Corporatisation of agriculture is not always bad

Prof. Kriti Bardhan Gupta, IIM Lucknow, opines that corporatisation of agriculture brings more value addition, which in turn would also bring more profit into the hands of farmers. It will be beneficial to consumers as well, as compared to the existing system, where there are so many pilferages and inefficiencies.

IBT: What is your view on how the three bills – “The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020” “The Essential Commodities (Amendment) Ordinance, 2020”, and The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 will impact the Indian agriculture sector?

Prof. K. B. Gupta: I strongly believe that all these bills have been long overdue. For a country where a majority of farmers as well as consumers are poor, we cannot continue with the existing system where there are so many pilferages and inefficiency, which are against the interest of both farmers as well as consumers. As per one of the studies conducted by IIML in 2020, the benefits of MSP are mostly grabbed by the large farmers. The participation of small farmers is very low. These small farmers have been suffering a lot at every level. Once they bring their produce to the Mandi, many a times they are not in a position to sell their produce at a reasonable price as they are weak in negotiation.

After incurring huge costs, directly in terms of time and money spent on transportation etc. and indirectly through commission paid to Mandi and other political entities, the small farmers many a times are not in a position to close the deal. It is practically not feasible for them to take the produce back to their home, if they don’t get genuine price. In those cases, they dispose the items at a throw away price, for which they get payment quite late. Many of such problems will be sorted out with these three bills. However, the success of strong bills also requires effective implementation. That entirely depends on cooperation from a majority of stakeholders.

IBT: Some political parties and analysts have cautioned that the farm bills would lead to massive corporatisation and be inimical to the interests of farmers. What is your perspective on these concerns?

Prof. K. B. Gupta: There are political motives behind such blind opposition to these bills. Corporatisation is not always bad. This brings more value addition, which in turn would also bring more profit into the hands of farmers. It will be also beneficial to consumers as well. In a way these bills are win-win solution for farmers, business people as well as consumers. Of course, some political parties and commission agents will suffer in the process. Government has also included certain provisions which will keep checks and balances on the power of corporate entities.

IBT: A major fear being cited is the possible removal of the MSP regime? How have the MSP provisions fared for farmers over the years? Do you think the same support is sustainable and viable in future as well? Why or why not?

Prof. K. B. Gupta: Although the government has already clarified that the MSP is not going to be removed at all, the bills are being opposed due to lack of information or due to inherent political agenda. Actually, there has been so much inefficiency in the MSP based procurement and distribution network, which unnecessarily puts so much subsidy burden on government and on general public. Due to mismanagement of MSP system and wrong policy incentives, we are facing over-production of food grains and their associated problems like increased wastages, poor quality during improper storages etc. Often, we have to export them at a throw away price due to lack of proper storages and we have to procure further for the next season.

In fact, the government should encourage more and more participation from farmers through eNAM infrastructure that has been created in so many mandis across India. Under this framework, the money will directly go into the bank accounts of farmers, that will also remove the problems of intermediary. This will bring transparency in the system. However, the procurement and distribution will still need major overhaul as we cannot continue with the existing level of subsidy as some of the countries have already pointed this problem out on WTO front that our subsidy is going beyond the permissible limit.

IBT: Given that the majority of Indian farmers have marginal land, how will they be able to ensure that they produce quality produce in bulk as required by companies they sign contracts with? Will farmers have the necessary bargaining power? What are the challenges they could face vis-à-vis contract farming?

Prof. K. B. Gupta: When marginal farmers are coming into contract with bigger companies, their bargaining power at individual level is definite very small. However, the new bills encourage the farmers to come under an umbrella of cooperative or FPO, which will significantly increase their bargaining power. The government should continue to encourage such cooperatives and FPOs. Further, there could be some provision in the agreements wherein the small and marginal farmers may get quality seeds, fertilizer, insecticides, credit etc. through the contracting companies. Since the companies will also get assurance of quality produce delivery, they would like to ensure the interests of small and marginal farmers.

IBT: One of the key criticisms against the Essential Commodities (Amendment) Bill, 2020 is that the stock limits for “extraordinary circumstances” are dependent on the agmarketnet prices and the conditions of 100% increase in retail prices for perishables and 50% increase for non-perishables are likely to be breached frequently. How can this be prevented to ensure that frequent stock limits are not imposed?

Prof. K. B. Gupta: One of the reasons for wild fluctuations in the prices of agricultural commodities is that few large market players are playing big roles through cartels, at specific state levels. When the bill permits participation of large number buyers as well as farmers as per their own wishes and interests, the cartelization will be significantly reduced that is presently happening at mandi level in several states. The government will have to keep its eyes open that the whole system works efficiently and openness is encouraged at each level. If we remove the information asymmetry, people will start taking rationale decision based on efficiency and overall profitability of the entire supply chain rather than thinking only about their own short-term profits.

IBT: Private sector will be allowed to keep stock up to installed processing capacity, but the same limit will not apply for exports. Is this provision subject to misuse, and how can it be addressed?

Prof. K. B. Gupta: Yes, there is always scope for such misuse, however, with increased level of production for most of the agricultural commodities, this will not be a major concern. Without too much unnecessary policing also the government can check such misuse, if there is sincerity on the part of the government departments. For this we also need to build up mutual trust. We should stop thinking that business people are always cheaters. Unnecessarily high level of stocks by a business person should be supported by the level of expected export orders based on their historical performance.

IBT: What should the central and state governments do further to ensure that farmers, particularly small farmers, can benefit from the enhanced market opportunities and freedom of food stocking?

Prof. K. B. Gupta: The government agencies should create enabling environment for the farmers in such a way that they use their land for the most profitable crops looking at the demand and supply conditions. For this information should be accessible to them freely at the right time. The agreement between business entity with the farmers or group of farmers (cooperatives or FPOs) should also have provision of quality input supplies.

The price information in the local and nearby markets should be made available to farmers on a regular interval. The eNAM facility should be encouraged in such a way that it does not remain like a white elephant. eNAM based transaction provides lots of openness and ensures right price at right time to the farmers.

We have serious lack of infrastructure especially the storage facility where the farmers are confident enough to store their produce at a nominal charge. This will help them in selling their produce at right time at a reasonable price. The small farmers do not have such facility at their own place. Further, after bringing their produce to the market, it is practically impossible for them to get back their produce to their home even if they do not get a reasonable price.

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Kriti Bardhan Gupta is an Associate Professor at its Centre for Food and Agribusiness Management. After completing his M. Tech. (Agri. Engineering) from Pantnagar in 1993 and Doctorate from IIM Ahmedabad in 1998, he has earlier worked at Institutes of national and international repute like Indian Institute of Technology, Kharagpur and Indian Institute of Foreign Trade, New Delhi.

Prof. Gupta has presented several research papers in National and International seminars in India, USA, Hungary, Germany, South Africa etc. and published several of them in National and International journals. He has conducted several Executive Management Development Programmes for working executives at IIML, IIFT, IIT Kharagpur and Foreign Trade Training Center, Egypt. He has conducted several research and consultancy projects for government and private organizations in India and aborad.

His current area of interest in teaching and research include Strategic Food Marketing, Marketing Models, International Trade, and Consumer Behaviour for Food Products.