Future-Proofing Agriculture in India: Create free markets with multiple options to the farmers

Today, farmers are agitating. They are up in arms against the government and are surrounding Delhi. The majority of the agitating farmers, their supporters in general and most politicians have little understanding of the real issue and its implications for international agricultural markets. Misinformation seems to be thriving across, with little understanding and empirical evaluation of the issues involved.

The recently-passed Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 is indeed revolutionary as it strikes the very monopolistic nature of APMCs, offering freedom to farmers to sell their produce anywhere they wish. Such transformational reforms that free farmers of the stranglehold of the regulated mandis should have been an celebratory occasion for farmers. Empirical research across the world suggest that prevention of monopolistic activities in the markets often leads to better price realisation.

Earlier, the concept of the regulated Agricultural Produce Marketing Committees was encouraged in India, and states were asked to set up such marketplaces. As a result, thousands of market-yards got created across the length and breadth of the country. Although APMCs transformed India’s totally unorganised wholesale agri-produce market into a fairly streamlined and organised marketplace by the end of the 20th century, the very monopolistic nature of the APMC mechanism compelled farmers to sell their produce in the designated market yard. They had little freedom to dispose off their produce to alternative sellers and were left at the mercy of a few select buyers and agents, who often colluded with other institutional buyers, adding to farmers’ woes. This prevented them from realising competitive prices.

The basic objectives of APMCs were creation of a spot marketplace for agricultural produce, regulation of contracts and practices for intermediary payments, creation of a low-cost trading regime for farmers and generation of revenue for the government to invest in physical infrastructure. Although APMCs served these objectives to a great extent in the initial years, over a period, they became highly monopolistic in th wholesale trading of agri-produce.

Some efforts were made to limit the monopoly by way of the Model APMC Act, 2003, where trading licences were converted into pan-state licences. Still, most reforms remained on paper as the monopolistic character of APMCs remained unaffected, and the farmer had been the worst sufferer in realising the competitive prices for their produce.

Freebies on a competitive basis by political parties were often used as crucial instruments of populism, which hardly added to the welfare of beneficiaries, especially farmers. Free electricity for agriculture led to gross misutilisation of water across several states leading to a severe shortage of groundwater. The problem had exacerbated to the point that it led to desertification and land degradation in many cases. This problem now severely threatens future growth of the agriculture sector in India. Narendra Modi, then chief minister of Gujarat, was the only CM who raised the electricity tariffs in the state, even for agriculture, severely curtailing electricity theft in rural areas while ensuring a reliable supply of electricity in the rural area for agriculture.

Modi’s innovative and courageous strategy, the Gramjyoti Yojana in Gujarat, resulted in a predictable and uninterrupted supply of electricity for agricultural use and complete electrification of the entire state, despite initial resistance from stakeholders. Modi’s model of complete rural electrification, which led to significant gains in water conservation and crop productivity in Gujarat, was lauded in developing countries.

It is high time for Indian agriculture to introspect as there is no short-cut for it to become internationally competitive. The existing data shows that China remains the largest agricultural producer in the world with 53.24 million tonnes (mt) of agricultural production followed by the US (7.89 mt), Turkey (5.83 mt) and India (5.74 mt). India still has a very long way to go. To illustrate, Netherlands, with merely 1.26% of the total land area of 41,543 sq km compared to India’s 3,287,262 sq km is the world’s second-largest exporter of agricultural products ($102 billion in exports). The US, with exports of $142 billion of agricultural products, is the leader, whereas India ranks 14th, with merely $35 billion in agri-exports.

Both farmers and politicians in the country need to understand that price of most agricultural commodities such as wheat, rice, sugar, meat, milk-fat, cotton, etc, is not going to increase for the next decade, and would rather decline slightly in real terms, as per FAO forecasts. On the other hands, the costs of inputs are steadily rising. This is also leading to an upward rise in the cost of agricultural production in India.

India can no longer afford multiplicity of systemic inefficiencies in its agricultural production and distribution. Research reveals that creating free markets with multiple marketing channels options to the farmers would help them realise better prices for their produce and increase their earnings besides several other benefits, such as making supply chains and production systems much more efficient and transparent.

India must go ahead with structural reforms in agriculture, including expanding the scope of agricultural marketing. Although the very objective of the regulation, to provide shackle-free marketing opportunities to the farmers, remains undisputed, the implementation bottlenecks in the new regulations may be deliberated upon, and farmers’ concerns addressed accordingly.