The proposed laws are not shutting down APMC-mandis, nor do they imply that MSPs will not be functional. It is also true that across sectors of the rural economy, liberalisation has expanded the size of the economy and improved growth and GDP
Farmer Furore or Farce?
The Covid-19 pandemic has destroyed lives, livelihoods and entire economies worldwide! In 2017, the Dalwai Committee on Doubling Farmers’ Incomes observed that rural income levels have either remained stagnant or worsened, leading to a spate of suicides. In an agrarian economy where 69% of the population is based in rural India and depends on agriculture as the primary source of income, this is a tragedy as the whole story of economic Liberalisation, Privatisation and Globalisation was sold in 1991-92, on the premise that opening up the economy as per the IMF/World Bank dictates, would improve the entire economy. It has helped the rich become richer while the Smallholder Farmers have suffered. The ongoing farmer agitations at Delhi are led by Adtiyas and not by the smallholder farmers, worried about their dominance in the APMCs are going to end. In any case, Agriculture continues to be a State subject and getting fair prices for their produce/products is a matter for States to manage and not the Centre. The Centre is more concerned with fair agricultural prices, better agri-reforms and ensuring fair markets for Farmers across the country. The APMCs are a 150-year old colonial construct designed to serve British interests and deserve a fresh review.
On an average, the difference between the rural inflation rate (as measured by CPI) and the growth rate of agricultural wages, was merely 2% since 2000. Between 2012 and 2017, the monthly average income of an agricultural household was less than Rs 8,000, increasing by 9.5% while the inflation rate was 7.5%. This implies that 80% of income growth was consumed by increasing farm expenditure. Worse, the agricultural sector contribution to GDP, which was 51% in 1950-51, dived to 15% in 2016-17. Thus the pauperisation of the agri-economy-labour force reduced from 70 % in 1950-51 to 54% in 2016-17. Farmers have no worthwhile lobby to press for their demands but the continuing spate of suicides, three-fold increase of farm input prices and costs due to LPG economic reforms and APMC mismanagement leading to farmers retaining only 18-30% of farm profits, while traders received 70% of the profits, with minimal risk-taking! Farmers should retain 70% of the crop profits as they own the land, put in hard labour, take on weather /credit /production /market risks. Their profits are minimal.
It must be remembered that farmers have been unable to enhance income levels and their low and fluctuating farm incomes are due to plateauing crop yields (output per hectare) since the 1980’s and increasing farm-level risks leading to crop losses or output reduction due to weather variations, pest infestation, animal attacks and input price increases. The major policy instruments are credit policies (flow at affordable interest rates), crop insurance and the MSP (Minimum Support Price). While production risks are taken care by credit policies and crop insurance, market risks are met by sustaining farm incomes against fall in market prices. About 86% of farmers are small-holder farmers with an average unsustainable land-holding of only 1.54 acres! How to help the small farmers access affordable credit, crop insurance, steady input prices, low storage/transportation costs and secure over 50% of the profits to feed their families, is the real question posed by farmers.
The Three Contentious Farm Bills
Article 246 of the Constitution places Agriculture (entry 14) and markets and fairs (entry 28) in the State List. The Centre has powers to regulate inter-state trade and commerce (entry 42) but entry 33 in the Concurrent list covers trade and commerce in all foodstuffs, cattle fodder, raw cotton and jute, including within states. The Centre has somehow decided that the Centre take the lead in ensuring farm sector reforms. The role of the Centre should have been to incentivise States and farmers to carry out much-needed agricultural reforms. Between February 2020 and June 2020, why the Central Government decided to ram through the agri-reforms and pass Ordinances, is a big mystery. For reasons best known to the Government, three agriculture Ordinances were promulgated and became Acts in September 2020. Desultory discussions have been on-going as also recommendations from various Committees/Task Forces/Working Groups but in June 2020, hardly any discussions were held and the Ordinances were passed without proper voting norms as the Opposition parties were bent on scuttling government moves on agri-reforms.
There are many ways to look at these proposed changes. One is to believe that the paper reforms will operationalise perfectly, in real life. This results in farmers being able to escape the clutches of the monopoly APMC-mandis and rent-seeking behaviour of the traditional intermediaries (called Adtiyas). A farmer can now pick and choose who to sell and at what price, after making an informed decision about prices elsewhere.
What is the fuss all about? Let us simplify the names of these three Acts. “The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020” is The APMC Bypass Act. Similarly, the “The Essential Commodities (Amendment) Act, 2020” is The Freedom of Food Stocking Act and “The Farmers (Empowerment and Protection) Agreement on Assurance and Farm Services Price Act, 2020” is the Contract Farming Act. There was much consternation as Punjab and Haryana saw widespread protests against the proposed Bills. The BJP government even lost one of its oldest allies, the Shiromani Akali Dal and why farmers are unhappy with these legislative changes, is not clear. Despite the pushback, PM Modi has reiterated that farmers will benefit from the changes mentioned in the Atmanirbhar Bharat Abhiyan package.
The first Act allows farmers to sell their produce at places other than the APMC-regulated mandis. It is critical to note that there is no intention to shut down APMCs and expands market options for farmers. If a farmer feels that a better sale-price is possible with some other private/corporate buyer, then instead of compulsorily selling his produce in the APMC-mandi, he can now opt out and sell elsewhere. The smallholder Farmer has no reason to be beholden to the APMC Mandis dominated by Adtiyas/Big Farmers and the absence of smallholder farmer representatives from FPOs/JLGs. The second Act allows farmers/agents/ agencies to stock food articles freely without the fear of being prosecuted for hoarding, as are being done today. The District authorities routinely ban the sale of crops beyond the district boundaries and hence smallholder farmers are forced to sell at APMC-determined prices. The smallholder farmer lacks holding capacity and is unable to carry back his produce even if prices are unremunerative. The third Bill provides a framework for farmers to enter into contract farming. Contract farming is being routinely done since the mid-1980s, with corporates like Pepsico/Wimco/others encouraging contract farming, with varying degrees of success. The bogey of corporates seizing the lands of farmers is unwarranted.
The entire idea behind all three agri-reform Bills is to liberalise the existing colonial-style farm market mechanisms in the hope that doing so will render the whole system more efficient and allow for better price realisations especially for the smallholder farmers and finally, the consumers. The overriding concern, presumably, is to make Indian farming a more remunerative enterprise than what it is right now and it is being discussed ad-nauseam over the last 15 years, without any initiative to change the systems. Where the BJP erred is not having discussions in Parliament and the political management systems appear to have broken down with the anti-CAA agitations and now the anti-Farm Bills agitations, which are non-issues but are now being blown up by destructive forces into full-scale agitations on vague fears about APMCs being shut down and MSP to be eased out and farmer’s lands being seized by Corporates! These appear to be fears being spread by fertile brains addled by Opium/Heroin and are totally irrational. More worrying is the fact that the three Ordinances are sought to be reversed before any meaningful talks can be held by Farmers with the Central Government. And fringe political parties are jumping into the fray to keep the agitation alive! What is actually going on?
There are many ways to look at these proposed changes. One is to believe that the paper reforms will operationalise perfectly, in real life. This results in farmers being able to escape the clutches of the monopoly APMC-mandis and rent-seeking behaviour of the traditional intermediaries (called Adtiyas). A farmer can now pick and choose who to sell and at what price, after making an informed decision about prices elsewhere. And, most crucially, when he does this, he can earn more than what he did in the past due to the exploitative Adtiyas and APMC-mandis. The contesting viewpoint, which the protesting farmers have, is to see this move towards free markets, as a game-plan of the Central government to move away from being the guarantor of minimum support prices (MSPs). The MSPs do matter in the regulated APMC mandis, but not in private deals. The farmers from areas where MSPs are more efficient, are suspicious of what the markets will offer in the future and how the so-called “big companies” will deal with them. Big farmers can influence the most powerful governments through the electoral process but confronted by big corporates, they are exposed as minor players, incapable of ‘effective’ bargaining. There are no easy answers as neither view is correct and there is a lot of gray matter in between the black and the white.
The proposed laws are not shutting down APMC-mandis, nor do they imply that MSPs will not be functional. It is also true that across sectors of the rural economy, liberalisation has expanded the size of the economy and improved growth and GDP. But farmer wellbeing is a different matter. Why are more farmers committing suicide after LPG (since 1992) and that too in the more agriculturally developed States? This is a reality, which has yet to be faced by the political system and should have been examined in depth rather than be ignored as is being done today. But why not enable the farmer to have more selling or storage choices? If the private deal is not distinctly better, a farmer can carry on as it is. If corporate farming does manage to weaken the APMC-mandi system then it would only be because hordes of farmers chose corporate farming or selling outside existing mandis. Could it be the case that the Adtiyas and existing elites are the ones who are threatened by this reform? Moreover, there is an unwarranted fascination with MSPs in India. The last Agriculture Census (2015-16) showed that 86% of all land holdings were small and marginal (less than 2 hectares). These are such small plots that most farmers dependent on them are net buyers of food. As such, when MSPs are raised they tend to hurt the farmers the most!
Access to institutional credit/crop insurance
Most farmers are unable to access the subsidised credit generously made available (7% due to Central Government subsidy and complemented by State govt. subsidies @2-4% for prompt repayment of dues), due to lack of land-titles after property sub-divisions of agricultural properties, due to deaths. Only about 12% of farmers get access to credit and they are mostly mid-level and big farmers. The loan transaction costs are very high for smallholder farmers who mostly do not have land titles registered in their names or are oral lessees or tenants or agricultural labourers and they are forced to borrow from adtiyas or mandi agents or money-lenders at rates starting from 5% per month! What has happened to the computerisation of land holdings started in 1975? After 45 years only Karnataka and AP have completed the exercise. Other states have failed to do the needful due to opposition by vested interests. This is a shameful reflection on what is wrong with our rural economy!
From June 2020, crop insurance is no longer linked to crop loans (a very welcome initiative) but now crop insurance is only 3% of crops grown as the NAIS is not viewed favourably by farmers as repayments are too little and too late and are not village–based but area-based and official crop-cutting trials are always late and with State Govts. not funding in time, crop insurance is an exercise in futility for smallholder farmers. Also the latest farm reforms brought out the fact that only 6% of farmers are using the APMC-MSP framework in Punjab, Haryana and 3.6% in Western UP and to a limited extent in AP and Maharashtra. Other farmers depend on private mandis and corporate buyers and adtiyas. Over 85% of farmers are unable to access the subsidies, safety nets, benefits and infrastructures created by the Government only for farmers. Thus only big/medium farmers avail of the benefits meant for farmers. Thus only 15% of farmers may benefit from the massive subsidies for credit, power, fertilisers, MSP benefits, etc. What about the benefits, which were supposed to come to the economy after the LPG economic reforms? Maybe urban India has benefited but certainly not rural India with the pauperisation of farmers and rising suicides, a blot on humanity!
Short-term credit or crop loans are meant for inputs purchase like HYV seeds, fertilisers and pesticides and commercial banks, short-term cooperative credit institutions and Regional Rural Banks, medium- term credit needs of farmers are met by commercial banks/RRBs while the infrastructural investments were met by the long-term cooperative credit structure, which is in total disarray, due to non-availability of the Vaidyanathan–II reforms package, in 2008. The RBI had assessed that only 7.2% of farmers had access to institutional credit in 1951. The NABARD All India Rural Financial Inclusion Survey (2016-17), showed a direct relationship between asset holdings and formal credit access. Thus the availability of scarce subsidised credit for farmers is skewed against the poorer sections of society, the smallholder farmers who need it the most. An ICRISAT study was conducted among about 1000 farmers each in semi-arid areas of AP, Maharashtra, Gujarat, Karnataka and MP depending upon formal and informal credit sources between 2001 and 2014. Credit access was modelled as a function of three sets of variables, representing credit-worthiness of farm households-1) land-ownership status 2) household demographics and 3) asset holdings.
The results were interesting: farmers owning land were 1.4 times more likely to secure formal credit and 1.2 times credit from informal sources, relative to landless farmers. Every additional piece of land increased the accessibility of credit by 1.2 times. Thus smallholder farmers owning 48% of land in semi-arid areas and agricultural labourers lose out on formal and informal credit. Soil quality also played an important role as land holdings with eroded soils reduced credit access by six times as compared to healthier soils with humus and clay contents. Social hierarchies are good predictors of credit access with caste, education, age and wealth factors linked to credit access. Forward caste farm households are 1.3 times more likely to get farm credit from formal/informal sources when compared to those from the backwards castes. The 2012 agricultural census revealed that SC/ST farm households accounting for over 20% of landholdings in the country received less than 12% loans under the KCC scheme.
In the end, what will determine the results of this latest set of reforms will be their implementation. If farmers feel robbed and exploited when they participate more fully in the market, they will blame the political masters but if they taste success via better returns on a sustained basis, one that allows them to afford better standards of living, then long-standing doubts being created by some vested interests, will melt away.
Wealthier households with older and more educated heads were more likely to secure credit, possibly due to better social and economic networks. Also evidence of significant differential access existed among the five States studied, with the wealthier southern states showing better credit access than the western states.
Thus, we surmise that the formal agricultural credit system is unable to disrupt social and economic barriers to credit access by farmers. This also reveals that agri-insurance (prior to June 2020), was also not easily accessed by poorer farmers from weaker sections of society. Developing affordable and effective risk management systems that are accessible to all farmers especially the smallholder farmers irrespective of social and economic status, is urgently needed as also access to institutional credit at subsidised rates and access to better market rates, as is small storage yards for farmers produce as also transport systems for produce to access better prices. More Farmers Clubs for technology dissemination as also Joint Liability Groups/Self-Help Groups for credit access and Farmer Producer Organisations are needed to enhance credit inclusion efforts. The need for localised production systems from seeds to vermicomposting to pest control systems cannot be over-emphasised, during the Covid-19 lockdown. The lessons to be learnt are many but where are rural champions to take up the cause of the voiceless and suffering farmers.
Uneconomic size of land holdings
This is notwithstanding data that shows more and more farm produce is being sold to private players, instead of the government via MSPs, already. On the other hand, one can understand why farmers are so sceptical about markets. A good example is what happened when the government enforces a ban on onion exports and especially during elections. In doing so, the government prioritised the interests of the consumers over the interest of the farmers (the producers). This is not the first time.
Chart 1: Global Agricultural Exports: India vis-à-vis Major Exporting Countries
India ranks among the top ten exporters of agricultural products in the world. The country’s share in global agricultural exports increased from 1.1% in the year 2000 to 2.2 % in 2017, valued at $39 billion, but fell to 2.1 % in 2019, valued at $37 billion. The annual percentage change in 2019 from 2018 was -4 %. While USA witnessed a decline in its share of global agricultural exports from 13% in 2000 to 9.3% ($165 billion) in 2019, Brazil’s share increased from 2.8 % to 5.0% ($89 billion) and that of China increased from 3% to 4.6% ($82 billion). In 2019, all the major exporting countries (except Mexico), witnessed decline in agricultural exports from the previous year. There are innumerable examples when the government’s decision to protect the consumers from higher prices has resulted in farmers being robbed of the higher prices a free market could have provided them. The milk powder fiasco is another example as is the problem of potato availability. In fact, the MSP, it can be argued, is the embodiment of this distrust. Another underlying structural problem is the lack of information with farmers, which inhibits their ability to make the best decision for themselves. For instance, what is the right price for their produce? Similarly, in the absence of adequate infrastructure to store or transport their produce, they may never have the capacity to bargain effectively even if they knew the right price. Clearly more reforms are needed. The failure to join RCEP is a setback as costly subsidies for agriculture will clearly continue and these do not help improve production and productivity, especially of smallholder farmers.
Ecosystem crucial for benefits of precision agriculture
Increasing the share of price realisation to producers: Current low levels of price realisation to farmers (as low as 20% in fruits and vegetables) are primarily due to ineffective price discovery and dissemination mechanisms supply chain intermediary inefficiency and local regulations. Predictive analytics using AI tools can bring more accurate supply and demand information to farmers, thus reducing information asymmetry between farmers and intermediaries. As commodity prices are interlinked globally, big data analysis becomes imperative. Data from e-NAM, Agricultural Census (with data on over 138 million operational holdings), AGMARKET and over 110 million Soil Health Samples provide the volumes required for any predictive modelling. But how will price discovery help the smallholder farmer in realising better prices for his produce? Suppose he is able to access better prices at private mandis or corporates (ITC, Reliance, etc.), does he command resources to enable him to transport his produce to faraway markets by rail/road?
Our agri-supply chain is severely disrupted and instead of transport costs reducing, they are rising due to inefficiencies in storage, spoilage and rising costs of diesel oil. Rising diesel oil costs also are affecting pumpset operation charges for groundwater extraction. Unless the smallholder farmers form Joint Liability Groups, which are federated into Farmer Producer Groups, all these farm reforms translate into nil benefits for them. At the policy formulation level, data availability and AI algorithms can ensure better policies at the District/State and Centre levels. And most important is the upgrading of rural infrastructure like markets (one for every 500 square km) roads and bridges, small warehouses for storing farm produce, cold storages, reliable electricity supply and farmers cooperatives supplying quality inputs at affordable prices (localised seeds/pesticides/fertilisers/farm equipment hire, etc.) Increasing farm mechanisation is now needed as MNREGS availability has ensured that labour when needed is not readily available. Lack of village common lands and lack of fodder as also availability of pure indigenous cattle breeds and fish fingerlings, make it difficult for alternate occupations for farmers. The need to retain educated young men and women, at villages and small towns, in non-farm and off-farm sector jobs, throughout the year is imperative and the rural non-farm sector has to be built up.
Crop insurance or the use of other risk management tools may change what a lender considers adequate. Farmers in the lower end of the income spectrum, will feel financial stress first as margins tighten, while other farmers with incomes that fall more comfortably within guidelines, tend to have the staying power to weather the downturns. An Income/Expenditure app (mobile-based) enables farmers to assess their finances at regular intervals. Financial ratios measure their profitability progress over time, besides meeting bank requirements and benchmark themselves against peers.
In the end, what will determine the results of this latest set of reforms will be their implementation. If farmers feel robbed and exploited when they participate more fully in the market, they will blame the political masters but if they taste success via better returns on a sustained basis, one that allows them to afford better standards of living, then long-standing doubts being created by some vested interests, will melt away. With the advent of affordable technology, there is a need to inculcate hi-tech solutions, which will benefit all farmers and also encourage educated and trained youngsters to remain back in rural areas and work in the farm/nonfarm sectors of the rural economy.
Challenges in Indian agriculture
In a land where roughly 70% of the population resides in rural areas and half of the nation’s population farms for a living, the importance of India’s agricultural sector cannot be overstated. Despite these massive numbers, the country’s agricultural output has been unable to keep pace with growing demands and global competition. According to the World Bank, India’s rice yields are one-third of China’s and about half of those in Vietnam and Indonesia. With the exception of sugarcane, potato and tea, the same is true for most other agricultural commodities. There are multiple reasons for this productivity gap, but one significant one is glaring inefficiencies in India’s agricultural supply chains. Logistics play a critical role in any economic sector, but when goods are perishable, the supply chain becomes that much more important. Much of the blame for these inefficiencies has been placed on the government. The NY Times reports that critics accuse policymakers of focusing on more glamorous, urban industries like information technology, financial services and construction, at the expense of the rural economy.
Another factor is the overall lack of consolidation that has occurred in the agricultural sector, with the majority of production still operating at the single farmer level. The farmers in India are clearly ignoring the problems that reduce their income levels and need to shift their attention to an entirely different set of priorities.
Cycle of inefficiencies that are the bane of Indian agriculture
Indian Agriculture is clearly tilting at windmills and the real issues that the entire system should be addressing are being swept away under the carpet. After over 70-years after Independence, farm sector reforms are at the centre of attention possibly for the wrong reasons. The entire farm sector reforms need to be reviewed and a package of measures need to be drawn up and implemented, to benefit all farmers. The Adtiyas and agents also have a role to play in the rural economy but must instead ensure that the rural economic pie is expanded to benefit all stakeholders and the Farmers.
K G Karmakar is Distinguished Fellow, SKOCH Development Foundation and former MD, NABARD