Farm reforms could establish stronger links between agriculture & industries

Prof. Nilabja Ghosh, IEG, opines that if the Acts are correctly implemented, agriculture will become a larger and vibrant sector through stronger linkages with industries to which it will supply inputs for value addition. In turn, the food processing industries will generate more employment that may absorb surplus rural population with gainful employment.

Prof. Nilabja Ghosh

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. Nilabja Ghosh: The policy embedded in the Bills has been on the cards for several years and the institutions are piloted to some extent. There was a broad agreement that the APMC system was not fulfilling its objective and the periodic controls on stocks of so called essential commodities were coming in the way of market processes. Farmers would grow crops based only on past experience and suffered the risk of a volatile market that made them averse to taking up new challenges in crop choices and technologies. Both the Acts had stopped helping the farmers, instead they were restraining their aspirations, freedom and progress. Under these systems agriculture only went as far as producing abundance of some crops but farmers remained distressed, uncertain and farming continued as a low earning activity despite the importance of the sector to the people at large.

If the Acts are correctly implemented, agriculture will become a larger and vibrant sector with stronger linkages with industries to which it will supply inputs for value addition and in turn the food processing industries will create more employment that may absorb the surplus rural milieu with gainful employment. The Bills have been awaited to usher reforms into agriculture that remained deprived of the privileges that came to other sectors since 1990. Those sectors too had resisted and struggled but moved on to do better. So, similar market friendly reforms that bring more choices, opportunities, risk coverages and technological advancements to the farmers are expected to benefit agriculture provided the execution is efficient and institutions are regulated fairly, transparently and honestly.

The new rule takes special provision to prevent the threat of land loss resulting from contracts. This was one of the diabolical attributes of the pre-independence system of transaction between farmers and private entities who were not mostly corporatised. A second threat was of a debt trap and in this case disputes regarding violations from the side of poor farmers need to be managed sympathetically but in a rule based manner. Addition of options without compromising the existing ones can only be good for the farmers.

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. Nilabja Ghosh: Well, the farm bills are certainly a step intended towards privatisation giving corporates greater responsibility to manage the agriculture market at which the government machinery working alone failed to do the best. That the corporates could misuse the opportunity is a stark possibility and it is up to them to employ their ethical sense and the desire for long term sustainability rather than short term profits in a democratic system.

India has a dark past in which private entities exploited poor and ignorant farmers cruelly and this could be corrected to an extent by passing many Acts after independence including the APMC and ECA Acts related to landownership, tenancy, money lending and marketing all of which were highly inter-locked due to power relations. Even the existing system that evolved fell into the web of rural exploitation though the democratic processes, information dissemination, centralised banking and other government controls helped in checking the complete decline of the poorly performing institutions. As the role of government is shrinking both in terms of fiscal space and administrative capacity, privatisation has become a pervasive process.

Massive corporatisation can certainly be the picture one can visualize for future though with no certainty, but there is no particular theory to place farmers as the opponents of companies in the game.  If anything, to get a hold and power in market, the companies will have to take the farmers interest with seriousness especially as under the Bills, they are only added options without removing the existent ones. No matter, misconducts in this system driven by varied members of farmer interest groups with unequal power in the market and their tacit dealings with other entities like the traders at the electronic portals, private sector agents, the administrators of the APMC markets, the appellate bodies and the overseeing government cannot be ruled out and correctly conceptualized at this stage.

The Bill does miss out many finer points that have to be separately addressed. More attention is deserved by the FPO constitution and its fair operations for the interest of small farmers in particular. After all, the APMC was also meant for good causes that were defeated by collusions. Good regulatory system is extremely important for the fair play in a corporatizing scenario.  The survival of the APMC markets as an alternative will be a life line.

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. Nilabja Ghosh: That is a constant concern raised by all critics due to misunderstanding or misinformation but in truth the Bill has nothing to do with MSP and the procurement system. MSP is another different issue and its viability faces adversities from other directions such as fiscal strength, government capacity to hold stocks and above all the challenges of relentlessly answering the international community. As of now the government has little option but to continue the MSP procurement system or a DBT in that matter to see the new policy through towards success.

In a way the MSP has much to do with the change and respond to its course. However, MSP though raised across the board, is active for only a few crops, moderately expanded in coverage in recent times. MSP has a tendency to distort production patterns and enhance government burden but it will be useful as the new system is unfolded.  In fact, APMC price discovery by auctioning and by the electronic platform which will be a supplement will also be very important for the new privatised system even while the linkages that big businesses have with the broader market and their own real time information on the global markets will add intelligence and may even encourage farmers finding opportunities in other lucrative avenues to move from crops covered by MSP.  So, MSP will persist in the foreseeable horizon when farmers might voluntarily adjust their production and marketing patterns. Beyond that, it is uncertain.

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. Nilabja Ghosh: This is a most serious question, as superficially it appears that the new emerging markets channels favour the privileged and larger farmers widening the disparity between the small and the large farmers especially in eastern India. Towards this misgiving the government has been trying to build up new institutions in the form of farmer producer organizations that represent collectives of small farmers with cumulated sales making up the bulk and not of any less importance, creating the strength to bargain collectively with greater resources and access to professional managerial, marketing and legal services.

Although the Bill on contracts does talk much on this, not enough clarity is presented on these institutions except they would be some form of registered collectives and can also trade online with tax compliance. Pricing decisions, penalising actions for violations and agreements on input and knowledge induction will be taken at these interfaces too. The efficiency and equality of stake holders and the harmonious decisions of the collectives would be critical for the benefit of the Bill to reach the small farmers. Interests of the individual small farmers cannot be confused with their collectives that will have faces determined by internal power relations.

Fortunately, the APMC under state supervision remains and small farmers will have access to larger all India market through electronic portals. The traditional system based on traders’ expertise need to continue as choice for different sections of farmers often those marginalised in the groups and disregarded by corporates due to the quantity or quality of their produce. Over time, there is a fear that the corporatized system will crowd out the traditional systems to avoid which it can be hoped the states will finally take strong actions of reforms and investment to cut costs and attract farmers to the mandis.

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 agmarknet 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. Nilabja Ghosh: While ECA was a big stumbling block towards opening up the agriculture market, its revocation will raise more issues. Indeed exorbitant price rise is often an issue and often this is related not just to the current failure of a harvest but by speculative holding that adds fuel to fire. A major solution would be keeping the businesses absolutely transparent by recording all prices and quantities of transaction and open and mandatory declaration of private stocks in a way that consumer savings in banks are open for examination to tax authorities. Hiding stock information may be made liable to punitive action.

Given the information even to researchers though possibly with anonymity, along with the real time information of production outlook, the government will make itself prepared for eventualities when price levels just fall short of any breach of limits in both directions.  After all, the ECA is more in the interest of the consumer than the farmer. Another serious requirement in this matter is the credibility, timeliness and efficiency of the Government’s marketing department in collecting price data from different markets. It must be recalled that channels will multiply with this Bill and efficiency will lie in bringing wholesale, public and private prices closer correcting for operating costs.

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. Nilabja Ghosh: The stocks maintained by different operators will be based on their rationality and as long as they are transparent, hoarding and black marketing and excessive speculation are avoidable for the interest of all entities. There is no possible gain in holding excesses that will not find market and get wasted. However, to start with, government has taken the caution to keep prices reigned in emergencies but if the system is efficient and transparent, the restriction imposed by installed capacity will be redundant. Private entities like exporters and processors and traders will hold only based on foreseen demand in an equal playing field. It is very important to create public and private market intelligence systems complementing one another to create information. The APMC market and electronic portals will help in determining the benchmark prices.

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. Nilabja Ghosh: The small farms face many incapacities in terms of use of technology, their bargaining power in market and the small earnings they make from the land. To take advantage from the reforms, the FPOs are institutions meant help them but adequacy and prospects of these institutions need much more deliberation. Non-government organizations have been helpful in some cases as mediators but even that is not a solution.

Stocking by small farmers can be enabled by cheap or free access to suitable public storage facilities and linkage of the stocks with credit. However, in reality many of the farms produce for subsistence or even turn out net buyers and some even buy food from PDS for survival.  Non-farm jobs have been a lifeline to these households but such jobs often are of low quality due to rural underdevelopment. Migration under distress is often the only recourse in some states. The Bills, it is hoped will create jobs in the agro-market, some at the farm level of post-harvest value addition and many more in the agro-processing sectors. Special incentive has to be given for the setting up of such units in rural areas and employing local work force and enterprise with a priority to small holding households. In addition, the rural households may be given enough freedom to join other professions such as in the health, education, tourism and entertainment sectors for which training is to be given and flexibility of land use allowed.


Prof. Nilabja Ghosh is an Associate Professor in Institute of Economic Growth since 2002. She has earlier served as a Lecturer (project) Indian Statistical Institute in Calcutta, Lecturer in Economics (permanent), Calcutta University, Consultant at NCAER and NIPFP in Delhi, Associate Professor (Leave vacancy) in IES unit, IEG.

Her research interests include Agriculture, Resources and Development, Supply responses, Fertilizer use and organic farming, Education, Gender, Globalization, Food marketing and processing, Econometric modeling, Forecasting of output, Measurement of inputs and output in agriculture.

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