Farm Acts: Addressing the VUCA World of Farmers

Debesh Roy and Bijetri Roy

(Debesh Roy is a consultant economist; Bijetri Roy is instructional designer at EBC Learning)

The enactment of Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC Act, 2020), Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (FAPAFS Act, 2020) and Essential Commodities (Amendment) Act, 2020 (ECA, 2020), signifies the ushering in of the long-awaited comprehensive  agri-marketing reforms. However, the  brouhaha over the Acts, brings to the forefront the stiff resistance to agri-reforms by certain sections of the farming community, traders and politicians. In a sector which provides livelihood to 44% of India’s workforce, majority of whom are small and marginal landholders earning meagre income under the existing APMC system,  income security of farmers needs to be of prime concern to policy makers. Indeed, GoI’s vision of “doubling farmers’ income” signified a paradigm shift in agriculture policy from ensuring food security to income security of farmers, by maximising their gains through post-production activities. The Acts promise to ensure income security of farmers on a sustainable basis.

Farmers in India, especially the small and marginal farm holders, covering 86% of landholdings,  live in a VUCA (volatility, uncertainty, complexity and ambiguity) world of volatile prices, uncertain income, complex institutional mechanisms and restrictive laws, and policy ambiguities.  The Acts, together with the setting up of Agriculture Infrastructure Fund (AIF) for creation of agri-infrastructure near farm gate and aggregation points, and development of efficient agri-value-chains, are expected to create the right ecosystem for enabling farmers to come out of the VUCA world.  

Price volatility is common among perishable commodities like tomato, onion, potato and other horticulture crops. Maharashtra, the largest producer of onions in the country, witnessed 64% rise in wholesale prices of onion in August 2020, over the previous month (see chart below). Madhya Pradesh and Karnataka witnessed price rise of 21% and 27%, respectively. Retail prices too increased sharply, which prompted GoI to ban the export of onions - ironically, days before the passing of the ECA Bill, 2020 in the Parliament.

Under the ECA Act, 2020, the government’s power to impose stockholding limits in identified commodities and foodstuffs, has been done away with, except under extraordinary conditions such as war, famines, extraordinary price rise  and natural calamities of grave nature. However, a 100% rise in retail price of horticultural produce and 50% rise in price of non-perishable foodstuffs, would trigger restrictions in stockholding by the government. Considering the fact that almost every year the country experiences weather-induced sharp rise in price of onions, the government could in such an eventuality, impose ban on exports and also restrict stockholding of onions. This would hurt farmers. As the ECA, 2020 exempts the installed capacity of value chain participants, private investments in warehouses and cold storage would be encouraged. Therefore, with the creation of adequate storage infrastructure and processing facilities, the price of onions and other horticulture produce could be stabilised, over a reasonable period of time.

The FPTC Act, 2020 and FAPAFS Act, 2020, aim at transforming the agri-market ecosystem by addressing price and income uncertainties of farmers, as well as complexities and ambiguities prevailing in the existing APMC system, that have resulted in the exploitation of hapless farmers by commission agents (arhatyas). The arguments by the opponents of the Acts revolve around the apprehension about abolition of minimum support price (MSP), dismantling of APMC system, and profiteering and exploitation of farmers by corporate entities entering into contract farming agreements with farmers. The arguments and apprehensions lack conviction. The APMC Acts were meant to protect the farmers, but over time, the mandis were rendered restrictive and monopolistic, ending up severely harming them. Transparent price discovery through auctions was replaced by collusion and price fixing. Further, it has been estimated by NSSO that only 6% of all farmers benefited from public procurement at MSP.

GoI announces Minimum Support Price (MSP) in respect of 23 commodities. However, only few states  have strong procurement systems like Punjab, Haryana and M.P., and FCI procures major quantities of wheat from these states (82.5% during Rabi Marketing Year 2020-21). Farmers in these states are able to sell wheat and paddy at MSPs. However, the same is not true in respect of other states and other commodities like pulses and oilseeds, and farmers have been found to receive prices below MSP.  The table below shows that during October 2019-March 2020, the prices of arhar in the APMC markets of major producing states, viz. Maharashtra, Madhya Pradesh, Karnataka and Gujarat, as also the all-India average prices remained below MSP.  In M.P. which is the second largest producer of arhar, the prices ranged between 54.1% of MSP in December 2019 and 76.8% in February 2020. As explained by noted agricultural economist Dr. Ashok Gulati, asking for legal status for MSP is untenable as the Centre does not have the wherewithal to buy all the 23 commodities, and private players fearing legal action would shun buying. Interestingly, the Commission for Agricultural Costs and Prices (CACP) in its Kharif Policy 2018-19 had suggested a legislation conferring on farmers ‘the Right to Sell at MSP.’ This needs to be debated.

The FPTC Act, 2020 would enable the creation of an ecosystem where farmers and traders would enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels, involving barrier-free inter-state and intra-state trade. Clearly, APMC mandis need to compete with alternative marketing channels to enable transparent price discovery. Further, in order to develop an efficient nation-wide  agri-marketing system, e-NAMs, too need to be scaled up and made efficient, and all markets, as well as accredited warehouses could be linked to e-NAMs. Commodity futures trading of major agri-commodities by farmer producer organisations (FPOs) through NCDEX, needs to be encouraged to ensure efficient price discovery and risk mitigation. As stated by the Committee on Doubling Farmers’ Income, the vision of a full-fledged national agricultural market is where all types of markets have inter-operability in communication, standards, and systems, operating under a common regulatory framework.

The FAPAFS Act, 2020 provides for a national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner. The fear of exploitation of farmers by corporate entities can be addressed if FPOs, instead of individual farmers, enter into contract farming agreements. Already, NABARD has been entrusted with the task of supporting formation of 10,000 FPOs, in addition to the already existing about 4,000 FPOs, which need to be strengthened and professionalised.

The new Acts are expected to create an ecosystem which promises to enable farmers to come out of the VUCA world. What is further needed is the continuance of income support programme like PM-KISAN, with possibly a higher allocation covering the cost of fertiliser subsidies, along with top-up by states, similar to YSR-Rythu Bharosa-PM-KISAN of Andhra Pradesh. Further, the unfinished agenda for agri-reforms would include pursuing tenancy reforms, significantly raising R&D spending on modernisation of agriculture through artificial intelligence and blockchain technology for increasing crop productivity and resource-use efficiency, strengthening of agri-tech start-up ecosystem, and skilling of farmers who could be taken out of farming to be gainfully employed along efficient agri-value chains. Finally, inclusion of agri-marketing in the Concurrent List of the Constitution of India, needs to be thoroughly debated nationally by all stakeholders and prioritised by the government.

Source: Prepared by authors based on data accessed from agmarknet.gov.in

Arhar – Wholesale Market Price as % of MSP
	Oct-19	Nov-19	Dec-19	Jan-20	Feb-20	Mar-20
Maharashtra	89.4	91.5	85.4	81.8	81.7	83.9
Madhya Pradesh	66.6	64.7	54.1	64.5	76.8	75.5
Karnataka	90.4	93.7	90.2	85.8	84.3	83.0
Gujarat	84.6	75.1	83.4	85.6	97.5	87.8
All-India average	90.7	97.5	94.4	89.7	88.3	91.3

Source: Prepared by authors based on data accessed from agmarknet.gov.in

Source: Prepared by authors based on data accessed from agmarknet.gov.in

 

RCEP: A White Revolution for exports

Financial Express, December 7, 2019

By Debesh Roy

India’s decision not to join the Regional Comprehensive Economic Partnership (RCEP) in its present form has brought a sense of relief in the dairy industry. Fear of the country being flooded with imports of dairy products from New Zealand and Australia triggered jitters in the dairy sector, which is dominated by small-farmer oriented cooperative sector.

There was unwillingness on the part of fifteen members of RCEP to engage in serious negotiations with India on its proposals for safeguards, viz an auto-trigger mechanism that would allow India to raise tariffs in cases of surge in imports of products that cross a certain threshold, rules of origin, and a 2014 base year for tariff reductions instead of 2013, to safeguard its steel and dairy industries, along with the demand for market access to India’s services exports. Hence, India had no other option but to withdraw from the largest Regional Trade Agreement (RTA) in the world.

According to the High Level Advisory Group (HLAG) set up by the Ministry of Commerce, Government of India (GoI), lack of competitiveness of India’s exports acts as a major bottleneck in tapping potential from trade enabled through FTAs/RTAs. Therefore, considering India’s objective of becoming an export-led $5 trillion economy by 2024-25, it is high time our industries (including dairy) become globally competitive and enter into FTAs/ RTAs to take the country’s exports to a much higher trajectory, and, in the process, enable substantial rise in the income of small dairy farmers.

The globally acclaimed ‘White Revolution’ had enabled India to become the largest producer of milk in the world. At 176 million tonnes (MT) the country produced about 20% of the global milk output in 2017-18. However, with exports of dairy products valued at $197.27 million in 2018, India ranked 38th in the world, with a share of 0.26% of global exports ($74,519.60 million). This compares poorly vis-à-vis Germany, the largest exporter in the world, which exported dairy products valued at $9,459 million in 2018. Exports of dairy products by RCEP members New Zealand and Australia were valued at $8,865.42 million (third rank) and $1,896.17 million (12th rank), respectively. India’s low value of dairy exports may be attributed mainly to high domestic consumption demand for milk and milk products, very low yield of milk output (1.1 tonnes/animal compared to 3.9 tonnes/animal and 5.9 tonnes/animal for New Zealand and Australia, respectively), and low exportable surplus of processed dairy products due to increasing demand in urban areas.

The importance of the dairy sector in India can be gauged from the fact that it is dominated by 16 million small milk producers who supply their milk to 1,85,903 dairy cooperative societies across the country, providing livelihood support to millions of families. However, about 81% of Indian dairy and milk processing market is part of the unorganised sector, which produces milk under unhygienic conditions. This reduces the overall quality and nutrition levels of the milk produced, thereby further restricting exportable quantity of dairy products. Also, the sector lacks proper infrastructure for milk preservation, processing and transportation in most states.

India’s export of dairy products is led by Gujarat Cooperative Milk Marketing Federation Ltd (Amul), which exports sixteen dairy products to USA, Australia, New Zealand, and countries in South Asia, Southeast Asia and the Middle East. Amul, along with Mother Dairy, and private and multinational dairy companies can become globally competitive by strengthening and modernising their already professionally managed and efficient dairy value chain. There is also a need for milk marketing federations of all states to modernise value-chain infrastructure with a view to producing high value dairy products efficiently.

In this context, GoI has created a corpus of Rs 8,004 crore with NABARD under Dairy Infrastructure Development Fund (DIDF) to provide loans to National Dairy Development Board (NDDB) / National Cooperative Development Corporation (NCDC) for on-lending to eligible cooperative milk unions, state cooperative dairy federations, multi-state milk cooperatives, milk producer companies, and NDDB subsidiaries, with the objective of modernising and augmenting dairy infrastructure for milk processing and value addition while ensuring optimum price realisation by the primary producers.

The apprehension that signing of RCEP agreement would flood the Indian dairy market with cheaper imports from New Zealand and Australia is based on the admission that Indian dairy industry is not yet ready to face global competition. Presently, imports of dairy products form these countries is minuscule, and India had a trade surplus of dairy products with Australia during the last three years as well as with New Zealand in 2018-19 (see graphic).

However, had India decided to join RCEP, the trade balance with these countries would have turned negative. New Zealand exports 95% of it dairy products, and about 84% of its milk supply is controlled by Fonterra, the largest exporter of dairy products in the world. Fonterra has already entered the Indian market by way of an equal joint venture with Future Consumer, offering a wide range of nutritional dairy products targeted at urban Indian consumers. Fonterra is also one of the world’s largest investors in dairy innovation and has one of the largest R&D facilities in the world. The Fonterra Future Dairy plans to become one of the top four dairy players in India within the next four to five years. Therefore, the likes of Amul and Mother Dairy need to raise their spending on R&D significantly, to compete with global leaders like Fonterra.

In order to boost export of dairy products, GoI needs to consider development of Dairy Export Zones (DEZs) in collaboration with state governments, in leading milk producing states like UP, Rajasthan, Gujarat, Andhra Pradesh, Punjab, Maharashtra, MP, Haryana, Tamil Nadu, and West Bengal. Such zones would involve creation of common infrastructure like cold chain, chilling plants, processing facilities, R&D facilities, logistics, and connectivity to ports and airports. Dairy producers in the cooperative, private, and multinational sectors would need to set up modern hi-tech dairy processing units in the DEZs, for producing high quality products for the global market.

The dairy producing units in the suggested DEZs can enter into contract farming arrangements with dairy farmer producer organisations (FPOs)/ farmer producer companies (FPCs) for sourcing milk. Such an arrangement would be mutually beneficial in terms of cost efficiency and higher export revenue to the dairy companies, and higher income to farmers. State governments, therefore, need to enact the model Agriculture Produce and Livestock Contract Farming (Promotion and Facilitation) Act, 2018, urgently.

The Ricardian theory of comparative advantage has showed why there are significant benefits from globalisation. Therefore, if India’s dairy sector becomes globally competitive, it can benefit from its comparative advantage when it chooses to join RCEP or any other RTAs/FTAs in the future.

The author is senior officer at NABARD
Views are personal

 

COP26: India must commit to landmark Koronivia Joint Work on Agriculture

Financial Express, January 20, 2020

By Debesh Roy

After a lacklustre COP 25 in Madrid, the expectations from COP 26 in Glasgow (November 2020) are high, on an agreement on the carbon markets promised in Paris, on the recommendations of the report on the landmark Koronivia Joint Work on Agriculture (KJWA). Topics critical to agriculture are expected to be addressed by KJWA.

While agriculture remains vulnerable to climate change effects—low productivity and food production are areas of concern—it also contributes 23% to global GHG emissions. Economic development, growing population and poverty reduction will lead to a higher demand for cereals, proteinaceous food items, fruits and vegetables, triggering more intensive use of water and other natural resources. This will cause GHG emissions to spike. It needs to be understood that KJWA has the potential to transform agricultural and food systems, while enabling the overall achievement of Sustainable Development Goals (SDGs) by 2030. Bold action is called for at COP 26.

According to the UN’s Emissions Gap Report 2019, India, along with Russia and Turkey, is projected to surpass it sits NDC target emission levels by 15%, and has room to raise its NDC ambition significantly. Whether it engages fruitfully with the KJWA proposals remains to be seen.

FAO estimates that, while agriculture accounts for 70% of total global freshwater withdrawals, food production and supply chain consumes about 30% of global energy consumption. India has been witnessing fast depleting groundwater resources, resulting from widespread use of pump-sets for irrigation, powered by heavily subsidised electricity, and highly polluting diesel. Groundwater Year Book 2017-18 had estimated that almost the entire country is experiencing depletion in groundwater level, with the maximum decline in parts of Rajasthan, Haryana, Punjab, Gujarat, Telangana, and Maharashtra. A World Bank report had predicted that ~60% of aquifers in India will be in a critical state by 2032.

Perverse subsidies on farm power supply in India over the last four decades, have not only made irrigation by deep tube-well profitable for farmers, but have, in fact, incentivised wastage of energy, too. This has also been exacerbated by the skewed procurement policies in favour of rice and wheat in Punjab and Haryana. However, while this had led to significant increase in production and productivity of paddy and wheat in Punjab, Haryana and western Uttar Pradesh during the Green Revolution period, there is evidence of stagnation in productivity.

The Nabard-Icrier report, Water Productivity Mapping of Major Indian Crops, argues that Punjab and Haryana, which require more irrigation water input to produce unit output of paddy, are less suited for rice production, as compared to the eastern region. Therefore, the report has recommended re-aligning cropping pattern with available water resource endowments across states. One of the fallouts of the paddy-wheat cycle in Punjab and Haryana is the problem of paddy stubble burning and its toxic air pollution effect.

Watershed development is of critical importance, as is evident from the participatory watershed development programme being implemented by Nabard since 1992. Further, ITC’s Integrated Watershed Development showcases the role corporate sector can play in soil and moisture conservation.

Sustainable solutions for water use efficiency like System of Rice Intensification, Sustainable Sugarcane Initiative, Better Cotton Initiative with drip irrigation need to be mainstreamed. Further, precision agriculture through AI and IoT can contribute to meet the challenges to food security.

Electricity subsidy for irrigation needs to be phased out. A sustainable alternative is the use of solar energy for irrigation. A viable model of “solar trees” in farms where farmer producer organisations (FPOs) can own solar panels as source of irrigation and also income for farmers by selling power to the grid, needs to be promoted. This could necessitate tripartite agreements between FPOs, discoms (for power purchase) and banks (for financing FPOs). This model, along with ministry of non-renewable energy’s KUSUM scheme, Gujarat government’s Suryashakti Kisan Yojana, and other projects, would help achieve the target of 175 GW renewable energy by 2022. Experiments on solar-wind hybrid energy pump-sets also should be implemented on the ground and scaled up. However, there needs to be self-regulation through AI-based sensors in drawing of groundwater.

The Stern Review Report (2006) had called for urgent and transformative actions for addressing the challenges of adaptation and mitigation of climate change faced by agriculture. The Water-Energy-Food nexus approach of FAO envisions a balance between different goals, interests and needs of people and the environment in a sustainable manner. This approach enables demystification of the complex and dynamic interrelationships between water, energy and food, so that limited resources can be managed sustainably. Therefore, the Central and state governments in India, along with financial institutions, research agencies and corporate entities, need to provide adequate resources towards research and adoption of climate smart agriculture and WEF nexus approach, to enable the country to achieve SDGs by 2030. This should be at the top of India’s agenda at COP 26.

The writer is senior officer at Nabard. Views are personal

 

Green development: Strategising mitigation of agricultural methane emissions

By Debesh Roy

Financial Express, August 24, 2020

The challenge of green development should encourage nations to make concerted efforts to achieve the goal of restricting GHG emissions to 1.5% above pre-industrial levels set by the Paris Agreement and also achieve SDGs by 2030.  For achieving the 1.5% goal, emissions must drop 7.6% per year till 2030. The Paris Agreement aimed at securing commitment by countries to enhance their NDCs by 2020. According to the Emissions Gap Report, 2019 of UNEP, India, Russia and Turkey are projected to achieve 15+% lower than the NDC target emission levels, giving them enough room for raising their NDC ambitions significantly.

While the focus of Paris Agreement and the NDCs was on CO2 emissions from energy use and industry, which dominate total GHG emissions, reaching a record 37.5 GtCO2 per year, there has been a conspicuous absence of a plan to mitigate methane (CH4) emissions. Interestingly, CH4 emissions contribute to a third of the current anthropogenic GHG warming. Research by scientists at the Department of Earth Sciences, University of London, led by EG Nisbet, has shown that implementation of a wide array of mitigation and emission reduction strategies could substantially cut the global CH4 burden, at a relatively low cost compared to the parallel and necessary measures to reduce CO2, and mitigate the atmospheric methane burden back towards pathways consistent with the goals of the Paris Agreement.

Agriculture is the largest contributing sector to global emissions of non-CO2 GHGs, accounting for 48% of emissions in 2015. USEPA has projected that between 2015 and 2030, global agriculture sector emissions will increase by 10%. Further, agricultural soil emissions and livestock enteric fermentation emissions are projected to increase by 14% and 12%, respectively, between 2015 and 2030.

Paddy cultivation contributes about 15-20% of the total anthropogenic methane emissions. Methods like System of Rice Intensification (SRI), drip irrigation, soil amendments, organic matter management, different tillage, rotation, and cultivar selection, can facilitate mitigation of methane emission. Research has shown that SRI reduced methane emissions by 22% to 64%. SRI also facilitates a significant reduction in the cost of production, saving of freshwater and increasing yield and farmers’ income.

However, despite being practised for more than two decades, SRI has still not been mainstreamed in India. Skilling farmers and organising them into FPOs to collectively adopt SRI technique and disseminate the benefits of SRI needs to be incentivised and prioritised by central and state governments, and NABARD.

Experiments by scientists in Tamil Nadu have revealed that seasonal methane emission flux from paddy cultivation declined by 78% due to drip irrigation. SRI, in combination with solar-powered drip emitters along with artificial intelligence (AI)-embedded systems could be the best bet to increase rice yield and mitigate methane emission significantly.

Methane emissions from livestock are the result of enteric fermentation and manure management. It has been observed by scientists that a per cent increase in dietary fats in a forage diet comprising 30g lipid/kg dry matter intake has resulted in 3.5% reduction. The share of methane emission from enteric fermentation is estimated at around 54%. It is imperative to increase investment in R&D by leading dairy industry players by focusing on development of dietary supplements to reduce enteric fermentation, for which support from NABARD via Dairy Processing and Infrastructure Development Fund (DIDF) could be availed.

Mitigation potential from the agriculture sector is estimated to be approximately 593 MtCO2e in 2030. While India is among the top four emitters of CH4 from rice cultivation and livestock sector, it is also among the top countries which are important sources of abatement of CH4 emissions by 2030. India needs to raise its NDC ambition by including a target for mitigation of methane emission.

The postponement of COP-26 at Glasgow should give some legroom to the Koronivia Joint Work on Agriculture to address issues related to mitigation of methane emissions from agriculture and livestock sectors. Parties need to enhance their NDCs by including targets for methane mitigation. It’s time to act now before it is too late to achieve the Paris Agreement goal and the SDGs.

The author is a senior consultant, IRADe. Views are personal