By Nilanjan Banik
On 19th November, PM Modi announced the repeal of the farm laws. Does it mean a good thing or a bad thing for the majority of the farmers who dot the countryside? India has around 260 million people living in poverty and 80% of them fall in the category of small and marginal farmers (with less than 2 hectares of landholding size). The majority of Indian farmers, around 83% of them, are small and marginal farmers. The median annual income of these farmers is around $200 per month, much lower than India’s average per-capita income. The reality is that reform or for that matter repeal of the farm laws is unlikely to impact their livelihood. The segment that is likely to gain is the big farmers, traders, and middlemen (arhatiyas and village banias) associated with agriculture trading. Here is why.
Before the amendment of the law, in India, if farmers are to sell their produce, they had two options. The first is to sell directly to the government. The Central government procures 23 essential food items from the farmers through its agencies such as the National Agricultural Cooperative Marketing Federation of India Limited (NAFED) and Food Corporation of India (FCI). The second option is to take their produce to the nearby government-designated mandi, where in front of state officers they can auction the produce to middlemen.
Ideally, the farmers should be able to sell all they want to NAFED or FCI collection centres at the minimum support price (MSP). Typically, MSP is higher than the market price, and one would think that farmers gain every time the government announces the MSP. However, seldom are farmers able to sell their produce at the MSP. First of all, every village does not have NAFED or FCI outlets. FCI, currently procures a major portion of rice and wheat from a few selective states. As much as 70% of rice procurement is done from Punjab, Andhra Pradesh, Chhattisgarh, and Uttar Pradesh while 80% of wheat procurement is done from Punjab, Haryana, and Madhya Pradesh. And, even if there is a NAFED or FCI outlet, the government may not procure if the farmers bring their produce before/after the dates of procurement. Many times, the government announces procurement dates a month or two after the harvest time, making it impossible for the small farmers to sell their produce at the MSP. To do that they need to store their perishable stocks in cold storage. And to do that a farmer needs to book a minimum quantity of 50,000 quintals for their produce, something not possible for a marginal farmer. Nearly 20% of India’s fresh produce is wasted because of storage problems.
Another option for the farmers is to directly take the produce to the local mandi. But given that there are only 7700 mandis as against 6,60,000 villages, this means a farmer has to arrange for transport, which again may not be a feasible option given the distance, and booking a 400 quintals capacity truck all for himself.
An easier way out is to sell to the village-level aggregators. In fact, in most instances, these marginal farmers are so debt-ridden they are obliged to sell their produce to the village money lenders. In India, only 15% of the marginal farmers get access to formal credit, and most of the time they depend upon informal sources for buying seeds, fertilizers, and other farming requirements. The cost difference for loan rates between the formal and informal sectors vary between 30% and 45%, annually. In fact, farm loan waivers do little to help the small farmers. However, in the past evidence showed that farm loan waivers were always announced before the elections. It cost the state exchequers as high as 0.5% of GDP. For example, during the previous state election cycles, Uttar Pradesh, Maharashtra, Punjab, and Andhra Pradesh undertook large-scale farm debt waivers, although now the opposition parties are blaming the BJP government that the law was repealed in view of the forthcoming state elections.
Even if a farmer all by himself wants to sell at the mandis, his bargaining power is low. Under APMC Act, state government officers are meant to oversee activities related to auctioning, such as the commodities traded are homogenous in quality, and the markets are equipped with basic infrastructure for taking correct weights and for making payments. In reality, however, these middlemen form a cartel and at the time of auction offer a substantially lower price to the farmers. Evidence from the state of West Bengal suggests that in some instances income for these middlemen is higher than those of the potato growing farmers.
When the Government of India (GOI), amended the APMC Act, the argument was that the reform in the APMC Act will allow farmers and middlemen to trade in markets, in addition to the already existing mandis. So long it was the state governments that were in the business of regulating the mandis. If additional markets for trading are created the bargaining power of the middlemen is likely to fall. Some of these markets can also be e-mandis, with a farmer able to sell his produce in other states. Evidence from Rajasthan suggests that because of the introduction of an e-market, farmers witnessed a price premium of 13%. At present, e-mandis are catering to only 7% of all Indian farmers and handle only 2% of the total value of the country’s agriculture output. But the bigger farmers and middlemen fear although GOI in the near term is assuring them MSP, that in future when these markets, set up and regulated by the GOI, becomes popular, mandis will lose relevance. And if GOI allows corporates to operate in these markets, the bargaining power of the middlemen and farmers is going to fall further, in particular, in the absence of a national competition policy. In fact, amending the APMC Act would have been beneficial for GOI. First, it is costly to procure and distribute agriculture items. If corporates, instead of the government, comes into this business of procurement, GOI saves money. Second, from the perspective of WTO commitment, GOI can send a signal that it is reducing food subsidy (by phasing out MSP), and is on its way to reform. And lastly, if the government takes sides with the corporates, it can regulate the market price and place where agriculture transaction will happen in favour of the latter, further eating up the profit of the big traders. On the flipside, these middlemen contribute to the village economy by spending and lending money to the smaller farmers. That may stop, further worsening the plight of the small farmers. (IPA Service)
The author is Professor, School of Management, Mahindra University.