How to ease farmers’ fears of the new laws

Three farm bills passed by the parliament last week have become a bone of contention. At one level, they are a step in the right direction but have failed to get the support of farmers in agricultural developed states like Punjab, Haryana and Western part of Uttar Pradesh. Farmers will now have the freedom to sell the produce to anyone but there clearly are many concerns that remain unaddressed.

Lack of confidence in new players

For decades, APMC has been the sole agency for marketing of agricultural commodities in the country. There is a wide network of APMCs in the country particularly in agricultural developed states like Punjab and Haryana within the radius of 5 km from a village with large number of market players like arhtiyas and commission agents. There has been a strong tie between produces and traders for generations together. Despite limitations of APMCs to ensure competitive prices to producers, the APMC is considered as a reliable and dependable agency. The new players, viz., licensed traders, have not been perceived as being as dependable as the APMC. The co-operatives did not enjoy the confidence of the producers due to inefficient management and political and bureaucratic interference. New agencies like producers’ organisations (which work under the Companies Act) are still in the nascent stage.

Furthermore, there is the question of a deliberate tilting of the playing filed against the APMC under the new arrangement. While new players have been not allotted to levy any market fee or levy any charge, APMC will continue to charge market fee in the new regime. This will place them in a disadvantageous position, given that the so-called market fee is eventually passed on to the farmer-sellers. Abolishing this fee will be difficult since APMCs have to provide services that involve costs – the day-to-day management of mandis, transaction costs, storing, monitoring, accounting et al. APMCs are in a fix; if they do not charge a fee, they will not survive for long. If they charge, the producers will not prefer them. As a result, sooner or later, APMCs will vanish from the scene.

This loss will not be without its consequences. The farmers’ community will lose a dependable and reliable agency, thereby limiting the freedom of choice to any one agency, viz., the new class of private traders who are yet unknown, untried, untested and will be prone to exploit. This is so also because the growth of producer companies, the new species that is just about taking off, suffers from a step-motherly treatment from the various State governments, who continue to prefer to support cooperatives.

MSP system conspicuous by absence

The minimum support prices system was introduced in the early 1970s in the wake of the Green Revolution with the twin objectives to encourage producers to use high yielding varieties of seeds and fertilisers and use irrigation facilities to produce more by protecting the cost of production on the one hand and providing subsidised food grains to people below poverty line under PDS on the other hand. This has caused higher fiscal burden on the State exchequer but turned India from deficit to surplus producer of food grains.

In all, there are as many as 22 commodities under the MSP but mainly two commodities viz., wheat and rice are procured through APMCs in Punjab, Haryana, Andhra Pradesh and Tamil Nadu. In order to ensure at least cost of production to the farmers if not remunerative prices, it is imperative to have MSP in place. Ultimately MSP should be replaced with price insurance. Incidentally there is no mention of MSP or any other mechanism to ensure cost of production to farmers in any of these bills. This has caused understandable anxiety among farmers.

Deregulation of essential agri commodities fraught with danger

One of this farm bills is envisaged to deregulate the essential agricultural commodities like cereals, pulses, edible oils, potatoes and onions under normal circumstances. Their stocks limits have been liberalised, provided the prices do not increase more than 100 per cent in case of the horticultural commodities and more than 50 per cent for non-perishable agricultural foodstuff. This has been done to push warehousing cold storage facilities in the country. However, in some quarters, there is a feeling that this stock deregulation may encourage hoarding to exploit consumers in the period of shortage. Our past experience particularly in case of onions revealed these apprehensions are not baseless.

Way out

In order to address those apprehensions, it is imperative that the government takes following measures without further loss of time to restore the confidence among farming community.

First, either a market fee or levy should be introduced in case of licensed traders or the Centre may advise States to remove the market fee charged by APMC. If required, this fee could be reimbursed by the Centre. This will be worth buying peace in rural areas. Needless to say, APMCs have played a salutary role in marketing of agricultural commodities and their survival will also infuse further competition in the sphere of agricultural marketing.

The higher share of producer in consumer rupee will ultimately enlarge the income of farmers. That will go a long way in pushing demand in the economy to boost growth.

Second, in a predominantly agricultural country like India, farming cannot and should not be pursued on a loss basis. MSP should continue with a legal sanction written into the law, and should be further strengthened to protect the farmers. In the event of prices falling below MSP, State agencies should either procure at MSP through APMCs to have the buffer stock or introduce the scheme of bhavantar (difference between MSP and sale price) to protect the farmers. Alternatively, as mentioned earlier, price insurance should be introduced in a big way.

Third, our experiences of producers’ organisations particularly in the dairy sector have revealed that these organisations have done a commendable job in protecting the interest of both farmers and consumers alike. The share of producers is as high as 85 per cent in case of producers’ companies compared to 50 per cent to 70 per cent in case of co-operatives. Incidentally, producers’ companies with professional management and democratic and co-operative culture have been the most efficient organisations.

Stock limits should be determined on the basis of supply-demand and prices movement during a concerned season to keep interrupted supply at reasonable prices.

However, in the absence of a level playing field, their growth has been hampered. It is worth noting here that while co-operatives get lot of state support, such as price incentives, animal feed subsidy etc. producers’ organisations are placed at a disadvantageous position.  Not only the various States, the Centre is also not size-neutral, in case of tax concessions or tax holidays. Needless to say, the higher share of producer in consumer rupee will ultimately enlarge the income of farmers. That will go a long way in pushing demand in the economy to boost growth.

Fourth, since regulation of essential commodities was mainly intended to protect the interest of consumers rather than producers, stock limits should be liberalised in a phased manner to keep pace with expansion of warehousing and cold storage facilities. The current stipulated conditions for regulation to prevent hoarding are too liberal. Prices are seasonal, and price rise during particular production season should be taken into account rather than time series rise in the pricing. Stock limits should be determined on the basis of supply-demand and prices movement during a concerned season to keep interrupted supply at reasonable prices.

(Dr. Dadhich is Former Director of Rural Economics, Reserve Bank of India and Hon. Secretary, Indian Society of Agriculture Economics. Views are personal)