Stable, long-term policies can turn the tide

A Amarender Reddy

THE farmers’ agitation against the Central farm laws is almost a year long. Although farmers fear discontinuation of procurement at the Minimum Support Price (MSP), they think that they are better off with the development of vibrant markets rather than the skewed and sometimes non-functional and uncertain procurement operations focusing only on a few states and crops. Statistical evidence indicates that the majority of the farmers are not selling their produce to the government procurement agencies under the APMC (agricultural produce market committee) mandi system. Rather, they prefer to have flexible marketing systems with good infrastructure either from APMC markets or private markets or even new markets developed by Farmers Producer Organisations (FPOs).

Prolonged over-regulation of agricultural markets hindered the natural development of vibrant private markets, especially in non-Green Revolution states where agriculture is more diversified — ranging from millets and pulses to oilseeds — and the crops grown are mostly rainfed. Although procurement is not taking place in these non-Green Revolution states to a significant extent, rice and wheat procured in the Green Revolution states is supplied through the PDS at the subsidised rate of Rs 2-3 per kg, which impedes local market development and suppresses the prices of not only rice and wheat but also even millets, and farmers end up getting low prices.

However, we cannot assume that with deregulation and the implementation of the new farm laws, the private sector will come in a big way and invest in agricultural market infrastructure. The experience of deregulation of the APMC mandi system in Bihar and the unregulated market system in some states proved that without strenuous efforts, investments will never come in a low-profit activity like agriculture. Hence, a new consensus has emerged among the stakeholders, including the government, regarding the importance of public investments in agricultural market infrastructure, especially in the strengthening of already existing APMC markets by allocating Rs 1 lakh crore, expanding the scale and scope of the electronic-national agricultural markets (eNAM) and the promotion of 10,000 FPOs.

India is a surplus producer of many commodities, including cotton, rice, wheat, sugar, meat and marine fish. Grain stocks in the government’s godowns are overflowing, exceeding 100 million tonnes. If India doesn’t export these commodities on a large scale, there will be a domestic glut in the market and prices will fall steeply. India’s agricultural exports were to the tune of $41.8 billion in 2020-21, much short of the target of $60 billion that the Union Government set out to achieve by 2022.

A major hurdle to increasing exports is the decades of neglect of export market infrastructure, which doesn’t meet the importing countries’ standards in terms of quality, quantity and other attributes like food safety standards. India lacks an export-oriented strategy for agricultural commodities to establish itself as a regular supplier to international markets due to ad hoc measures such as a ban on exports or an increase in tariffs off and on.

In order to grow export-oriented commodities, the farmers need stable and regular export markets for long-term investments in commodity-specific production and processing machinery. However, international agricultural commodity prices as well as demand are highly volatile. To escape this volatility in agricultural markets, India may enter into government-to-government contracts or even allow private exporters to sign long-term contracts with major importing countries, which will ensure more stable export markets for farmers.

The contracts can be commodity-specific for major commodities such as rice, wheat and maize and also niche ones like tea, coffee and spices. Entering into long-term contracts is far better than ad hoc exports, as they will eliminate both price and quantity risk and farmers and exporters can focus on the production of quality produce.

Ad hoc measures

Farmers and agricultural exporters are often exposed to ‘ad hoc’ and ‘knee-jerk’ export bans and hike in tariffs at a short notice. Unstable macroeconomic conditions may lead to under-investment, as we have seen in onion exports in recent years. The time gap between the ad hoc policy decision of lifting of a ban on exports and the actual pick-up of exports to destination countries leads to frequent mismatches between demand and supply in the short run, causing low price realisation from exports.

The ‘one district one commodity’ scheme is one step forward to develop specific commodity-based market infrastructure and long-time contracts. It needs to be further strengthened for promoting exports. Some state governments are playing an active role in the promotion of export zones. For example, Tamil Nadu’s first exclusive agriculture budget allocated funds for the promotion of Moringa (drumstick) Export Zones, given the growing demand for this commodity in export markets. The state government has also established the Special Export Facilitation Centre with a budget allocation of Rs 1 crore to strengthen linkages between farmers and exporters — and importers.

Although India’s share in primary agricultural produce such as rice, cotton, soya meal and meat significantly high, the scope for price realisation for this produce is limited as they face severe competition from other Asian and African exporters with their cheap labour costs. To get price premium in international markets, India has to focus on high-value-added products like processed meat and milk products, Darjeeling tea, etc.

All these require huge private investment in logistics, refrigerated transport and storage facilities, in addition to strengthening of the existing market infrastructure in APMC markets and e-NAM by the government. It requires a stable policy environment for a sufficiently long period to commit long-term investment by private players for the setting up of markets, warehouses, cold chains, export facilitation centres. Only then will the private players be confident of reaping profits from their investments. There is a need for the government and the farmers to come together to end the stalemate in the process of reforming agricultural market systems. India has to learn from export leaders such as China, Thailand, Malaysia, Indonesia and Bangladesh as the future of Indian agriculture lies in its exports.

The author is Principal Scientist (Agri Economics), ICAR-Centre Research Institute for Dryland Agriculture, Hyderabad

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