Modi Govt’s Agri Reforms: Why Even ‘Best-Laid’ Plans Can Go Astray

While the objectives of the reforms are commendable, stakeholder consultation should have preceded this move.

There is a popular aphorism (paraphrased): ‘Even the well-laid plans of mice and men can go awry’.

The recently-enacted laws designed to advance agricultural market reforms is a classic example of how even well-intentioned legislation can attract vociferous opposition from some sections when the reforms are poorly-marketed without adequate stakeholder consultation.

The two Bills – to allow private markets and to encourage contract-farming – are actually progressive in nature, and have the potential to deliver real benefits to growers when implemented well. The third reform – amendment to the age-old Essential Commodities Act, 1955 – intends to exempt select essential goods such as cereals, pulses, oilseeds and so on from stock restrictions.

Setting Up Of Private Markets: ‘More Freedom’ For Farmers?

Setting up of private markets will allow growers more marketing freedom. Growers can go either to the APMC market or to the private market. It will advance the idea of ‘one-nation, one-agri-market’. At the same time, giving a legal framework to contract farming is intended to ensure groups of growers and entrepreneurs come together in a contractual relationship which will provide a ready market for growers for their produce, and ready access to raw material for the entrepreneurs (sponsors). As produce price will be decided in advance, growers will face no risk of market volatility.

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 seeks to unify the country as one market for agricultural goods, by removing intra-State and inter-State movement restrictions.

It also allows farmers to sell their produce outside of the established traditional agricultural produce market (mandi) system by facilitating the setting up of private markets. This measure enhances farmers’ choice of markets, allows them greater freedom, and helps improve the marketability of growers’ crops.

It is not that private markets are going to mushroom immediately across the country. The private sector will have to test and fine-tune a business model that ensures return on investment. Lack of regulatory oversight of the private markets is, of course, a matter of concern.

• The recently-enacted laws designed to advance agricultural market reforms is a classic example of how even well-intentioned legislation can attract vociferous opposition from some sections.
• Why is this? Because the reforms have been poorly-marketed without adequate stakeholder consultation.
• The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 seeks to unify the country as one market for agricultural goods, by removing intra-State and inter-State movement restrictions.
• Contrary to belief in some quarters, this is not the end of the APMC mandi systems.
• If anything, private markets will put pressure on APMC markets to infuse more transparency and efficiency in functioning.

Private Markets Can Push APMC Markets Towards Transparency & Efficiency

Contrary to belief in some quarters, this is not the end of the APMC mandi systems. If anything, private markets will put pressure on APMC markets to infuse more transparency and efficiency in functioning. Despite their lack of transparency, APMC markets have their own strengths and can compete with private markets by using their well-organised physical infrastructure.

The State governments have a significant role in reforming the APMC system:

• to depoliticise the committees, and make them more user-friendly or farmer-friendly
• to allow APMC markets to compete with private markets; the cess levied on market transactions can be waived
• the State governments can even consider privatising mandis that are not viable

Removal of restrictions on inter-State movement is indeed a welcome measure that will advance the idea of ‘one-nation, one-market’. However, removal of intra-State trade will be perceived as an encroachment on the rights of States to regulate agri-markets within the State. This has potential for a legal tussle. The Central government would be well-advised to engage with the States and convince them about the benefits of the law.

A Legal Framework For Contract Farming – And Why It Will Benefit ‘Both Parties’

The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill 2020 seeks to give a legal framework to ‘contract farming’, under which a farmer or groups of farmers and an entrepreneur can enter into an agreement whereby the growers grow crops as required by the entrepreneur, and the latter agrees to buy the harvested produce at a pre-determined price.

This system is sure to advance the interest of both parties – a ready buyer for the grower (seller) and ready supplies of raw material for the sponsor.

Contract farming can best succeed when Farmer Producer Organisations (FPOs) are involved. FPOs enjoy scale economies with several hundred farmers as members. They can cultivate the crops needed by the sponsor and ensure uniform quality.

Pricing could be a bone of contention; but there are scientific methods of fixing the price of the produce. Futures market too can provide a clue. Until the mid-1960s, the market used to work on basis of ‘On-call contracts’ which may be revived now. Both parties to the contract will be winners because of transparent pricing mechanism.

In case of disputes, the District Administration has been entrusted with the responsibility to resolve; but it may not be well equipped to settle disputes.

A more robust, independent and timely dispute resolution mechanism is needed.

Objectives Of Reforms Are Laudable, But Stakeholder Consultation Was Needed

Exempting select commodities from ECA will improve the marketability of the crop for growers. Processors, exporters and traders can now build inventory without fear of penal action.

While the objectives of the reforms are laudable, introduction of the reforms ought to have been preceded by stakeholder consultation.

The concerns over procurement and minimum support price for growers need to be addressed. The government must commit in writing that they will not be dismantled. Given the progressive nature of the reforms and potential benefits that flow, the agri-market reforms deserve support.

(G. Chandrashekhar, senior editor and policy commentator, is an agribusiness and commodities market specialist. He can be reached at [e-mail]. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)