Don’t leave farmers to fend for themselves

Marketing reforms

RS Sidhu & BS Dhillon

On June 3, the Union Government approved three ordinances focusing on agricultural marketing reforms and development of post-harvest infrastructure in order to facilitate better prices for farmers. Farmers across the country were expecting relief measures to mitigate the economic hardships faced by them amid the Covid-19 lockdown and thereafter. No short-term financial support was provided for the farmers to offset the losses incurred due to compression of demand. The message seemed to be: don’t worry about the present, you have a golden future.

The recently announced agricultural marketing reforms include amendments to the Essential Commodities Act and the Agricultural Produce Market Committee (APMC) Act. The amendments allow direct purchase of agriculture produce from the farmers by processors, bulk buyers, aggregators, traders, etc. with no limits on holding stocks by them for cereals, pulses, oilseeds, potato and onion. Farmers can sell to any buyer outside the designated market of the APMC, and there will not be any restriction on the movement of the produce across state boundaries.

The basic premise of opening up agricultural markets to national and international competition is that it will lead to market efficiency, bringing gains to both producers and consumers. However, to realise that, farmers need to have sufficient capital, be educated enough to understand the interplay of free market forces, wise and analytical enough to decipher the undercurrents of future markets and then have a sufficient scale to compete in the market and harness the so-called ‘economic benefits’ of freedom in agriculture.

Trade is generally exploitative in nature and works on the principle of profit maximisation. It tries to attain super-normal profits if there is greater spatial or temporal variability in the level of economic activity, information available to the sellers and buyers is asymmetric, and difference in the financial staying power of producer/seller and trader/buyer is very large. The agricultural production scenario is quite variable in India. Punjab, Haryana and a few other states are surplus in grain production, while a majority of the central, north-eastern and eastern states are grain deficit and depend on others to meet their food consumption requirements. There is very high likelihood that traders will buy grains in the post-harvest periods at lower prices from surplus states and sell in deficit states at higher prices during lean periods as compared to the regulated markets. In such situations, producer surplus and consumer surplus would fall and economic surplus of traders would increase. The increase will be greater than that under the normal regulated price regime.

Let us now take a look at the scale of farm operations and marketable surplus in Indian agriculture, which is dominated by marginal and small-sized farms. At least 86 per cent of the farmers are marginal or small, cultivating less than 5 acres. The average size of the farm is 0.6 hectare. They have little or no surplus to sell in the market. A large number of marginal farmers in low-productivity regions are net buyers in the market. They sell a small quantity of produce in the post-harvest season to meet their immediate cash requirements and buy later in the lean season. Further, they do not have any financial capacity to hold their sales to take advantage of better prices after the post-harvest season. Consequently, they are at a double loss, selling when prices are low and buying when prices are high.

On an average, farmers earn Rs 8,932 per month per household (NABARD, 2015-16) — nearly Rs 300/day by a family of 4-5 persons. With such a meagre income, one should not expect them to be educated and knowledgeable enough about operations of e-NAM and the futures, or be able to analyse the prevalent prices and their forecast. Their capacity to decipher such information and capitalise on its benefits is limited.

Further, market reforms are being argued in favour of producer-seller in terms of better price realisation. If so, then why do farmers oppose the same, and were they part of the discussions before these reforms were announced? Further, even if we assume that reforms improve marketing efficiency and lead to higher prices of the produce, economic benefits will largely accrue to a small proportion of farmers having sizeable market surplus. What about the rest, an overwhelming majority, who really deserve to be supported?

Before taking such a far-reaching decision, groundwork should have been done by critically examining whether farmers have earned higher prices in those states where there is no APMC Act and agricultural markets are deregulated, as in Bihar. There seems to be little evidence available which suggests that price realisation in these states is better as compared to other states. The average income of agricultural households in Bihar is only Rs 7,175 per month against Rs 23,133 in Punjab and Rs 18,496 in Haryana (NABARD, 2015-16) where markets are regulated and farmers get MSP. It is a well-established fact that remunerative prices and assured market ushered in the Green Revolution in the late 1960s and 1970s and further steered production and growth up to the late 1980s. The MSP of paddy and wheat, backed by public procurement, led to the adoption of improved technologies and private farm investments, resulting in higher productivity, production and growth.

Evidence was reinforced when growth slumped after the mid-1990s in response to low output prices designed to keep these aligned with international prices. During 2000-05, there was minimum increase in the MSP in response to which growth in agriculture slumped. The importance of output prices was further underlined when during the next 10 years, agricultural growth was around 4 per cent, driven by prices. So, the government support in the form of better prices or other ways is necessary for sustaining growth and livelihood. India has not reached the productivity level or scale of the US and other developed countries where farmers are left to fend themselves in market. Even in developed countries where markets are free, farmers depend upon government support. Freeing the market means exposing farmers to international prices, which are volatile. Can an Indian farmer cultivating 2 acres be compared with a US farmer and face international competition?

One wonders whether freeing of the agricultural markets is intended to do away with the MSP regime and public procurement. This regime has been extremely helpful in the past in making the nation not only food-surplus but to also have large exportable surplus. As with all policies, it also has some limitations. The need is to focus and plug those limitations. Or it is planned to have a uniform level of livelihood across regions, meaning thereby to bring down the livelihood of the farmers in relatively progressive states.

An increase in food prices cannot sustain growth in the long run due to their inflationary effect in developing countries where a large chunk of the population lives below the poverty line. Further, only fruits, vegetables and livestock cannot make it happen. Developing new agricultural technologies and upscaling existing ones are the real drivers and these need to be strengthened in less productive regions like central India and the North-east. A favourable ecosystem of infrastructure and policies including assured marketing at remunerative prices is required. Further, keeping in view the small size of their holdings, promoting non-farm activities and non-farm employment to marginal and small farmers through skill upgrade and setting up industries in rural areas will help in complementing their income.

The authors are Registrar and Vice Chancellor, respectively, PAU, Ludhiana

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