India’s new agricultural policy after decades of farmer suffering

In India, June 5 was a turning point in the history of the country’s agriculture. The government passed three ordinances to unshackle farmers from the restrictive marketing regime that has managed the marketing of agriculture produce for decades. This sweeping stroke promises to bring the entire world of farming technology, post-harvest management and marketing channels at the doorstep of the farmer. The challenge now is to put these promises into action. The national vision of the farm sector is to double the income of farmers by 2022. This move is revolutionary since income is intrinsically linked to how the markets of the harvested produce function.

First, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance provides much-awaited freedom of choice to farmers and traders. Now, farmers can sell and purchase produce through trading platforms other than the notorious markets operated by the Agriculture Produce Marketing Committee (APMC). An article published on Fair Observer in 2019 rightly observed how forcing farmers to sell their produce to APMC markets led to the problem of monopsony. As the only buyer of produce, APMC markets faced no competition and offered farmers very low prices. This ordinance promises to increase farmer incomes significantly.

Second, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance further empowers farmers by creating a framework for direct engagement with processors, agri-business firms and large retailers.

Finally, the Essential Commodities (Amendment) Ordinance releases farm produce from the restrictions imposed by the Essential Commodities Act by severely curtailing regulations on farm produce. Such restrictions will now be permissible only under extremely emergent circumstances.

The trigger for these sweeping changes may have been the disruption in the production and supply chains due to the COVID-19 pandemic. The health crisis and the resulting nationwide lockdown necessitated drastic steps to provide immediate relief to the agriculture sector. However, we must not forget that agricultural marketing reforms have been in public discourse for nearly two decades. In practice, they always appeared to take two steps backward for every step taken forward. Petty politics, instead of agricultural needs, dominated these decisions. Hence the officials of the Ministry of Agriculture deserve recognition. They have used a crisis as an opportunity to free farmers from the oppressive yoke of red tape, rigged markets and little choice.

Poor Infrastructure, Corruption and Lack of Accessibility

Before discussing the details of the three ordinances, let us briefly review the existing structure and context of the marketing of agriculture produce. The overarching legislations governing agricultural markets are the APMC acts of the respective Indian states. These were enacted with the laudable objectives of ensuring fair prices to farmers and safeguarding them from the exploitation of middlemen. They aimed to enable farmers to sell their produce easily.

These acts created the institution of the APMC, which operates agricultural markets commonly called APMC mandis, the Indian word for a market. Ironically, the APMCs have achieved the precise opposite of what their architects envisaged. In their enthusiasm to ensure stability, most state governments discouraged the rise of private mandis and even criminalized setting up competing markets. This created monstrous monopolies of APMC mandis controlled by influential cartels. Instead of offering fair prices to farmers, these mandis artificially manipulated prices. The management of APMC mandis remained opaque and exploited farmers while claiming to serve them. In particular, small and marginal farmers were at the mercy of wealthy traders at these markets.

Unsurprisingly, the January 2019 report of the parliamentary standing committee on agriculture noted that the APMC acts had not achieved their purpose. With cartels at APMC mandis dictating the terms of trade, farmers face unreasonable deductions from the sale returns of their produce in the form of market fees, commission charges and other levies that rightfully should be paid by traders. On occasions, these farmers are charged the same fees multiple times. Corruption is rampant. Aside from a handful of exceptions, mandis tend to have poor infrastructure. Basic facilities for post-harvest management of agricultural produce such as grading, sorting and packaging are lacking. Supporting services, such as banks, post offices and resting places, have also failed to develop. If some facilities exist in some mandis, they are of extremely poor quality.

Additionally, the number of such markets is grossly inadequate. The National Commission on Farmers has recommended that an agriculture market should serve a geographical area of not more than 80 square kilometers, whereas the existing national average is 496 square kilometers. Both the quantity and quality of APMC mandis are lacking. It’s tragic that an institution established to protect farmers from exploitation has become the source of it. It is for this reason that the parliamentary report recommended that creating alternative marketing platforms should be a priority. It observed that the APMC acts had led to restrictive markets and obstructed the emergence of competitive markets. Regrettably, the Indian farmer did not have the right to choose his customer thanks to the APMC acts.

The APMC mandis tend to be noisy, messy, chaotic and unhygienic. So, it is no surprise that a large number of farmers, especially the small and marginal ones, do not sell to APMC mandis, but they do to intermediaries and unlicensed traders. Though there are no official figures available, various studies place the share of these informal intermediaries or middlemen at 30-55%. The figure is lower in the case of food grains but very high for horticulture produce.

There exist, in many places, several layers between the farmers and the mandis. Thus, the safety net that these mandis aim to provide farmers is already diluted. The much-maligned middleman has become an integral part of the agriculture marketing system. One of the most significant aspects of the three ordinances promulgated on June 5 is to recognize and integrate these middlemen into a liberalized regulatory framework. Now, they can enter into bona fide trade relations with farmers.

A New, Better Approach

In 2003, the Ministry of Agriculture attempted reform after prolonged discussions. It came out with a model legislation for states to emulate: the APMC Marketing (Development and Regulation) Act, 2003. Curiously, the focus here also remained on regulation; the preamble mentions “improved regulation in marketing” before it talks of the “development of an efficient marketing system.” In contrast, the recent ordinances offer a pleasant contrast. The term “regulation” itself has been done away with. The first ordinance declares its objective to be “promotion and facilitation” and the second one “empowerment and protection.” These ordinances present a paradigm shift in Indian agricultural policy.

The key objectives and their provisions in the trade and commerce ordinance are as follows:

-  creation of an ecosystem of freedom of choice to farmers and traders for sale and purchase of farmers’ produce

-  formation of competitive alternative trading channels

-  promotion of transparent and barrier-free intra-state trade and inter-state trade

-  facilitation of trade of produce outside the physical premises of notified markets

-  creation of viable electronic trading platforms

As per the new ordinances, farmers are to be paid on the day of the transaction or within a maximum of three working days. They do away with the onerous licensing system that required farmers to obtain several licenses to trade in different mandis within the same state. Gone is the market fee in the “trading area,” which is defined as any area of transaction outside the present day-notified mandi.

Now, APMC mandis will now face serious competition and might be spurred into reforming themselves. Further, to the great relief of farmers, the dispute resolution mechanism has been kept simple and local, with preference being accorded to resolution through conciliation. The ordinance also envisages a price information and market intelligence system, thus equipping farmers for determining the price of their produce.

The key features of the price assurance and farm services ordinance are as follows:

-  creation of a national framework on farming agreements

-  protection and empowerment of farmers in their engagement with the likes of large agribusiness firms, wholesalers and large retailers

-  promotion of remunerative price agreements and a fair and transparent framework

The ordinance also recognizes the possibility of an adverse impact on the rights of sharecroppers in the changed business environment. Hence, it has a specific provision for protecting their rights. The risk of markets and prices is likely to be transferred from the farmers to the contracting entities. Finally, the essential commodities ordinance clearly states, “the regulatory system needs to be liberalized … for the purpose of increasing the competitiveness in the agriculture sector and enhancing the income of farmers.” Accordingly, regulation of farm produce such as cereals, pulses, oilseeds, edible oils, onions and potatoes is only possible in extraordinary circumstances such as war, famine, a natural calamity of grave nature or an extraordinary price rise.

Ensuring Lasting Change

The reforms in agriculture marketing by way of these three ordinances are holistic. A primary problem with earlier legislation was that farmers could only sell their produce to specified traders in particular locations. As a result, farmers have been inevitably pushed to alternative buyers outside the legal framework, including middlemen and direct buyers. Small and marginal farmers suffer from an inherent disadvantage in such an environment. They lack access to market information. Even when they have some information, they lack the capital and technology that high-value crops require. The liberalization of agricultural markets will increase revenue avenues for farmers and improve their monetary returns.

The proof of the pudding is in eating. The success of the ordinances will be determined by their implementation, which must be carried out in letter and spirit. While the ordinances remove aberrations and deficiencies in the regulatory structure, achieving their goals requires a strengthening of institutional capacity and infrastructure. Investment in agriculture, post-harvest infrastructure and marketing framework are all grossly inadequate. While these reforms should spur investment, it would be premature to expect that to happen automatically. Further efforts and interventions are called for. The big challenge ahead is to implement these reforms in the incredibly diverse markets across the country and to build strong alternatives as envisaged by the new legislation.

A seemingly unrelated point is important regarding these ordinances. A recent article criticized the bureaucracy for drafting documents in language that was “officialese or bureaucratese.” This pejorative term is used for language full of jargon that is wordy and vague. Such criticism cannot be leveled against these ordinances. They serve as exemplars for other official documents. They are simple, straightforward and eminently understandable. The philosophy, intention and objectives of the ordinances are effectively spelled out in the preambles, which are among the best-drafted government documents in recent times. The trick now lies in achieving what they say.