Evolution of Agri-Market Reforms : The Quintessential Weapon to Reward Long-Due Modesty to Farmers
The story of Reforms and Progress for Indian Farmers has been a long and dwindling one. Though thriving as the largest producers of food grains for the world, Indian farmers were not vouched for large-scale reforms in agriculture markets. Time and again, many governments initiated the steps to bring a breakthrough. Yet, all fizzled perpetually and remained at mere broadcasting of the endorsements by the respective committees appointed by them. Prevalent situation has compelled many famed voices not to utter in support of the reforms though arguably the reforms favor the country’s prosperity at large in the years to come. The presence of multitude of narratives, paid propaganda, fear of unknown, and the conceited moves of a few have led to immense chaos. Indeed, introspection of any deceitful stand by those opposing and retrospection of journey till the present point is vital.
Existing Scenario: Petty Parties in Between – Paltry Gains for Farmers
The regulated markets are originally designed to protect farmers’ interests. However, in course of time, these markets were captured by middlemen who are squeezing the realisation of the farmer. This is evident by the growing gap between the price received by the farmer and the price paid by the consumer. Mandi prices are supposed to be determined by open auction to ensure fair pricing. But they are being determined in a highly non-transparent manner by negotiations between market commission agents and wholesalers. The farmer does not receive even this price. The commission of the village commission agent and the market commission agent is deducted from the declared market price. Thus, the price received by the farmer is a residual one. Scarcity of marketing platforms for agriculture produce and mismanagement and corruption in APMC markets have created a situation where farmers are being deprived of fruits of their hard-earned labour leading to low price realisation for farm produce.
APMCS levy multiple fees, of substantial magnitude, that are non-transparent, and hence a source of political power. They charge the Market fee from buyers, Licensing fee from the commissioning agents, Small licensing fees from a whole range of functionaries (warehousing agents, loading agents, etc.). Besides, commissioning agents charge commission fees on transactions between buyers and farmers. The levies and other market charges imposed by states vary widely. According to Economic Survey 2014-15, statutory levies/mandi tax, VAT, etc. are a major source of market distortion and such high level of taxes at the first level of trading have significant cascading effects on the prices as the commodity passes through the supply chain.
The market fee charged by the regulated market committees is treated as the tax levied by the State, rather than the fee charged for providing services. Though the market fee is collected just like a tax, the revenue earned by the APMCs does not go to the State exchequer and hence does not require the approval of the State legislature to utilise the funds so collected. Hence, the vested interest in maintaining the status quo and stiff resistance against reforming the structure and management of these regulated markets.
Reforms- The Preceding Attempts
India, a country of continental size, does not have a national common market for agricultural products. There are several market distortions and barriers to both inter-state and intra-state trade. Having realized the need for evolving a national common market for agriculture, successive governments made attempts to remove these trade barriers. The first attempt to reform these markets started during the Vajpayee regime in the year 2000 when an Expert Committee was appointed under the chairmanship of Shankerlal Guru which submitted its report in July 2001. The Committee recommended remodeling Agriculture Produce Market Committees (APMCs) to give greater marketing freedom to the farmers.
The Ahluwalia Committee (2001) also appointed by Vajpayee Government recommended far-reaching reform measures. The Committee reviewed Essential Commodities ACT,1955 and noted that the controls under the Act did not work in times of genuine scarcity and they were not needed in normal times and were typically misused by the lower levels of the administration and had become an instrument for harassment and corruption. The Committee categorically stated that having laws that prevent the development of an integrated national market for agricultural products was a serious anomaly and hence recommended the repeal of the Essential Commodities Act. It suggested the Ministry of Agriculture undertake a systematic review of State laws and control orders which were imposing inter and intra- state trade barriers and repeal the same immediately. The Committee recommended promoting the forward and futures markets in agricultural commodities, and delinking minimum support price (MSP) from procurement, particularly if the private sector is to be restored its rightful role in marketing agricultural produce.
In line with Ahluwalia Committee recommendations, an Inter-Ministerial Taskforce asked the State Governments as early as 2001 to amend their respective APMC laws to enable private and cooperative sectors to establish and operate (including levy of service charge) agricultural marketing infrastructure and supporting services, direct marketing of agricultural commodities from producing areas and farmers’ fields, without the necessity of going through licensed traders and regulated markets, and permitting ‘Contract farming’ programs by processing or marketing firms. The Vajpayee Government drafted a Model APMC Act in September 2003 on the lines suggested by the Taskforce and has pursued the state governments to adopt the same.
Swaminathan Commission Reform Recommendations
The Swaminathan Commission was appointed in 2004 by the UPA government. In its first report in 2004, it emphasised the need for shifting the policy focus to post-harvest management, processing, and marketing for bridging the disconnection between production and profit. The Commission advised the state governments to bring an immediate amendment to their respective APMC Acts to decentralize the system and permit marketing by other players for achieving the goal of ensuring better returns to the growers.
In its second report in 2005, the Commission advocated reforms in APMC Acts for creating a nation-wide integration of the agriculture markets. It favoured the emergence of agriculture markets in private and cooperative sectors. It recommended amending the state laws on the lines of the Model APMC Act circulated by the Government of India. It also suggested reviewing the Essential Commodities Act and other Acts/Orders concerning storing, marketing, and processing, etc. of the agricultural commodities to remove restrictions on inter-state and intra-state barriers.
The Swaminathan Commission in its third report (2006) again recommended reviewing the Essential Commodities Act and other legal instruments including the State Agriculture Produce Marketing Committee Acts [APMC Acts] relating to marketing, storage, and processing of agriculture produce to meet the requirements of modern agriculture and attracting private capital in this sector. The Commission pointed out that the collection of market fees through the APMC Act was a major hurdle on the free movement of primary agriculture products not only between States but also even within the States from one market area to another. It has shown how it is resulting in double taxation of the same products and how the operation of the so-called regulated markets is often leading to cartelization of a few brokers or Arhtiyas and non-transparency in price setting to the disadvantage of the farmers. It recommended abolishing market fees on primary agricultural commodities and levying charges for various services like loading, unloading, weighing, etc. in the APMC yard. Instead, it suggested imposing a single consolidated service charge for use of the market infrastructure. It advocated a smooth transition from existing trade channels like Arhtiyas, to a new system of farmers-purchaser linkages.
The Commission in its fourth report (2006) also reiterated the same and recommended amending the State APMC Acts to provide for, among others, encouraging the private sector or cooperatives to establish markets, develop marketing infrastructure and supporting services, collect charges, allowing marketing without the necessity of going through APMC/ licensed traders, etc.
In its final report (2007), the Swaminathan Commission argued that benefits of APMCs have not reached small, marginal, and medium farmers, and their entire functioning, management, operations, and disposal of surplus need a relook while encouraging and support the farmer’s cooperatives and private sector to operate the wholesale agriculture produce markets and provide competition to APMCs.
Appraisal of Essential Commodities ACT by FAO
The Food and Agriculture Organisation (a U.N. Agency) in its report (2005) titled ‘Towards an Indian Common Market’ noted that the Essential Commodities Act which was introduced during a period of scarcity has outlived its utility in a period of surplus production. It stated that the powers for states to restrict the movement of agricultural products out of their territory granted by the ECA are incompatible with the principle of a single market. They might have served a purpose in helping ”to preserve local food security but at the cost of reducing food security for India as a whole”. It also pointed out that not allowing direct marketing resulted in cartelization of a few brokers or arhtiyas and non-transparency in price-setting worked to the disadvantage of the farmers.
Inter-State Ministerial Committee recommendations
The Harshvardhan Patil Committee of State Ministers (in charge of Agriculture Marketing) broadly has expressed a similar view. In its final report in 2013, the Committee observed that due to the restrictive provisions of the Essential Commodities Act and various Control Orders issued thereunder, private investment in large-scale storage and marketing infrastructure including in the areas of contract farming, and direct marketing have not been very encouraging.
It identified several Inter-State barriers to trade. These include a) Taxation Related Barriers: variation in rates, the applicability of VAT, levy of market fee at multiple points, etc., b) Physical Barriers: Essential Commodities Act, Check Posts, APMC Regulations, etc., and c) Statutory Barriers: like licensing and registration of traders, commission agents. It recommended removing all these existing barriers of licensing, movement, and storage to develop a single national market for agricultural commodities. This is the single most important recommendation which will have widespread positive implications for the agriculture sector.
Reforms suggested by the Standing Committee on Agriculture
The Standing Committee on Agriculture (2018-2019), of the Ministry of Agriculture and Farmers Welfare, is forthright in pointing out what ails the regulated markets. It commented that the Regulated markets have become a hotbed of politics, corruption, and monopoly of traders and middlemen. APMC markets across the country, according to the Committee, are not working in the interest of farmers due to the traders’ cartel, undue deduction in the name of market fee, commission charges, etc., and unfair pricing. It lamented that the provisions of the APMC Acts are not implemented in their true sense and pointed out how the market fee and commission charges are being collected from farmers by deducting the amount from farmers’ net proceed, though they are to be collected from traders and commission agents.
The Committee recommended promoting the forward and futures markets in agricultural commodities and called for radical reform in APMC Acts in the country to provide justice to the farmers and argued that remunerative pricing for the farmers cannot be ensured unless the number of marketing platforms for farm produce is enhanced and functioning of APMC markets is made democratic and transparent. It recommended doing away with the provisions regarding entry fee and other cess levied on the transaction of agriculture produce as it will help to reduce corruption and malpractices prevalent in APMC Markets. It also recommended amending state APMC Acts on the lines of the Model Act and treating private markets at par with the existing APMCs. The Committee opined that under the Essential Commodities Act, there is a need to have a distinction between genuine service providers and black marketeers/ hoarders to encourage investment and better service delivery to the farmers. It also recommended exempting from the stock limits for the Contract Farming Sponsors and Direct Marketing licensees for facilitating trade and long-term investment.
The Farm Laws
It is clear from the above discussion that the marketing reforms initiated by the Modi government are not new and have been under consideration since long. In a way the three farm laws enacted by the Modi government are a logical culmination of the reform process initiated by the Vajpayee government two decades back. The reluctance showed by the state governments to adopt the Model APMC law, 2003 even after 17 years of its drafting forced the central government to enact these legislations to pave way for the emergence of a single common national market for agriculture for the benefit of the farmers. The Farming Produce Trade and Commerce (Promotion and Facilitation) Act is aimed at ensuring barrier-free trade in agriculture produce across the country. It allows farmers to choose where and to whom they sell their produce instead of selling to registered licensees of their respective state governments in notified market yards. The amendment to the Essential Commodities Act provides for regulating stocks of edible oilseeds, cereals, pulses, potatoes, and onions only under “extraordinary circumstances such as war, famine, extraordinary price rise and natural calamity of grave nature.” The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act is intended to facilitate and regulate contract farming.
These laws were not enacted overnight without any consultation to promote corporate interests as claimed by those who are opposing them. The reform measures have been recommended by important committees including the Ahluwalia Committee, Swaminathan Commission, Inter-State Ministerial Committee, and Standing Committee of the Ministry of Agriculture and have been discussed at length.
When initiatives of progressive and transformational nature are introduced to a community that was long deprived of any significant dividends and has seen more than six decades of alluring cronyism for political gains, undeniably they will have apprehensions. However, it is important for the learned, educated, and the influential citizens of the country to get a clear understanding of the background of the bold move by the government. Failure to encourage the courageous efforts by a government with far reaching outlook can lead to devastating and irreparable loss to the country for many decades to come. The Modi government must be congratulated for standing firm in its commitment to reform agricultural markets even at the cost of loss of its political capital.
(the writer is a Professor of Economics(retd), Machilipatnam, Andhra pradesh)