 to align the industry with agriculture. The laws primarily aimed at deregulating the agricultural market whipped up widespread and prolonged protests forcing the government to roll back all three laws in November last year. The move confounded its critics and supporters alike.
For critics, it was a long-drawn-out battle against a regime that showed little sign of retreat, and for its supporters, it was a much-needed intervention to fix the country's ailing farm sector.
Despite the right intentions, the information asymmetry between the government and other stakeholders marred the implementation of three laws. The agri-sector is in dire need of reforms, and without opening up the agricultural markets and freeing up the productive capacity of farmers, it would be difficult to bring them out of an unending downward spiral.
State’s role in farm reforms
After enacting the model APMC Act 2003 by the Centre, several States reformed their APMC laws to make way for private mandis. Bihar went a step further and abolished its APMC Act in 2006, thereby ending the age-old mandi system in the State.
Some States have enacted laws that go beyond the now-repealed agri-reforms. Karnataka allows non-farmers to get into land ownership and land leasing. Rajasthan, Gujarat, and Karnataka allow free trade outside mandis without charging any fees.
But a deeper analysis of the reforms enacted by States has revealed that this changeover did not benefit the farm sector to the extent it should have. In Bihar’s case, the changes in the APMC system didn’t improve the farm growth and instead resulted in greater price volatility, ultimately hurting farm growth. In the period between 2001-02 and 2016-17, agriculture growth in Bihar averaged 2.04 per cent, lower than the all-India average of 3.12 per cent in the same period.
The problem with Indian agriculture today is that the cost, risk, and return structure of farming is becoming unfavourable to farmers. The cost of production is increasing because of rising input costs while the return from farming is on the decline as pricing and procurement situations are unfavourable. In such a scenario agricultural reforms are required not only to correct the inherent flaws in the system but for also keeping it functional.
As far as the three farm laws are concerned, it may have helped if the laws on contract farming and essential commodities were taken up separately from the more contentious third law on Agri marketing. The Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, (FPTC) was at the heart of the dispute. The FPTC Act, if implemented, would have allowed the sale and purchase of farm produce in areas outside APMC mandis.
The law prohibited the collection of any market fee or cess or levy “under any State APMC Act or any other State law”. The argument against this Act was that the new rules would have disadvantaged small farmers. Farmers feared this could lead to inadequate demand in the local market, and they may not be able to sell their produce outside mandis given their lack of financial/economic resources. This doesn't mean the existing State APMC laws are flawless.
The APMC system was developed to ensure that farmers had a place to sell and had the final say on the cost of their produce. The existing system has largely left the farmers at the mercy of traders who make all the bargaining calls rendering the food producers powerless.
A 2012 report by the National Council of Applied Economic Research (NCAER) identified collusion as a major hurdle in fair trade. The study found that a handful of traders have monopolised almost all big markets. Moreover, the mandi system never provided the reach Indian farmers needed, barring States like Punjab and Haryana.
There is a need to facilitate varying models of ownership of markets to accelerate investment in the marketing infrastructure to integrate farm production with national and international markets. One way of achieving this is by converting the APMC yards into market place.
In the FPTC Act provisions should have been made for administering a rational market fee and commission charges by private mandis vis-à-vis private markets which would have ensured a healthy competition between APMC and private markets and would have nixed the possibility of unequal competition between APMC and private markets thus ensuring marketing freedom to the growers.
The other two farm laws — Essential Commodities (Amendment) Act, 2020 and the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 — were not as unpopular as the FPTC Act. The ECA 2020 was a key reform measure aimed at helping farmers by removing stocking restrictions on the trade. This rule could have created avenues for unlimited buying and demand for their produce.
Easing contract farming
The FAPAFS Act sought to provide a legal framework for contract cultivation. The rule allowed farmers to enter into direct agreements with agri-business firms (processors, large retailers, or exporters) ahead of the sowing season and to sell their produce at predetermined prices.
The opposition to FAPAFS Act stemmed from the fear that the farmers may not be able to negotiate the right prices for their produce. The fear was seemingly misplaced because such a format is already in place and practiced in States like Punjab, Haryana, and Gujarat. PepsiCo has been engaged in contract farming in Punjab for nearly three decades.
Also, the contract farming law was largely for crops not amenable to trading in regular APMC Mandis and prohibited any sponsor firm from acquiring the land of farmers — whether through purchase, lease, or mortgage. So, the assumption of corporate hijacking the agri sector was far from reality.
The apparent shortcoming in FAPAFS Act seems to arise from the provisions regarding the dispute resolution mechanism for farmers. The Act envisaged a conciliation board appointed by the sub-divisional magistrate for settling the disputes arising out of a transaction between the farmer and a trader.
Here instead of a conciliatory board, it would have made more sense if the Act provided for grievance redressal through the formation of dedicated tribunals similar to the Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunals (DRATs) which adjudicates disputes between banks and their customers. It would have at least assured farmers about the protection of their interests.
Agri reforms in India are not an intermittent activity but a continuous process, and there could be a hiatus in its implementation, but there can never be a rollback of reforms. The agricultural sector has shown remarkable resilience during the pandemic and has acted as a safety net in times of uncertainty.
Agriculture was the only sector to clock positive growth of 3.4 per cent during the first quarter of 2020–21 and shielded the GDP from further decline.
But to avoid a food and agri commodity crisis there is a need to mobilise political will and build the necessary institutions to ensure that key decisions on agri policies and investments are taken and implemented effectively.
The writer is Managing Director & CEO, National Commodities Management Services Ltd