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The announcement of reforms in agricultural marketing by Finance Minister Nirmala Sitharaman, in May, has been hailed by some as the “1991” moment for agriculture. While it does not mean much on the ground, it has successfully managed to deflect attention from the pittance offered by way of fiscal support to the agricultural sector, as a part of the grand fiscal package announced by the Prime Minister. Even then, the reforms are no more than reiterations of earlier announcements.
The three reforms regarding agricultural marketing were the reforms in the Agricultural Produce Marketing Committee (APMC) Act, the Essential Commodities Act, and on contract farming. All of these have been in discussion for almost two decades, with the APMC Act having already seen substantial reforms in many States. The first comprehensive model act on APMC was proposed during 2003, and since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.
The main argument against the APMC Act is that it creates barriers to the entry and exit of traders and makes the sale and purchase of agricultural produce compulsory for farmers as well as traders. Some of the criticism regarding the functioning of the APMC is valid, to which State governments have been responsive; as many as 17 State governments having amended the APMC Act to make it more liberal. In fact, the regulations and the functioning of mandis vary a great deal across States. Kerala does not have an APMC Act and Bihar repealed it in 2006. But several others such as Maharashtra, West Bengal, Odisha, Gujarat, and Andhra Pradesh deregulated fruits and vegetables trade, allowed private markets, introduced a unified trading licence and have introduced a single-point levy of market fee. Tamil Nadu has already reformed its APMC with no market fee. Several others such as Jharkhand, Himachal Pradesh, Uttarakhand, Haryana and Rajasthan have undertaken one or more of these reforms. Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana), the Raitha Santhe (Karnataka), the Apni Mandi (Punjab) and the Krushak Bazaar – Odisha).
Despite these reforms, APMC mandis continue to be vilified for all the ills plaguing marketing infrastructure and the low prices received by the farmers for their produce. The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets. These are more obvious in case of large mandis specialising in commercial crops and fruits and vegetables, where production is regionally concentrated. But even with these deficiencies, APMC mandis continue to play an important role in providing access to market for farmers.
But did the reforms lead to a better outcome for farmers in those States where the reforms were undertaken? The best example is Bihar. The general argument in favour of reforms is that it will allow private investment in marketing infrastructure as well as provide more choices to farmers, leading to better prices received by farmers. In the case of Bihar, while no investment came in building market infrastructure, the loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure (of the 54 market yards) in the State. The revenue collected from the APMC earlier was used not only for the modernisation of these market yards but also for the laying of roads and construction of other infrastructure to provide farmers better access to markets. But after the repeal, there have been no takers for these market yards, with no investment in creating private mandis. On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage. Even in other States where there is deregulation to allow private traders, there is hardly any investment to create market spaces let alone provide other facilities. There is also no evidence that farmers have received better prices in private mandis outside the APMC.
While there have been instances of collusion and corruption in the running of the APMC, they continue to provide essential services to farmers. However, the vilification of APMCs has allowed the government to escape the responsibility of creating marketing infrastructure for millions of farmers. As against the recommendation that a regulated market should be available to farmers within a radius of 5 km (a corresponding market area of about 80 sq. km), currently regulated markets cover 457 sq. km. There are more than 7,000 regulated markets and 20,000 rural markets when the need is at least twice these figures. Most of the existing ones require investment in upgradation of infrastructure.
Even the argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed. More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis. For a majority of farmers, prices received are more a function of the demand for agricultural commodities than access to markets.
A good example is the case of decline in milk prices, pointed out by the Finance Minister herself. Despite the presence of cooperatives and private dairies, the collapse of milk prices reflects the decline in demand in the economy, not the distortions in private markets. While it may have exacerbated during the national lockdown following the COVID-19 pandemic, the fact that demand was declining even before the lockdown is now well known.
For much of the period during the last two years, terms of trade have moved against agriculture, with agricultural commodity price inflation actually being negative for a large part of the last two years. With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers. The argument for choice of markets is only valid as long as there are buyers with purchasing power in the market. No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.
Even before the lockdown, the primary task of the government, especially the Finance Ministry should have been to increase fiscal spending to revive demand in the economy. This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead. With international prices also showing declining trend, the urgency is to protect the farmers from the decline in commodity prices.
As against these, the announcement of these reforms without a draft and without proper consultation with States or other stakeholders is nothing but a smokescreen to deflect attention from the core issue of fiscal support by the government to support farmers’ income. If the government is serious in providing remunerative prices to farmers, it needs to increase fiscal spending to create demand in the economy. These, rather than the hollow announcements of reforms, will go a long way in ensuring higher incomes to farmers.
Himanshu is Associate Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi
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