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Editorial Analysis: A 1991 moment for agriculture

Reforms in Agricultural Sector

Approx Read Time: 7 minutes
Reforms in Agricultural Sector
Reforms in Agricultural Sector

Reforms in agri-marketing system:

  • The government has announced reforms in the country’s agri-marketing system.
  • These include measures to strengthen Infrastructure Logistics, Capacity Building, Governance and Administrative Reforms for Agriculture, Fisheries and Food Processing Sectors.
  • A list of 11 measures was announced, out of which:
    1. 3 measures are for administrative and governance reforms, including removing restrictions on sale and stock limits of farm produce 2. 8 measures are for improving agricultural infrastructure
    2. The reforms can go a long way in building efficient value chains and ensuring better returns for farmers.
  • The consumers will also be ensured better products without burdening their pockets.

Measures for Governance and Administrative Reforms for Agriculture Sector:

  • The government announced governance and administrative reforms related to:
    1. Amending the Essential Commodities Act (ECA) of 1955.
    2. Bringing a Central legislation to allow farmers to sell their produce to anyone, outside the APMC mandi yard, and having barrier-free inter-state trade.
    3. Creating a legal framework for contract farming — the buyer can assure a price to the farmer at the time of sowing.

Amending ECA to enable better price realization for farmers:

ECA was brought in at the time of scarcity:
  • The ECA of 1955 has its roots in the Defense of India Rules of 1943, when India was ravaged by famine and was facing the effects of World War II.
  • It was a scarcity-era legislation to protect consumers from price gouging by traders at times of scarcity.
Today it is counter-productive:
  • Our legal framework related to ECA is of the 1950s.
  • Today, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China.
  • Our granaries are overflowing. But because of the ECA, the country lacks storage facilities.
  • It discourages private sector investment in storage, as the ECA can arbitrarily put stock limits on any trader, processor or exporter.
Hurts farmers and consumers:
  • When farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet. All this hurts the farmer.
  • In the lean season, prices start flaring up for the consumers.
  • So, both lose out because of the lack of storage facilities.
Amendment announced to ECA will help both farmers and consumers:
  • The amendment to ECA announced by the Finance Minister, if implemented in the right spirit, will remove this roadblock and help both farmers and consumers while bringing in relative price stability.
  • It will also prevent wastage of agri-produce that happens due to lack of storage facilities.

Agriculture Marketing Reforms to provide marketing choices to farmers:

Current situation:
  • Farmers can currently only sell their produce to traders who have a mandi licence under the Agricultural Produce Market Committee (APMC) Act.
  • Our farmers suffer more in marketing their produce than during the production process.
  • APMC markets have become monopolistic with high intermediation costs.
Benefits of central law proposed for agri-marketing:
  • The proposed Central law to allow farmers to sell to anyone outside the APMC yard will:
    1. Bring greater competition amongst buyers.
    2. Lower the mandi fee and the commission for arhatiyas (commission agents).
    3. Reduce other cesses that many state governments have been imposing on APMC markets.
  • It will open more choices for the farmers and help them in getting better prices, and help improve their incomes.
Integration of prices across India:
  • The proposed law removes barriers in inter-state trade and facilitates the movement of agri-goods.
  • It could thus lead to better spatial integration of prices.
  • This will help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
  • India will have one common market for agri-produce.

Agriculture Produce Pricing and Quality Assurance:

Current situation:
  • At present, farmers lack an enforceable standard mechanism for predictable prices of crops at the time of sowing.
  • This means that our farmers look back at last year’s prices and take sowing decisions accordingly.
  • As a result, the private sector investment in the provision of inputs and know-how in the agriculture sector is also hindered.
Proposed changes will help farmers and buyers:
  • The Government announced that it will come up with a facilitative legal framework to enable farmers to engage with processors, aggregators, large retailers, exporters etc. in a fair and transparent manner.
  • The legal environment for contract farming, with the assurance of a price to the farmers at the time of sowing, will help them take cropping decisions based on forward prices. Thus, the new system will minimize their market risks.

Some more measures will be needed for optimal results:

Building and supporting farmer producer organizations (FPOs):
  • Big buyers like processors, exporters, and organized retailers going to individual farmers is not a very efficient proposition.
  • They need to create a scale, and for that, building farmer producer organizations (FPOs), based on local commodity interests, is a must.
  • This will help ensure uniform quality, lower transaction costs, and also improve the bargaining power of farmers vis-à-vis large buyers.
  • NABARD has to ensure that all FPOs get their working capital at 7 per cent interest rate — a rate that the farmers pay on their crop loans.
  • Currently most of them depend on microfinance institutions and get loans at 18-22 per cent interest rates. This makes the entire business high-cost.
Not leaving the door open for imposing stock limits:
  • The fine print on ECA amendments must be carefully watched.
  • It shouldn’t leave door open for easily imposing stock limits, in the name of price rise. Otherwise, all the reforms would be undone.

Conclusion: Reforms in Agricultural Sector

  • The government has surely shown a willingness to walk the right path and deserves compliments.
  • The reforms, announced recently, could be a harbinger of major change in agri-marketing.
  • It could be the ‘1991 moment’ of economic reforms for agriculture.

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