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