Better late than never, the Narendra Modi government has taken firm steps towards freeing farmers from the exploitative clutches of mandis and middlemen. Farmers with a marketable surplus can now realise better prices for their produce, without unduly burdening the consumer.
The biggest bang in the agricultural reforms package is the proposed central law putting an end to the monopoly exercised by the Agricultural Produce Market Committees (APMC) over trade. The farmer will be free to sell to anyone, anywhere. This measure is in perfect consonance with the constitutional right to free trade and commerce.
In the last fortnight, several states have jump-started agricultural reforms and amended regulations to allow free intra-state movement of produce. Farmers can sell at their gates or take their goods to a food processing factory, or to a mandi of their choice. Purchasers who buy directly from farmers need not pay a market fee.
Why is this such a big deal? Farmers are currently compelled to take their produce to a mandi, which means incurring transportation costs, in addition to a variety of mandi fees and commissions to middlemen. Needless to say, the storage and other infrastructure facilities at most mandis is poor, despite the fees.
Opening the field to private mandis will increase competition and allow more efficient price discovery. Ease of doing business for traders will improve, because they can buy produce from any of the 2,500 mandis in the country instead of having to obtain multiple licences, valid for only one mandi.
The big question is what this means for the arhatiyas, or middlemen. They have a role to play in aggregating produce for private traders. But where state agencies procure directly from farmers, there is no need for intermediaries. Yet, the arhatiyas continue to receive a commission. In fact, they are a powerful and politically well-connected lobby and no chief minister wants to take them head on.
When Punjab decided, earlier this year, that payment to farmers should be deposited directly in their bank accounts instead of through the arhatiyas, the state government had to assure the latter that they would continue to receive their commission. Grievances against arhatiyas include delayed payments, arbitrary deductions and refusal to issue sales slips, in order to save tax.
The middlemen typically receive commission from both ends – the farmer and the purchaser. What’s more, they do not pass on benefits of price increases or decreases to either the producer or the consumer. The end result is that the farmer gets barely one-third of the ultimate retail price of his produce.
The presence of middlemen is justified on the grounds that they are a source of informal credit for farmers, both for agricultural inputs and for domestic needs. The dependence on the middlemen is intensified when the farmer, in the absence of a record of sales, cannot prove his income to the bank and hence, does not receive credit. This underlines the need for reforms in agricultural credit, which is cornered either by big farmers or companies supplying farm inputs.
The other significant reform has to do with dilution of the Essential Commodities Act, an archaic piece of legislation that has suffocated rural markets. The proposed amendment will remove stock limits on oil, oilseeds, cereals, pulses, onions and potatoes. This will encourage the private sector to invest in vast storage facilities, including cold stores and cold chains, with two positive spin-offs.
First, it will encourage the introduction of new, state-of-the-art storage technologies which minimise food wastage (currently estimated at Rs. 1 lakh crore annually). Second, the very existence of large food stores will reduce price volatility, which has severely affected farmers and consumers in recent years.
An equally significant reform is the proposed framework for contract farming. Sporadic attempts at contract farming, in Punjab for instance, did not work largely because of the absence of an enabling legal and regulatory environment. Under contract farming, the price of the produce is fixed at the time of sowing. If prices fell, the company (purchaser) would renege on the agreement. If prices rose, the farmer would do a volte face.
If contracts are honoured regardless of market fluctuations, both parties minimise their risks in the long term. Given the fragmented nature of landholdings in India, farmer-producer organisations (FPOs) will have a critical role to play in contract farming. They can aggregate and standardise produce, undertake collective bargaining, minimise transaction and transportation costs and insulate members from exploitative practices and rent-seeking behaviour. In conjunction with the Land Leasing Act 2016, contract farming has the potential to put more land to productive use.
The e-NAM or National Agriculture Market has foundered because of poor infrastructure and connectivity at mandis. The concept itself is excellent and in tandem with privatisation of mandis and free flow of agricultural produce, it can decisively address the problem of fragmented markets and exploitative middlemen. For the farmer, the ability to sell his produce directly to the highest bidder regardless of geography, would be a win-win.
The agricultural reforms have been criticised for having taken a long view. They do not offer a quick-fix solution for COVID-related distress, nor do they address the specific problems of subsistence farmers. But in the long term, they are potential game-changers, provided that they are not nullified by our “let's-put-it-in-the-fine-print” bureaucracy.
The writer is a senior journalist with 35 years of experience in working with major newspapers and magazines. She is now an independent writer and author.