Indian Farm Reforms – A New Chapter
The Indian government has introduced reforms to Indian agriculture with three laws and an economic package. These laws intend to provide farmers free market access as well as a framework for contract farming and to promote agriculture infrastructure by removing caps on the storage of key agriculture commodities. While these reforms will have a positive impact and change Indian farmers’ approach to selling their crops, they cannot be a panacea for taking Indian agriculture forward. This article highlights what the agriculture industry needs to undertake, using these reforms as a stepping stone, for the further development of the overall agri-ecosystem.
Food security and sufficiency have been mainstays of Indian agriculture since India’s independence. To ensure growth in total agriculture output, government policies aimed to motivate Indian farmers by increasing their incomes. However, Indian farmers continue to be plagued with poor market infrastructure, high crop wastage, poor price realization, and a lack of organized credit from banks.
Details of Reforms
In September 2020, the government passed the following acts:
1. THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) ACT, 2020 – frees farmers from the restriction of selling their produce to the Agricultural Produce Market Committee (APMC)
2. THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES ACT, 2020 – facilitates contract farming and provides a legal framework
3. THE ESSENTIAL COMMODITIES (AMENDMENT) ACT, 2020 – removes stocking limits on traders for a large number of commodities with exceptions
The government also announced an economic package of INR 1.63 lakh crores (~USD 23bn) across various schemes with different tenures to support these reforms in the wake of Covid-19.
In a nutshell, these reforms provide farmers a free market to sell their produce anywhere without restrictions, promote contract farming by facilitating agreements between farmers and companies, boost agriculture infrastructure like cold storage and warehouses, strengthen Farmer Producer Organizations (FPOs) for stimulating farmers’ market power through aggregation, and facilitate digital infrastructure for agriculture.
More specifically, the bills addressed the APMC markets (mandis), which were set up for farmers to sell their produce. But APMCs have continued to function with their set of limitations, and they have remained less dense and highly fragmented, providing poor access to farmers. The infrastructure provided by the APMCs has often been inadequate, resulting in high wastage of the crops handled. Information asymmetry has been rampant among farmers, who have little knowledge of agri commodity prices, leading to less remuneration. In the absence of organized credit from banks, traders and commission agents of APMC, or arathiya, will often finance farmers with usury rates.
However, enforcing these reforms has some key challenges. Firstly, a few states, like Punjab, have raised opposition to the bills due to their apprehensions about Minimum Support Prices (MSP) of key agri commodities for government procurement being disrupted. To allay these concerns, the government declared MSPs for the crops cultivated in the upcoming Rabi, way ahead of the season. However, a few state governments may launch an adamant opposition in order to abrogate these acts, as agriculture laws feature in the State List for enactment of legislation – given India’s federal structure. Secondly, empowering the farmers financially is key to ensuring the success of these reforms. Making agriculture credit available through banks will help alleviate farmers’ reliance on commission agents (or local money lenders who also buy their crops) and thereby avoid continued dependence on APMCs.
Beyond Reforms – What Needs To Be Undertaken
The development of Indian agriculture cannot be triggered by the legislative reforms alone. Since 2003, the central government has been pursuing, in collaboration with the state governments, the repeal of the APMC Act. In 2006, Bihar state moved to repeal this act. While there has been some progress in the state, it is difficult to attribute this to the agriculture reforms. Similar experiences with ITC’s e-Choupal initiative showed that trade through APMCs continued to flourish despite eChoupals.
Then what should trigger growth and investment in agriculture? While the legislative reforms have taken positive steps in this direction, building an integrated agriculture ecosystem remains key for transforming Indian agriculture. These acts will help bring farmers (and FPOs/cooperatives) closer to the companies that use agriculture output and simultaneously give farmers fillip to operate in digital platforms like National Agriculture Market (e-NAM) and Kalgudi to fetch better prices for their crops.
It is important to visualize the entire agriculture value chain in totality, rather than each part in isolation. Soil health, seeds, irrigation, plant nutrition, crop protection, finance, government schemes, harvest and post-harvest solutions, safe storage, transportation, processing, etc. all form part of the agriculture value chain. While some progress has been made in individual components of this value chain, there is a long way to go toward cohesion. This weak and disjointed value chain also results in an inefficient delivery of value to both farmers and consumers, favoring intermediaries.
With such a large and complex value chain, it becomes very difficult for farmers (mostly small and marginal farmers) to organize all these value chain components in their best interests. While the government has promulgated building new FPOs, even these organizations require training and hand-holding to run the show. A new breed of entrepreneurs or companies with complete agricultural know-how are needed to guide farmers or FPOs to extract the most out of the farming value chain. These may be supported by NGOs or be part of corporate CSR activities to start with, but scaling up is possible only when commercial goals are in place. These entities can work on a service charge model. Eventually, they might become part of the FPO. It is not merely replacing one intermediary with another one, but driving efficiencies of the integrated value chain.
In this age of technology, digital companies partnering with FPOs could be a potential option. Digital companies bring the technological edge with their data collection and management capabilities, while FPOs can disseminate knowledge to farmers. It can serve as a single window collaborator of farmers for all their farming needs – for cropping, animal husbandry, finance, marketing, crop insurance, and more. Digital applications and call centers can be integrated into one combined setup for helping farmers. Integration of the latest and developing technologies, like artificial intelligence (AI) and blockchain, into farming and developing agriculture clusters for different crops to promote a more diverse and focused cropping approach will help to generate more returns for the farmer. These kinds of setups can lead to faster adoption of these services. All these would help achieve the government’s vision for the Doubling Farmer’s Income policy and trigger investments from the private sector.