The parliament has passed three bills related to agricultural reform replacing the ordinances issued on these subjects earlier. These are: The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 allows freedom of trade of farmers’ produce beyond the physical premises of APMC (agricultural produce market committee) markets. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 creates a framework for contract farming before actual even plantation stage. The Essential Commodities (Amendment) Bill, 2020 limits the supply regulation under the act only during extraordinary circumstances (such as war and famine) or steep price rise.
PRS (PRS Legislative Research, commonly referred to as PRS) India has highlights of all three bills here You may read it here
Risk Management Is the Main Problem in Agriculture
Agriculture has become a lot more complex over the past two centuries. To use industrial terms, agricultural operations depended on local conditions and sales were confined within the community. With advent of high-tech shipping, the operations remain local, but sales have become global (at least for non- or semi-perishable products). Farm incomes are as much affected by yields and product quality as by international demand and supply mismatches. For instance, if Brazil produces a bumper sugar crop, we can expect Indian sugar prices to remain low. Even in highly differentiated products identified by region (e.g., French wines, Japanese rice, etc.) the changes in global trends, tastes and fads rapidly alter the prices and therefore realisations. Thus, risk management has become critical for farmers.
Risks can be reduced by improving information availability. This information includes price information, technical information (technically referred to as agricultural extension), risk mitigation strategies and fail-safe institutional designs. The present institutional structure comprising APMC Acts and Essential Commodities act was in fact outdated.
APMC Act became a Burden
APMC works best if the producing centres and consuming centres are in the vicinity of the APMC. With modern technology, improvement in packaging and transportation technology, that is no longer the case.
However, vested interest took over the APMC system and repurposed it to keep the advantages of a national and international market out of reach of farmers. It would not shield the farmers from international shocks. That burden fell on the government through the use of MSP (minimum support price) design. APMCs create a privately tolled access to markets without providing any sort of advantage.
This is nothing short of transfer of wealth from poor farmers and the government to the middlemen (who, at times, are also large farmers).
What started as an initiative to create market infrastructure at local levels turned into millstone around the necks of those who could ill afford it. What we need is to allow our farmers to sell their produce to the largest market they can access at lowest cost.
Essential Commodities Act Was Also a Hinderance
The Essential Commodities Act was a result of the psychological scars of various Bengal famines, the last of them in 1943 claimed three million lives due to starvation while ships loaded with rice remained anchored in Calcutta port.
It was created in era of shortage – but that era has since passed with Indian agricultural production exceeding domestic consumption requirements for past few decades even across monsoon cycles. Further, the Act did not deter hoarding.
It merely sent it underground. The value of these food stocks only accrued to the hoarders who amplified price fluctuations harming farmers and consumers.
Holding back stocks in times of starvation and shortage was and should remain illegal. However, holding well-disclosed stocks in times of abundance creates advantages. It allows price smoothening and improves crop selection by farmers.
Reform Intends To Improve Realisation for Farmers
Without a risk management framework, there was no way that government could achieve the doubling of farm incomes. The aim of the three legislations passed by parliament is to reduce the farm-to-fork distance for farmers by enhancing their realisation per tonne. Contract farming should allow price certainty thereby reducing risks. The amendment to the Essential Commodities Act will allow lawful stocking of commodities thereby smoothening prices for consumers. In effect, the intent of the Act is to increase farm prices while reducing the fork prices. To this end, the Bills are, indeed, a reform.
But More Steps are Required…
The challenge of having self-sustainable agricultural sector has not been solved anywhere in the world. The rich countries have mitigated it by creating stronger economic opportunities elsewhere and by subsiding agriculture. While agriculture remains a smaller contributor to economic growth, food security itself is invaluable. A self-sustaining agricultural sector will be a force multiplier for India.
To make it so, we need to bring agriculture to the 21st century in a way even developed countries haven’t. We have no choice; we do not have the economic surplus to subsidise farmers to become a middle-income category.
I have described challenges in Agriculture and proposed my solution in my paper titled, “A Solution To Farmer Suicides & Loan Waivers” available at http://bit.ly/RDagriculture