Essentially, the Indian agriculture can be considered as an enterprise with two distinct components- Production and Post-Production activities. With respect to agricultural production, India has not only become self-sufficient in terms of food production, but it has also emerged as a net exporter of agricultural products. However, the post-production activities of Indian agriculture have not kept pace with the production related activities. The quantities of marketable surplus have multiplied by almost 10 times during the last 50 years. However, the agriculture marketing infrastructure continues to remain out-dated.
PROBLEMS WITH AGRICULTURAL MARKETING IN INDIA
Most of the State governments enacted the Agricultural Produce Market Regulation Act (APMC Act) which authorises the States to set up and regulate marketing. Apart from that, there are more than 22,000 Rural Markets or Grameen Haats under the control of local bodies, panchayats, APMCs, etc.
PROBLEMS WITH THE APMC REGIME
RESTRICTIVE REGIME: Under the present APMC Act, farm produce should be sold only at regulated markets through registered intermediaries. Further, the Essential Commodities Act allows central and state governments to place restrictions on the storage and movement of commodities deemed essential by governments.
FRAGMENTED AGRICULTURAL MARKETING with about 2500 regulated APMCs, 5000 sub-market yards and thousands of Rural Markets or Grameen Haats. Hence, due to this fragmented marketing system the agricultural commodities pass through multiple middlemen and traders leading to escalation in prices and prevents farmers from getting remunerative prices.
LACK OF FREEDOM TO FARMERS to sell their produce to whomsoever and wherever they want.
LACK OF ACCESS TO APMCS: An average APMC in India serves an area of around 450 sq.km as against the recommendation of 80 sq. km. given by M.S. Swaminathan Committee. On account of this, the farmers are forced to sell their produce at lower prices outside the APMCs.
AGAINST INTERESTS OF SMALL AND MARGINAL FARMERS who are forced to sell at lower prices due to their low marketable surplus and poor bargaining power.
POOR INFRASTRUCTURE OF THE APMCs leading to improper storage and consequently higher post-harvest losses; No electronic auction platform
IMPOSITION OF MULTIPLE FEES IN APMCs which is estimated to be around 15% of the value of the agricultural produce; Increased prices and affect food processing Industries
Higher Post-harvest Losses in the range of 20-25% of produce accounting for Rs 92,000 crores loss.
ANALYSIS OF GOVERNMENT INITIATIVES
REPORT OF SC APPOINTED COMMITTEE ON FARM LAWS
FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) ACT, 2020 (NOW REPEALED)
| IMPORTANT PROVISIONS | CONCERNS RAISED |
| Freedom to the farmers: This act enabled the farmers to sell their agricultural produce outside the APMCs anywhere in India and thus promote barrier free inter-state and intra-state trade. This had the potential to create "One Nation, One Market". Definition of Trade Area: The Farmers were Riven freedom to sell their produce in the trade area outside APMCs. The trade Area included (a) farm gates (b) factory premises (c) warehouses (d) silos (e) cold storages etc. located anywhere within India. No Market fee or cess to be imposed on the sale of agricultural produce in the APMCs. Dispute resolution mechanism to be set up in the form of conciliation board by the sub-divisional magistrate. | Autonomy of States: Agriculture is a State Subject and the Central Acts would override State APMC Acts. Exploitative: Freedom to farmers to sell outside the APMCs would lead to exploitation by private sector. Phasing out of MSP: With the decline of APMCs. the procurement at MSP would be phased out. Absence of Price Discovery: The APMC prices serve as a reference price for price discovery for one's produce. If farmers sell produce outside APMCs, then it is difficult for a farmer to have a benchmark price. Loss of Revenues: Various States raised the concern that mandi revenues will be affected due to lower mandi transactions in APMCs. |
OBSERVATIONS OF SC APPOINTED COMMITTEE
Flexibility to the States: State APMC Acts will continue to govern the APMCs/regulated markets under that Act. The Central Acts would provide alternative marketing channels to farmers. So, a farmer would have option to either sell the produce within APMCs regulated through State APMC Act or in the trade area regulated under the Central act.
Redundant APMC Regime:
- Presently, Livestock and fishery form 40 percent of the Gross Value of Agricultural output. This sector is outside the procurement support through MSP. These sectors are also growing much faster than other crops. Hence, the argument that only the APMCs and procurement support through MSP can offer remunerative price to farmers is flawed.
- Even for commodities that come under the purview of MSP, only around 25-30 percent of the production is transacted through the APMCs/regulated mandis. So, already a major chunk of agricultural commodities are sold outside the APMC regime.
- Hence, the Central act seeks to regulate the sale of agriculture produce outside APMCs.
Procurement of Rice and Wheat: Around 90 percent of rice production and 70 percent of wheat production is procured in Punjab and Haryana through the APMCs. This has in turn led to skewed cropping pattern with more emphasis on Rice and wheat and less focus on agricultural diversification in Punjab and Haryana.
Higher Mandi Charges and Cess imposed by the state Governments lead to increase in prices of agricultural commodities.
FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES ACT, 2020 (NOW REPEALED)
| Important Provisions | Benefits | Potential Problems and Challenges |
| Objective: Promote Contract Farming between Farmers and other stakeholders such as agribusiness firms, processors, wholesalers, exporters or large retailers. Contract period: Minimum period of the farming agreement shall be for one crop season and the maximum period shall be five years. Minimum guaranteed price: The price to be paid for the purchase of a farming produce may be determined and mentioned in the farming agreement itself. Registration of contracts: A State Government may notify a Registration Authority to provide for electronic registry for that State that provides facilitative framework for registration of farming agreements Dispute resolution mechanism to be set up in the form of conciliation board by the sub-divisional magistrate. | Streamlines the supply chain by connecting the farmers directly with the buyers and reduce post-harvest losses. Enhancement of Incomes by integrating farmers with bulk purchasers such as exporters and food processing industries Access to Inputs such as Seeds. Capital. Fertilisers, technology etc.Promote higher Investment by providing price certainty Address Rural Indebtedness by reducing dependence of the farmers on moneylenders for meeting their credit needs Boost to Food Processing by providing access to good quality raw materials and hence provide greater fillip to the sector. | Exclusionary in Nature due to fragmented land holdings and lower marketable surplus of small and marginal farmers; Exclude women farmers. Exploitation of Farmers due to lower bargaining power; Could lead to development of Monopsony market (one buyer dealing with multiple sellers and thus benefitting buyer). Adverse Impact on Environment: Promote Monoculture farming; Promote harmful agricultural practices such as excessive water usage, fertilizer consumption; Destruction of forests and wildlife etc. |
OBSERVATIONS OF SC APPOINTED COMMITTEE
Existing legal framework: All States except Arunachal Pradesh, Meghalaya, Uttar Pradesh, West Bengal, Delhi, Chandigarh and Puducherry already have legal provisions for contract farming in their APMC Acts. Punjab and Tamil Nadu have separate contract farming Acts. Hence, the argument that the Central Act to promote contract farming would be exploitative seems flawed.
Success of Contract farming: Contract farming is not new in India and various variants exist in several sectors. For example, contract farming has transformed the poultry sector from a mere backyard activity into a major organized commercial one with almost 80 percent production coming from organized commercial farms. Similar, NESTLE's contract farming with the dairy farmers in Punjab has led to improvement in livelihood opportunities for the farmers.
AMENDMENTS TO ESSENTIAL COMMODITIES ACT (ECA), 1955 (AMENDMENTS- REPEALED)
ESSENTIAL COMMODITIES ACT AND ITS RATIONALE:
Used by the Government to regulate the production, supply and distribution of commodities which are declared as essential under the act. The list of items under the Act includes drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products. The Central Government may add or remove a commodity from the schedule in consultation with the State Governments.
HOW DOES IT WORK?
If the Centre finds that a certain commodity is in short supply and its price is increasing, it can notify stock-holding limits on it for a specified period. Anybody trading or dealing in a such a commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity. This improves supplies and brings down prices.
HOW ESSENTIAL COMMODITIES ACT HINDERS THE AGRICULTURAL MARKETING?
Fails to realize stocking is essential: The fear of bringing the agricultural commodities under the act has prevented the traders and processors from undertaking bulk procurement of agricultural commodities during bumper harvest season. Further, since almost all crops are seasonal, ensuring round-the-clock supply requires adequate build-up of stocks during the season.
Poor investment in Storage infrastructure: With frequent stock limits, traders have not invested in better storage infrastructure.
Adverse impact on Food Processing Industry since Stock limits curtail their Operations.
Impact on agriculture exports: Whenever the Government declares an agricultural commodity as essential, it imposes a number of restrictions on it including ban of export of such commodities.
Outdated Act: This act was enacted in 1955 when we used to frequently faced shortage of agricultural commodities and hence it required Government to crackdown on black marketing and hoarding and bring down the prices. However, now situation has changed completely. Now, we have surplus production of agricultural production. Hence, accordingly, we must give the necessary freedom to the traders, aggregators and food processing industries to undertake bulk procurement of the agricultural commodities.
AMENDMENTS TO EC ACT, 1955 (REPEALED)
Reduced Scope of ECA, 1955: Agricultural commodities to be outside the purview of Essential commodities Act, 1955. They would be brought out ECA only under exceptional circumstances such as war, famine, extra ordinary price rise, and natural calamity of grave nature .
Stockholding Restrictions: Stockholding restrictions to be based on price rise - 100 percent increase in retail price for horticulture products or 50 percent increase in retail price in case of non-perishable agri products;
Observations of SC Appointed Committee
The Amendment attempts to balance the interests of all stakeholders – farmers, traders, food processors, exporters and consumers – to enable agri-produce to move up the value chain. As agriculture is a seasonal activity, it is essential to store produce for the off-season to ensure smoothened availability of a product at stable prices throughout the year.
BROAD RECOMMENDATIONS OF THE COMMITTEE ON 3 FARM LAWS
Need for Farm laws: A repeal of these Farm Laws would be unfair to the 'silent' majority who support the Farm Laws.
Flexibility to States: States may be allowed some flexibility in implementation and design of the Laws, with the prior approval of the Centre, so that the basic spirit of these Laws for promoting effective competition in agricultural markets and creation of ‘one nation, one market’ is not violated
Dispute Resolution Mechanism: Alternative mechanisms for dispute settlement, via Civil courts or arbitration mechanism, may be provided to the stakeholders.
High level Coordination body: Agriculture Marketing Council, under the chairpersonship of Union Minister of Agriculture, with all States and UTs as members may be formed on lines of the GST Council to reinforce cooperative efforts to monitor and streamline the implementation of these Acts.
Compensation Mechanism: The implementation of Central Acts would lead to loss of revenues which states earn from APMCs. Hence, to compensate the states for their loss, a compensation mechanism on the lines of GST compensation mechanism may be incorporated.
Essential Commodities Act, 1955: The Government should consider in favour of completely abolishing the ECA Act, 1955 or take steps to substantially liberalize its provisions.
NATIONAL AGRICULTURAL MARKET (E-NAM)
Pan-India electronic trading (e-trading) portal which seeks to network the existing APMCs through a virtual platform to create a unified national market for agricultural commodities. It is operated by Small Farmers' Agribusiness Consortium (SFAC).
RECENT DEVELOPMENTS IN 2020
FPO Module on e-NAM: Enables FPOs to upload pictures of their produce directly from collection centres without the need to come to Mandis.
Warehousing based Trading Module: Farmers can sell their produce directly from the warehouses registered under warehousing Development and Regulating Authority (WDRA).
Logistics Module: Link large logistic aggregator platforms with the traders for the seamless transportation of Agri-produce.
Kisan rath application: Mobile application to enable the Farmers and Traders in hiring vehicles for transportation of agri-produce.
Integration with other platforms: e-NAM platform has been made inter operable with ReMS platform of Govt. of Karnataka. Such integration facilitates famers of either platforms to sell their produce in other platform thereby increasing their market access.
Agri-Infrastructure Fund: Financing facility to Primary Agricultural Cooperative Societies, Farmers Producer Organizations, Agriculture entrepreneurs, Start-ups, APMCs etc. to set up collection centres, cold chains, warehousing, assaying, grading and packaging units etc.
| BENEFITS | CHALLENGES | WAY FORWARD |
| Thrust to New Farm Acts: The new farm acts enable the farmers to sell their agricultural produce directly from the trade area- Farm gate, warehouse, factory premises etc. Hence, E-NAM would provide fillip to the implementation of new farm acts. Efficient Agri-marketing regime- Single trading license.Single point levy of market fee, e-auction. Benefits Farmers: Remunerative prices, reduced transaction costs, more transparency in sale produce and prompt payment of sales proceeds Boost FPOs: New E-NAM Trading modules such as FPO Module, Warehousing module would save transportation costs for the FPOs. Boost Food Processing Sector and Exports as Processors and Exporters can directly buy the produce from farmers without any hassles Ensures Quality in procurement as it provides for assaying and grading of produce. Streamlines the agricultural supply chain, reduces logistics cost and reduces post-harvest losses Induces transparency and competition and prevents collusion among the traders Ensures timely payment directly to the bank accounts of the farmers Ensures price stability and prevents inflation in Agri-Commodities. | Poor Penetration: Only around 1000 APMCs (14%) have been integrated with e-NAM in last 5 years. In particular, larger APMCs have not been integrated. Lack of Political will: Some of the states have not fulfilled the criteria to join E-NAM. This is due to the fear of revenue loss due to single point levy of market fee and single trading license. Infrastructural gaps: Inadequate infrastructure such as such as electronic gate pass (entry and exit), quality assaying (QA) labs, electronic weighbridge; Underdeveloped IT Infrastructure; Poor Internet connectivity; Lack of financial inclusion among the farmers; Farmers need cash to meet immediate expenses. Poor participation of Farmers: Around 32% of the farmers are still unaware of the E-NAM; Farmers continue to sell the produce directly to traders in the villages due to - (a) Easier Credit provided by Traders (b) APMCs located far way from villages (c ) Immediate cash payment Resistance by Traders and Middlemen as the online system is more accountable and would bring them under the ambit of tax. | Conduct awareness programmes among the farmers to highlight the benefits of E-NAM Increase Funding: Presently, Government gives Rs 75 lakh to each mandi for integrating with E-NAM. Need to provide higher funds to the APMCs to plug the infrastructural gaps. Deploy adequate IT staff for smooth functioning of e-NAM platform Improve the coverage of E-NAM in terms of integration with more APMCs and Warehouses Reduce the dependence of the farmers on the middlemen by organising them into FPO, set up collection centres at farm level and link such collection centres with E-NAM Open Bank branches on the APMC premises to get instant payments. Establishment of an Apex Body is advocated to control and regulate the actives of e-NAM |
E-NAM: PLATFORM OF PLATFORMS
The Government has launched the Platform of Platforms under the E-NAM portal. The new "Platform of platforms" would enable the farmers and traders to avail various goods and services across the agricultural value chain.
It brings together different service providers on the single platform to streamline the supply chain, reduce post-harvest losses and ensure higher price realisation for farmers. For example, it provides for the following:
FPO Module: Enables FPOs to upload pictures of their produce directly from collection centres without the need to come to Mandis.
Logistics Module: Link large logistic aggregator platforms with the traders for the seamless transportation of Agri-produce.
Warehousing based Trading Module: Farmers can sell their produce directly from the warehouses registered under warehousing Development and Regulating Authority (WDRA).
Fintech Module: A large number of fintech companies can get integrated with the E-NAM to provide for services such as
- Price Information to farmers
- Link Farmers with bulk buyers
- Generate credit score for the farmers
- Link Farmers with the Banks to get credit
Integration with other platforms: Platforms that provide services across the agricultural supply chain can also get integrated with the E-NAM:
- Inputs: Credit, Seeds, Fertilisers, Machineries, Price information etc
- Information Dissemination: Advisory Services, crop forecasting, weather updates, capacity building for farmers etc.
- Post-harvest services: Cleaning, Grading, Sorting & Packaging Service Provider
- E-commerce: Bring together buyers and sellers
BENEFITS
Farmers will be able to sell facilitated to sell the produce outside their state borders. This will increase farmers' digital access to multiple markets, buyers and service providers and bring transparency in business transactions with the aim of improving price search mechanism and quality commensurate price realisation.
ROLE OF GRAMIN HAATS IN IMPROVING MARKETING
Gramin Haats are located in rural and interior areas in India and act as focal point for marketing of agricultural produce by the small and marginal farmers. There are around 22,000 rural markets and are known by different names such as rural periodical markets, haats, Rythu bazaar, Rytha santhe etc. in different states. These are owned and managed by different institutions- Panchayats, Urban Local Bodies, APMCs, Trusts etc.
IMPORTANCE OF GRAMIN HAATS
Lack of access to APMCs: An average APMC in India serves an area of around 450 sq.km as against the recommendation of 80 sq. km. given by M.S. Swaminathan Committee. Gramin Haats provide for alternative marketing infrastructure. Around 90 per cent of the total marketable surplus in the remote areas is sold through these markets.
Benefits small and marginal farmers who contribute 40% to the marketable surplus by reducing their transportation cost
Higher price realisation as it enables the farmers to sell the produce directly to end-consumers without the need for middlemen and traders.
Promotes Farm-to-Fork and reduce post-harvest losses as the supply chain from farmers to end-consumers gets streamlined.
Facilitates aggregation of produce at the village level and boost exports.
Strengthen agricultural marketing through hub and spoke model wherein GrAMs can act as feeders to the APMCs.
Offer an integrated platform for purchase of agricultural inputs such as seeds, organic manure etc.
Initiatives: The Government has announced the scheme for upgrading existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs) in Union Budget 2018-19. The infrastructure in these GrAMs would be upgraded through MGNREGA and linked to e-NAM portal. These GrAMs would be exempted from regulations of APMCs.
WAY FORWARD
Only 6% of the target for upgrading 22,000 rural markets into GrAMs has been achieved by 2021. Hence, going forward, there is a need to fast track the implementation of the scheme by utilising funds provided under the Agriculture Infrastructure fund.
PM-AASHA SCHEME
The PM-AASHA scheme aims to incentivize the farmers to produce oilseeds and pulses and to wean away the farmers from the cultivation of water-intensive crops such as Rice and Paddy. Components:
Price Support Scheme (PSS): Physical procurement of pulses, oilseeds and Copra
Price Deficiency Payment Scheme (PDPS): Compensate the farmers through DBT if the market price of the notified oilseeds falls below the MSP.
Pilot of Private procurement and stockist scheme (PPPS): Flexibility to rope in the private sector for the physical procurement of the oilseeds.
BENEFITS OF PM-AASHA SCHEME
- Address the flaws in MSP Regime: The MSP regime has been criticized on account of poor coverage in terms of crops, farmers and geography.
- Incentives the farmers to shift from water intensive crops such as Rice and Wheat and instead grow pulses and oilseeds.
- Self-Sufficiency in Pulses and Oilseeds and reduce their imports
- Provides for Mechanism for compensating farmers in the form of DBT in the event of loss.
- Reduces the burden on the Government by roping in Private sector
- Doubling of Farmers' Income by offering guaranteed MSP
CHALLENGES/CONCERNS
- Issues with the Price deficiency Payment System (PDPS): The PDPS is based on the Bhavantar Bhugtan Yojana implemented in the State of Madhya Pradesh. It was found out that in Madhya Pradesh, there was unfair collusion between traders and farmers wherein the traders asked the farmers to sell the agricultural produce below the MSP. The compensation amount given by the Madhya Pradesh government was then shared between the traders and farmers.
- Lack of enthusiasm of the private sector to undertake the procurement.
- PM-AASHA is implemented by undertaking procurement from the APMCs. But, APMCs suffer from inherent flaws such as lack of accessibility, poor infrastructure, lack of warehouses etc.
- MINIMUM SUPPORT PRICE (MSP) REGIME
The Cabinet Committee on Economic Affairs (CCEA) notifies MSP based on the recommendations of the Commission on Agricultural Costs and Prices (CACP). As of now, CACP recommends MSPs of 22 commodities.
HOW ARE THE MSPS FIXED?
Different methodologies may be used to calculate the MSPs. These are
- A2 Approach, which includes cost of inputs such as seeds, fertilizer, labour;
- A2+FL Approach, which includes A2 and the implied cost of family labour (FL); and
- C2 Approach, which includes the implied rent on land and interest on capital assets and A2+FL.
The National Commission on Farmers led by M.S. Swaminathan had recommended for the adoption of C2 Approach for fixing the MSP. However, presently, the MSPs are fixed at least 50% more than cost of production as calculated according to A2+FL approach.
LIMITATIONS IN THE MSP REGIME
Promoted Cultivation of Water Intensive Crops: Even though, the Government declares MSP for 22 crops, the procurement is quite strong only for Rice and Wheat.
Lack of Safeguards: The present MSP regime is not geared to pay compensation to the farmers when they are forced to sell the commodities below the MSP.
Flawed Approach: Some of the economists have pointed out that the MSP should be declared based on the C2 Approach as recommended by Swaminathan Committee.
Benefitted only Large Farmers: The Shanta Kumar Committee on FCI reforms has highlighted that the MSP procurement has benefitted only 6% of farmers in India.
Undue delay in the announcement of the MSPs have not able to able to send the price signals to the farmers on time.
LEGALISATION OF MSP - CHALLENGES
Present Status of MSP: Presently, MSP does not enjoy statutory recognition. This means that, there is no onus on the private sector to buy at MSP. Legalisation of MSP would ensure that private sector would buy commodities at MSP. Failure to do so would attract penalty.
CHALLENGES AND CONCERNS
Goes against Interest of Farmers:
- In the event of bumper harvest, prices of the commodities would fall below MSP. During such times, the private sector may not procure the commodities fearing penalty.
- Higher procurement of Food grains by FCI-> Surplus stock-> Dumping of surplus in open market-> Decrease in prices-> Traders would buy commodities from FCI and not farmers.
- Legalisation of MSP-> Encourage over-production of Rice and Wheat-> Environmental cost (such as Decline in Soil fertility, depletion of ground water etc.) -> Decline in income levels of farmers.
Adverse Impact on Economy:
- Higher costs of procurement due to a statutory MSP will increase the food prices, leading to inflation in the economy
- Higher prices of commodities would adversely affect exports of agricultural commodities
Financing needs would amount to half of the Government's Budget.
Unsustainable Food grain Management Policy: The Food subsidy bill has already become quite unsustainable at around Rs 2 lakh crores. The excess procurement of food grains by the FCI has led to surplus buffer stocks leading to higher storage costs and wastages. Legalization of MSP would further worsen the scenario.
Administrative Challenge: lack of government machinery to the procure all crops that are under the MSP system.
Violation of WTO Agreement on Agriculture (AoA): Legalization of MSP would further violate the limit on the subsidies under AoA and it can be challenged by other countries. India's quest for Permanent solution on public stockholding could be in jeopardy.
Promote Inequality: Only 6 per cent of farmers are able to benefit from the MSP. Similarly, most of the Rice and Wheat are procurement from states such as Punjab, Haryana, MP etc. Hence, legalisation of MSP could worsen socio-economic inequality and promote regional disparity.
Environmental cost: Encourage farmers to grow more rice and wheat leading to further environmental problems.