Defanging outmoded APMC model and altering essential commodities act will unlock value, empower farmer, writes BJP economist

Agricultural pricing and marketing policy in India continued to be guided by state intervention in procurement, and distribution of farm produce, thanks to Nehruvian Socialism. Most states have Agricultural Produce Marketing Committee (APMC) Acts, to regulate, control, and monopolise the functioning of markets. The original idea behind setting up of APMCs was to protect farmers from wily, middlemen, ensuring competitive prices to farmers and optimising farm incomes from agrarian produce. Empirical evidence suggests that APMCs have however, fallen prey to the very vices they were supposed to mend and this made for a strong case for institutional reform.

APMC Acts empower state governments to demarcate their geographical region into various ‘notified market areas’, headed by a market committee for each market area. Over time these committees became authoritarian, leading to a monopolistic structure, antithetical to the cause of welfare of the farming community. APMC Acts typically declare the purchase, sale, storage, and processing of agricultural produce outside the yard set up by the "Market Committee", unlawful.

Furthermore, given that local traders, and politicians are often members of the "Market Committee", there is a direct conflict of interest in allowing new participants and fostering competition. The outdated legal framework was not in consonance with the letter and spirit of APMC Acts, in as much as it negatively impacted the ability of the farmers, to sell their produce at the best available price. APMCs have kept the market highly controlled, resulting in the emergence of multiple levels of intermediaries. On an average, there are 5-6 intermediaries between the primary producer and the consumer. The total mark-up in the chain was accordingly estimated to be 60-75 percent. It consequently follows that primary producers were estimated to receive only 20-25 percent of the consumer price. Moreover, multiple handling by different intermediaries resulted in wastage of around 15-25 percent of the economic value.

Representational image. Reuters

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Over a period of time, some states have relaxed some provisions, by allowing traders to buy directly from the farmers.Attention may be drawn to the 2016 decision of the Fadnavis government of Maharashtra, to delist fruits, and vegetables from the purview of APMC Acts, which led to an increase in income realisation for farmers, who now chose to sell at the farm-gate.

However, despite repeated requests from the centre, most states simply paid lip service to the cause of APMC reforms. A case in point is Section 12 of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966, which provides that even when traders and farmers do not use any APMC infrastructure, the "Market Committee" is empowered to levy fees on its sale.

It was recommended by the "National Farmers Commission" (2004), that a regulated market should be available to farmers within a radius of about 80 sq/km. However, most APMC "mandis" on an average are available at a radius of 487 sq/km. For most farmers, selling at APMC "mandis" has therefore, entailed increased transaction cost in terms of transportation & loading expenses, market fees, weight charges, entry tax, etc.Every crisis is an opportunity, and the present one emerging from the outbreak of the Coronavirus pandemic is one such. On 14 May, the government announced agri-reforms, with the most significant one being the decision to dismantle and defang the APMC structure in its current form. The government will pass a central law that will provide “adequate choices” to farmers to sell produce at attractive prices, barrier-free inter-state trade, and framework for e-trading of agricultural produce, will be crystallised too.

Right now, farmers’ sale choice is restricted, as they can sell only to those with APMC licences. This resulted in the hindrance of free flow of agricultural produce and fragmentation of markets and supply chain.Additionally, such restrictions on sales were not there for any other industrial produce entity and hence why should only the farming community be treated in a discriminatory manner---this argument has been the guiding ethos behind this progressive move of bringing in a new, facilitative legal framework.

Risk mitigation for farmers, assured returns, quality and standardisation shall form an integral part of the new framework, to enable farmers in engaging with processors, aggregators, large retailers, exporters etc., in a fair and transparent manner.

To cite an example, in December 2019, due to late monsoons and thereafter heavy rainfalls in Maharashtra and Karnataka, onion prices surged to anywhere between Rs 100-200 per kg at the retail level and between Rs 5500-14000 per quintal, in the wholesale markets.While customers at retail outlets paid hefty premiums for this routine kitchen staple, the onion growing farmers were left high and dry as their profits were skimmed off by commission agents and middlemen.

There was a shortfall in onion production of barely 15.8 lakh tonnes last year. Also, the kharif acreage had dipped from 2.97 lakh hectares in the preceding year to 2.58 lakh hectares in 2019. Yet, despite only a marginal fall in acerage, retail inflation in December 2019 hit 7.35 percent, largely on account of soaring onion prices.While the Modi government in the last six years has done a commendable job in reining in food inflation, with the average retail inflation in the last two years being less than 3.5 percent, the December 2019 spike was a reminder of how vegetable prices can shoot up, due to a skewed APMC structure which can create artificial scarcity, to benefit a few traders and hoarders.

Besides defanging the outdated APMC model, the Centre also decided to amend the jaded "Essential Commodities (EC) Act". Till now, under the Act, the government directs agencies for maintenance of stock limits of essentials, so that prices of these commodities can be regulated, but that is all set to change, post the announcement to amend this Act, which has also been very arbitrary, as the law empowered the government to include or exclude items, when “deemed necessary”, in an ad-hoc manner.

The new amendments will ensure deregulation of prices for foodstuff including cereals, edible oils, oilseeds, pulses, onions, and potatoes. The move is aimed at providing better price realisation to farmers and to attract investments in the farm sector.This 1955 Act imposed restrictions on the food economy by limiting food quantities which traders can buy from farmers and hold as stocks. The amendments to "The EC Act" will essentially mean that henceforth, the prices of staple agricultural produce will now be governed by market forces and government intervention will only be done in emergency situations. Post the amendment, stock limits would be imposed under very very exceptional circumstances only, like say, national calamities or famine.

Traders have consistently argued that if they cannot buy or hold sufficient quantities of grains for a certain profit margin, they would not buy out surpluses that farmers were looking to sell. This was in fact, identified as one of the key reasons, why farm incomes have taken a hit, even during years of bumper harvest.It may be recalled that India had a record food grain production of 277.49 million tonnes in 2017-18, followed by yet another bumper crop, totalling production of 281.37 million tonnes, in 2018-19.

In the commodities' market, "The Essential Commodities Act" was mainly used to target black-marketeers and hoarders and rein in prices of items, deemed essential under the Act by, forcing traders to release stocks. The law came in handy during the 1980s when hoarding or the unscrupulous trade practice of holding on to food stocks to artificially raise prices, used to be rampant. The law is still used to crack down on inflationary spells in food items, mainly by disallowing wholesalers and retailers from storing food items beyond stipulated quantities, which has been counter productive. Food inflation has largely been under check under the Modi government.In fact, food deflation and not food inflation, has been the benign trend in the last 2-3 years. The objective of opting for such an amendment is therefore, simple---why impose stock controls when there is a glut in production?Cereals, edible oils, oilseeds, pulses, potatoes and onions will be deregulated, under the new provisions.

Also, often, agencies used provisions of "The EC Act",to unfairly usurp unmitigated powers. However, the new amendments are in consonance with Prime Minister Narendra Modi's aim of doubling farm incomes, boosting agri-trade and strengthening the food supply chain. The proposed rationalisation of "The EC Act", is a case of "Minimum Government,Maximum Governance".

Apart from dismantling the monopolistic APMC structure of over 6900 odd APMCs that were abetting trade cartelisation and defanging "The Essential Commodities Act",which in its current form had been preventing fresh investments into the agricultural sector, the third significant and structural agri-reform announced on 14th May 2020 ,is, to bring in legal provisions for farmers to engage with processors, aggregators, large retailers and exporters. This will give a fillip to contract farming.The inbuilt advantage of this is that, farmers will benefit from risk mitigation, assured returns and standardisation of quality.These decisions will help bring long-term investments, world-class agri-assets and infrastructure, that will benefit small farmers.Importantly, this will also pave the way for agri-entrepreneurship.

Other key highlights of announcements made on 14 May are summarised below:

• Financing facility of Rs 1,00,000 core will be provided via an Agri-Infrastructure fund, for funding agricultural infrastructure projects including cold chain and post harvest management structures, in the vicinity of farm gates.
• Rs 10,000 crore has been allotted for formalisation of Micro Food Enterprises (MFEs),which will help 2 lakh MFEs, farmer producer organisations (FPOs),self help groups (SHGs) and cooperatives, in technical upgradation, improved incomes, better health and safety standards and integration with retail markets, using a "Cluster Based" approach.
• Rs 20,000 crore for fisherman through Pradhan Mantri Matsya Sampada Yojana (PMMSY) to fulfill critical gaps in fisheries' value chain and for integrated sustainable inclusive development of marine and inland fisheries, has been provided for Out of this, Rs 11,000 crore is meant for marine, inland fisheries and acquaculture and Rs 9,000 crore is meant for infrastructure like fishing harbours, cold chain, markets etc. This fund infusion is likely to help in additional fish production of 70 lakh tonnes over 5 years and give employment to over 55 lakh persons.
• A total outlay of Rs 13,343 crore for National Animal Disease Control programme was announced.
• Animal Husbandry Infrastructure Development Fund of Rs 15,000 crore is being created for supporting private investments in dairy processing and value addition and cattle feed infrastructure.
• Rs 4,000 crore has been earmarked for the promotion of herbal cultivation which will bring in an additional 10 lakh hectares of land under cultivation in the next two years, including a corridor to be developed on both sides of river Ganga.
• Rs 500 crore for beekeeping initiatives in the rural areas, to benefit 2 lakh Bee keepers.
• Rs 500 crore for "Operation Green", to prevent the wastage of agricultural produce due to disruption of supply chains, during the lockdown, has been provided for. This will be extended for the next six months from crops like tomatoes, potatoes and onions to all fruits and vegetables. This involves 50% subsidy each, for transportation and storage, too.

Other than this, e-NAM,a pan-India electronic trading portal which networks the existing APMC mandis to create a national market for agricultural commodities, on the lines of "One Nation,One Market", has been integrating farmers and farm markets, since 2016.In the last four years, e-NAM has registered a user base of 1.66 crore farmers, 1.31 lakh traders, 73,151 commission agents and 1,012 farmers producers organisations (FPOs).

As on 14 May, farmers have transacted over Rs 1 lakh crore on the eNAM platform with a trade volume of 3.43 crore tonnes of commodities and 38.16 lakh bamboo and coconuts. Presently, 150 commodities, including foodgrain, oilseeds, fibres, fruits and vegetables, are traded on e-NAM.This online trading platform provides a single window service for all mandi related information and services, including commodity arrivals, quality assaying, competitive bid offers and electronic payment settlement directly into farmers accounts.This online digital market aims at reducing transaction costs, bridging information asymmetries, and helping expansion of market access for farmers and other stakeholders.

In Budget 2020, announcement for formation of 10,000 Farmer Producer Organisations (FPOs) was made, so that farmers have easy access to institutional finance.FPOs are largely those clusters or groups of farmers who are being brought together, so that credit and other assistance can be extended to them and their marketing issues are also addressed with a clear objective of making the farmers and producers, earn the money that they should.

Acknowledging a more than proportionate dependence on rural life and agriculture, the government has also emphasised the immediate need for taking up water management and water-related stress points, in the last few years.There is a need for farmers to contribute in solar energy generation, participation in wind energy, installing solar panels on their farms, etc and also to become an "Urjadaata" from "Annadata". India provides roughly USD 200 billion agriculture credit every year to small and marginal farmers.

The reforms will enable agri traction whereby farmers will anchor the value chain, which in turn will augment the funding of the supply chain, aided by technology interventions that would bolster financial inclusion and rural financing efforts.NABARD's largest SHG-Bank Linkage Programme benefiting millions of rural women that is moving to a digital platform, is a move which will revolutionise the lending to women SHGs.

In the last 2 months of the lockdown, over 3 crore farmers with agricultural loans of Rs 4.22 lakh crore availed the benefit of 3 month loan moratorium. Rs 2 lakh crore worth of concessional credit boost to 2.5 crore marginal farmers through "Kisan Credit Card" scheme, is underway. Fishermen and animal husbandry workers will also be included in this credit card drive, which will help over 2.5 crore marginal farmers to become 'self-reliant' or 'Aatmnirbhar.'

During the lockdown period, minimum support price (MSP) purchases of more than Rs 74,300 crore were made as part of additional steps.Funds' transfer worth Rs 18,700 crore has been done under "PM KISAN" and "PM Fasal Bima Yojana" claims worth Rs 6,400 crore, released in the past two months.

A new scheme has been launched for interest subvention at the rate of 2% per annum to dairy cooperatives for 2020-21, aimed at unlocking Rs 5,000 crore of additional liquidity, to benefit 2 crore dairy farmers.An emergency working capital funding line of Rs 30000 crore to NABARD, over and above the existing Rs 90,000 crore, will ensure refinancing and credit needs of the rural economy are duly fulfilled.

The author is an economist and chief spokesperson, BJP Mumbai