Agriculture Bills: Setting the record straight
Before we get into the bill proper and the merits and demerits if any, a quick context and background will give a perspective on the imperatives and requirement thereof.
India has 42.38% of workforce employed in the Agriculture sector and the sector contributes 14–15% to the GDP. Now by any standards this is not a very good productivity to talk about, surely something is wrong as I noticed a young journo blurting out on one of the social media platforms. Curating data is one part of the story and acting on it is the next logical step and that is perhaps what we are seeing today after years of dithering on this.
Till now the Agriculture sector has been hemmed in by two important legislation:
a) Essential Commodities Act, very essential in the days of shortages to prevent hoarding and black marketing.
b) APMC Act, All Agriclutural produce must necessarily be sold through the market yards
What does the new Bill do?
a) Deregulates the farm produce under the Essential Commodities Act
b) Farmers are free to sell produce outside the APMC but the APMC has not been abolished or deactivated.
c) Contract farming with corporates allowed.
d) MSP does not go away, it stays
What does this mean to the farmers?
Bill on farm produce has given the farmers the freedom to decide to whom they sell; it removes the compulsion to sell to the licensed agents of the APMC. This strikes at the root of the APMC monopoly and along with it the middlemen who thrive on commission paid by farmers big or small. Agent commission in Punjab and Haryana is at 2.5%. The strong layer of middlemen is rampant in the Indian Agricultural supply chain, the layers depress the price realization of the farmers and at the same time jack up the price the end consumer ends up paying. For instance, let’s say potato which is sold at Rs.40 a kg, the farmer’s realization is in the region of Rs.5 per kg! With the middle layer removed my estimate is we would see the farmer’s realization going upto almost Rs.10 per kg or thereabouts and the end consumer may end up paying about Rs.30 per kg!
Another feature of the bill states clearly that MSP has not been stopped, the fears are unwarranted at best. Only the APMC powers is restricted to its physical boundaries thereby opening the space to private players. MSP procurement target for the Kharif paddy has been increased to 49.5 Mn tonnes which is a good 20% jump over last year!
Contract farming, another feature of the bill gives a wide latitude to the farmers to sell their produce directly to the corporates, the Snacks and the Juices behemoths would love to procure directly from the farmers as it brings stability and predictability in the supply chain. This also ensures a better price realization for the farmers.
Necessary safeguards and support mechanism
Like all well-meaning legislation the implementation and the details are critical and needs to be spelt out to ensure we have the required safeguards. Details are yet to be spelt out on the mechanism for the registration of the private players, the details and the SOP on weighment of farmer’s produce, their price auction and payment mechanism. A regulatory framework for supervision is necessary and maybe a part of further details on the legislation to be rolled out shortly. A robust conflict resolution framework is a must, farmers can hardly move courts for any redressals in quick time, mechanism needs to be swift and immediate. Also, some information needs to be spelt out on developing a Market intelligence to enable informed decision making on MSP rates, inflation control and any market interventions required.
In the final analysis how does this fit in the overall scheme of our economic deregulation?
The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act 2020 and The Essential Commodities (Amendment ) Act 2020 strikes at the very root of the socialist era license raj which are nothing more than inefficient relics and in one fell swoop opens up the market and truly creates what we all have been wanting for some time — ‘One Nation, One Market’ by removing the APMC monopoly and giving the farmers freedom to choose. Creating larger access to the farm produce and ending monopolies always helps create an efficient marketplace and reduces arbitrage, if it’s true for Telecom or Internet it’s true for agriculture as well, isn’t it? Another fall out of this historic legislation is that we finally start producing what the market wants and not try and sell whatever we produce. Finally, it also strikes at the rent seeking opportunity which the current multi-layer operation breeds. The new legislation must be allowed to function in its entirety, the reforms, to put it mildly are much needed, the safeguards and support is what we must not lose sight of.