Editorial Notes

[Editorial Notes] Agri-marketing system reforms

Administrative Reforms for the Agriculture Sector announced recently are steps in the right direction in line to double farmers’ incomes by 2022. They encourage having barrier-free inter-state trade, creating a legal framework for contract farming and address longstanding needs of farmers.
By IASToppers
May 20, 2020

Contents:

  • Introduction
  • Administrative Reforms for Agriculture Sector
  • Present laws
  • Need for the reforms
  • Conclusion

Agri-marketing system reforms

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Introduction:

The Finance Minister in the third tranche of economic reforms announced in Atma Nirbhar Bharat Abhiyan has announced reforms related to amending the Essential Commodities Act (ECA) of 1955, bringing a Central legislation to allow farmers to sell their produce to anyone, outside the APMC mandi yard. If the fine print of the proposed legal changes follows the spirit of the package, the reforms can go a long way in building efficient value chains and ensuring better returns for farmers.

Administrative Reforms for Agriculture Sector:

The following reforms have been announced recently:

1. Amendments to Essential Commodities Act:

  • The Government will amend Essential Commodities Act (ECA) of 1955 to enable better price realisation for farmers.
  • Agriculture food stuffs including cereals, edible oils, oilseeds, pulses, onions and potato shall be deregulated.
  • Stock limits will be imposed under very exceptional circumstances like national calamities, famine with surge in prices.

2. Agriculture Marketing Reforms:

A Central law will be formulated to provide:

  • Adequate choices to the farmer to sell their produce at remunerative price;
  • Barrier free Inter-State Trade;
  • A framework for e-trading of agriculture produce.

3. Agriculture Produce Pricing and Quality Assurance:

  • The Government will finalise a facilitative legal framework to enable farmers to engage with processors, aggregators, large retailers, exporters etc. in a fair and transparent manner.
  • Risk mitigation for farmers, assured returns and quality standardisation shall form an integral part of the framework.

Present laws:

A combination of two sets of laws have defined how farm produce is bought and sold in India:

1. Essential Commodities Act (ECA):

  • ECA was enacted in 1955 to control production, supply, trade, and storage of certain commodities deemed to be essential (farm products in the list include onions, potatoes, edible oils, jute, rice paddy, sugar and so on).
  • The Act itself does not lay out the regulations but allows states to issue “control orders” related to dealer licensing, stock limits, the power to fix prices, compulsory purchases and restrictions on transportation.
  • In turn, the authorities are given draconian powers to raid “hoarders”, confiscate stocks, cancel licensing and even imprison offenders.

2. State-level Agricultural Produce Marketing Committee (APMC) Acts:

  • The APMC system forced farmers to sell their produce only through designated channels and mandis.
  • The combination led to an inefficient regime of licenses, permits and inspectors.
  • The system was not only unfair to farmers and traders, but it also was not even very good at achieving its main goal of price stability.
  • ECA actually increased the volatility of prices for commodities such as onion, pulses and sugar. It also did not lower the wedge between retail and wholesale prices.
  • The drawbacks of the system were well documented over decades and many economists had argued for change.

Need for the reforms:

1. Pitfalls of ECA:

  • The ECA of 1955 has its roots in the Defence of India Rules of 1943, when India was ravaged by famine and was facing the effects of World War II i.e. it is a scarcity-era legislation.
  • India at present is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China.
  • Our granaries are overflowing but our legal framework is of the 1950s, which discourages private sector investment in storage, as the ECA can put stock limits on any trader, processor or exporter at the drop of a hat.
  • As a result, the country lacks storage facilities. When farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet.
  • In the lean season, prices start flaring up for the consumers. So, both farmers and consumers lose out because of the lack of storage facilities.
  • The amendment announced if implemented in the right spirit, will remove this roadblock and help both farmers and consumers while bringing in relative price stability.
  • It will also prevent wastage of agri-produce that happens due to lack of storage facilities.

2. Breaking monopoly of APMCs:

  • The proposed Central law to allow farmers to sell to anyone outside the APMC yard will bring greater competition amongst buyers, lower the mandi fee and the commission for arhatiyas (commission agents) and reduce other cesses that many state governments have been imposing on APMC markets.
  • Our farmers suffer more in marketing their produce than during the production process.
  • APMC markets have become monopsonistic with high intermediation costs.
  • The proposed law will open more choices for the farmers and help them in getting better prices. So their incomes should improve.
  • By removing barriers in inter-state trade and facilitating the movement of agri-goods, the law could lead to better spatial integration of prices.
  • This will help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
  • India will have one common market for agri-produce, finally.

3. Providing legal environment:

  • The legal environment for contract farming, with the assurance of a price to the farmers at the time of sowing, will help them take cropping decisions based on forward prices.
  • Normally, our farmers look back at last year’s prices and take sowing decisions accordingly. The new system will minimise their market risks.

Conclusion:

The reforms promise to remove a deep-rooted bias against farmers and the food supply chain. State-level APMC laws are already being changed one-by-one to complement this change. The reforms announced could be a harbinger of major change in agri-marketing, a 1991 moment of economic reforms for agriculture.

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