Introduction
India’s target of achieving a
$5 trillion economy by 2024-25 needs to be supported by a transformed and
reformed agriculture sector, which would significantly improve the income of
farmers. It is, therefore, imperative that the agriculture sector should
support the objective by focusing on transformative reforms, while targeting an
annual agriculture GVA growth of 5 per cent. In this lecture I will discuss the
critical challenges being faced by Indian farmers in the existing agriculture
marketing system, doubling farmers’ income, need for agriculture marketing reforms
for making farming financially sustainable, development of rural infrastructure
and efficient agri-value chains, agriculture export reforms, and I would conclude the lecture by underscoring
the need for comprehensive reforms in the agriculture sector with a high priority
accorded to agri-marketing reforms, for doubling farmers’ income and mitigating
agrarian distress.
Critical Challenges for Indian
Farmers
The criticality of agriculture
for sustainable and inclusive growth of the Indian economy can be gauged from
the fact that, the sector provides employment to about 41.5 per cent of the
total workforce in India, but contributes only about 15.5 per cent (2021-22) to
the country’s real Gross Value Added (GVA)[1] .
About 86 per cent of operational holdings in the country are in the small and
marginal categories, and the average size of an operational holding is only
1.08 hectare (ha). Due to fragmentation and disorganisation, farmers face
constraints in procuring inputs like seeds and fertilizers at reasonable
prices, lack bargaining power in the market for realising better value for
their produce, and have inadequate access to technology, extension services,
market, credit and crop insurance. As a result, majority of the small and
marginal farm holders are unable to realise optimal value from their farming
operations, resulting in agrarian distress.
The average monthly income of
an agricultural household during July 2012 to June 2013 was as low as INR 6,426,
as against its average monthly consumption expenditure of INR 6,223 (GoI, 2017).
As many as 22.5 per cent of the farmers live below the official poverty line. According
to the NABARD All India Rural Financial Inclusion Survey (NAFIS) (NABARD,
2018), the average monthly income of agriculture households in India was INR 8,931
in 2016-17. Further, a wide variation was observed by NAFIS among states with
respect to the average monthly income of agricultural households. States like
Punjab (INR 23,133), followed by Haryana
(INR 18,496), Kerala (INR 16,927), Gujarat (INR 11,899) and Himachal Pradesh
(INR 11,828) reported high income, which indicates that this sector has been
making a sizeable contribution to the economy of the states. On the other hand,
agricultural households from Jharkhand (INR 6,991), Andhra Pradesh (INR 6,920),
Uttar Pradesh (INR 6,668), Bihar (INR 7,175), Tripura (INR 7,592), Odisha (INR
7,731) and West Bengal (INR 7,756) reported low average monthly income (NABARD,
2018).
According to the Report of the
Committee on Doubling Farmers’ Income (DFI Committee, Chairman: Dr. Ashok
Dalwai) (GoI, 2017), technology fatigue is manifesting in the form of yield
plateaus, and India’s yield averages for most crops at global level do not
compare favourably. At the same time, the costs of cultivation are rising. Further,
there has been an alarming rise in the magnitude of food loss and food waste. Finally,
the markets do not assure the farmer of remunerative returns on his produce
(GoI, 2017).
A critical problem faced by
India’s agriculture sector is the fragmented and distortions-ridden state of
agricultural markets. One of the major reasons for low income of farmers is
unremunerative prices for their produce due to lack of a competitive market
structure, which is bereft of transparent price discovery system. With majority
of farmers belonging to the small and marginal category, they lack the
bargaining power to sell their produce at remunerative prices in the
Agriculture Produce Marketing Committee (APMC) markets.
More often than not, farmers
are forced to sell their produce at unremunerative prices due to distress sales
during the immediate post-harvest season, because of their lack of holding
capacity, and the exploitation by traders (arhatiyas) in APMC markets. Also,
in an open economy, sometimes the price shocks that emerge in global markets
are imported into domestic markets. Lack of aggregation of produce makes it uneconomical
for farmers to transport their produce to the APMC markets for their sale. APMC Acts require that farm produce to be
sold only at regulated markets through registered intermediaries. Therefore,
bereft of options for alternative and competitive marketing channels near the
farm gate, small and marginal farm holders, on most occasions sell their
produce at unremunerative prices.
Farmers lack knowledge about
consumer demand across India, which is critical to develop efficiency in agriculture
value chains. This is also influenced by various economic considerations, and
on the technical and logistical capabilities to connect the produce, involving
post-production activities of aggregation/assembly/pooling, sorting/
assaying/testing, transportation, food/agro-processing, storage, distribution
and retail (GoI, 2017). There is also a lack of transparency in price
discovery, which restricts returns to farmers. Marketing, as a support
function, helps to direct the other activities, for greater optimisation of the
costs involved and for improved value realisation (ibid.).
GoI announces Minimum Support Price (MSP)
in respect of 23 commodities. However, wheat and rice are the major commodities
which are procured by state agencies at MSP, from a few states. Hence, 92.7 per cent of procurement of
wheat of 433.4 lakh metric tonnes (LMT)
by state agencies and FCI, during Rabi Marketing Year 2021-22, was from Punjab
(30.5 per cent), M.P. (29.6 per cent), Haryana (19.6 per cent) and U.P. (7.4
per cent). In case of rice, Punjab (22.6 per cent), Telangana (15.7 per cent) and
Andhra Pradesh (9.4 per cent), together procured 47.7 per cent of the total
procurement of 601.85 LMT during Kharif Marketing Season 2020-21[2]. 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. Table 1 shows that during October 2021-February
2022, 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 (except January 2022) prices remained below MSP. In M.P. which is the second largest producer
of arhar, the prices ranged between 64.3 per cent of MSP in October 2021
and 93.5 per cent in December 2021.
Table 1
Wholesale Prices of Arhar as a Percentage
of MSP
|
Oct-21 |
Nov-21 |
Dec-21` |
Jan-22 |
Feb-22 |
|
|
Maharashtra |
94.2 |
91.1 |
90.7 |
95.1 |
98.2 |
|
Madhya Pradesh |
64.3 |
70.4 |
93.5 |
84.4 |
86.7 |
|
Karnataka |
99.6 |
94.3 |
89.7 |
95.1 |
96.1 |
|
Gujarat |
89.4 |
83.5 |
87.2 |
92.4 |
88.0 |
|
All-India average |
94,1 |
85.8 |
89.6 |
102.7 |
96.8 |
Source: Prepared by the author based on
data accessed from agmarknet.in
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. Mandating MSP would lead to
disappearance of export markets, disruption in domestic supply chain,
unmanageable surpluses and an unaffordable subsidy burden (Kumar, 2020). In the
current scenario of complex demands in a surcharged atmosphere, a tectonic
shift to a highly decentralised food and agriculture management, giving more
legal authority, financial support and responsibilities to states may be an
option worth considering (ibid.). 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.’ The DFI
Committee observes, that though MSP is an important intervention by the
government, it is not sufficient by itself. The honouring of the MSP through
its use in procurement is a more substantive condition in making MSP mechanism
effective. Hence, there is need for a bouquet of procurement tools that can
cater to different commodities in different ways (GoI, 2017).
Doubling Farmers’ Income
GoI
has envisioned the achievement of doubling farmers’ income (DFI) by the year
2024-25. However, this is a humongous task, and more so in the context of the
pandemic. The following seven-point
strategy for DFI is mostly under implementation: (i) irrigation with focus on
water-use efficiency, viz. “per drop more crop” (PDMC) through Pradhan Mantri
Krishi Sinchayee Yojana (PMKSY); (ii) quality seed and soil health, (iii)
investments in warehouses and cold chains; (iv) value addition through food
processing; (v) electronic National Agriculture Market (e-NAM); (vi) increase
in the coverage and effective implementation of Pradhan Mantri Fasal Bima
Yojana (PMFBY); and (vii) promotion of ancillary activities like dairy,
poultry, bee-keeping and fisheries.
The
strategy for DFI, involving increase in private investment by 6.62 per cent per
annum from the base year 2015-16 at the national level, also includes among
others: (a) promoting higher agricultural growth in less developed regions,
including rainfed areas, with a focus on marginal and small holders; (b)
strengthening livestock related activities and crop diversification to high
value produce like horticulture, in line with market signals; (c) shifting
priority focus to post-production management and the agricultural marketing
system; (d) sizeable increase in institutional credit to farmers; (e)
allocation of more resources by state governments towards minor irrigation; and
(f) incentivising private corporate sector to participate in investments in
agriculture (GoI, 2017). In order to achieve DFI, GoI can use income policy to
protect the poor, free up prices for farmers, and allow private trade to stock
and operate freely and have unhindered exports (Gulati and Hussain, 2017). What
is also needed is continuance of PM-KISAN, with a reasonably higher allocation,
along with top-up by states, on the lines of YSR-Rythu Bharosa-PM-KISAN of
Andhra Pradesh.
Agriculture
Marketing Reforms: Making Farming Financially Sustainable
A
series of reforms in quick succession was undertaken by GoI, beginning from
2002, in response to the changes in trading environment during 1990s. The
reforms included the Removal of (Licensing Requirements, Stock Limits and
Movement Restrictions) on Specified Foodstuffs Order, 2002 and 2003, under
which paddy/rice, coarse grains, sugar, edible oilseeds and edible oils, pulses,
gur, wheat products and hydrogenated vegetable oil or vanaspati were removed
from the list of Essential Commodities Act (1955). Further, the prohibition on futures trading in
agricultural commodities was removed in 2003. While these were important reforms,
they did not include agriculture marketing reforms, as agriculture marketing is
a state subject, and, hence, it required reform by respective states. Nevertheless,
GoI undertook several initiatives to facilitate agriculture marketing reforms
in states. The Expert Committee set up in by Ministry of Agriculture, GoI, in
its report submitted on 29 June 2001, suggested various legislative reforms as
well as the reorientation of the policies and programmes for the development
and strengthening of agricultural marketing in India. The committee noted that
there were stringent controls on the storage and movement of several
agricultural commodities, which were acting as a disincentive to farmers, trade
and industries. The State Agricultural Produce Marketing Regulations Act and
the Essential Commodities Act had to be amended to remove restrictive
provisions, preventing the emergence of an efficient and competitive marketing
system. Further, it was felt that a negotiable warehousing receipt system could
be introduced through appropriate legal
change, for agricultural commodities to enhance institutional lending to the
agricultural marketing sector, and to improve price-risk management
In
view of the foregoing, the Ministry of Agriculture set up a committee under the
chairmanship of K M Sahni, which drafted and finalised the model legislation
after holding discussions with the officials of state governments. The model Act,
viz. the State Agricultural Produce Marketing (Development and Regulation) Act,
2003, was shared with all state governments for implementation. Some of the
major provisions of the Model Act are: (i) more than one market can be
established by private persons, farmers, cooperatives and consumers in a market
area; (ii) there will be no compulsion on the growers to sell their produce
through existing markets administered by the Agricultural Produce Market
Committee (APMC); (iii) a new chapter on contract farming was added to
facilitate and promote smooth progress in contract farming; (iv) provision made
for the direct sale of farm produce to contract farming sponsor from farmers’
field without the necessity of routing it through notified markets; (v)
provision made for imposition of single point levy of market fee on the sale of
notified agricultural commodities in any market area and discretion provided to
the state governments to fix graded levy of market fee on different types of
sales; (vi) registration for market functionaries provided to operate in one or
more than one market areas; and (vii) provision made for the purchase of
agricultural produce through private yards or directly from agriculturists in
one or more than one market area (Chand, 2016).
A
path-breaking agriculture marketing reform initiative by GoI is the electronic
National Agriculture Market (e-NAM), which envisages setting up of a common
e-market platform that was initially be deployed in 585 regulated wholesale
markets in states/union territories desirous of joining the e-platform. The
e-NAM is expected to lead to significant benefits to farmers through higher
returns, while benefitting buyers through lower transaction costs, and
consumers through stable prices. It is also expected to facilitate the
emergence of integrated value chains in major agricultural commodities across
the country, and encourage the setting up of scientific storage and movement of
agri-commodities. Smallholder farmers can benefit if they were to find ways for
aggregating produce on their own, bypassing the arhatiya and even the local
mandi in the process. This is where farmer producer organisations (FPOs)/ farmer
producer companies (FPCs) can play a key role, by facilitating aggregation and
creation of volumes that is intrinsic to the success of e-NAM. The government
needs to incentivise and regulate the development of FPOs, and not seek to form
or control them directly (Gulati et al, 2020). However, it has been observed
that creating a seamless, unified national market for agriculture produce, as
e-NAM is supposed to do, even a state-wide market, has been difficult, due to
resistance from existing market players. The success of e-NAM would depend on
GoI’s efforts to influence state governments to dismantle the existing
structure and operations of APMC mandis by amending the APMC Acts and implement
e-NAM as seamless national hi-tech markets competing with each other, and
ultimately benefitting the farmers.
Better price realisation for farmers will
serve as an important incentive for raising productivity and production, and in
turn lead to higher growth of output. In many states, farm harvest prices
prevail below the minimum support price (MSP) in the harvest period and shoot
up subsequently. e-NAM will help check such market imperfections. Some states
like Punjab and Haryana desperately need diversification in crop pattern away
from paddy–wheat rotation. However, this has not been happening due to
unattractive market for alternative crops. e-NAM is expected to promote
market-driven diversification and reduce dependence of farmers in these states
on MSP and public procurement. The success of e-NAM in improving
competitiveness and integrating pan-India markets will require assaying
facilities created in various markets to ascertain quality traits as quality
variations are quite large in agricultural commodities. Also, each mandi will
require forwarding agents to handle the produce for buyers from outside the
mandi (Chand, 2016).
According to Dr. Ramesh Chand
(2016), the price dispersion at farm-gates and between them and wholesale markets
is large for most crops. He has further emphasized that there is a need for a mind-set shift that looks at market-linked
realisation, instead of administered returns to farms to take agriculture into
enterprise mode, and goes on to assert that the marketing system has to develop
options that address the price dispersion between wholesale markets and
farm-gate. This will lead to market led price realisations and not gratuitous
cost-plus price mechanism only. Farmers’ well-being is directly linked to their
ability to carry out exchange at markets of choice (Chand, 2016).
Though e-NAM will improve
competitiveness in markets through larger participation of buyers and more
transparent system of bidding, it should not be considered a panacea for all
deficiencies in agricultural markets. e-NAM necessitates some reforms proposed
in model APMC Act whereas it will not address some vital issues having bearing
on conduct and performance of market (Chand, 2016).
There are four important areas
for agri-marketing reforms, which are not part of e-NAM, viz: (i) direct sale
by farmers to buyers, processors, or, contract marketing without bringing
produce to mandi; (ii) establishment of private markets with treatment at par
with APMC. Even under e-NAM, market committee will continue to hold its
monopoly power in terms of offering a platform for sale/ purchase; (iii)
removal of legal barriers to entry of organised and modern capital and
investments into agricultural marketing.; and (iv) rationalisation of market
fee, commission charges, cess and taxes and development charges (Chand, 2016).
It is imperative to work out
strategies to capture the totality of marketable surpluses generated by the
farmers. This calls for the creation of an enabling market environment with
in-built mechanism to absorb as high a percentage as possible or the minimum 60
per cent of the surpluses, through an efficient market environment (GoI, 2017).
Further, there is a need for information at regular intervals to optimise the
agri-business value chain system. The information would not only help to make
market linked decisions during crop planning, input sourcing and harvest
time-lines, but also provide due cause for the right sized and rightly located
infrastructure, such that capacity creation is with market flow and throughputs
in mind (GoI, 2017).
GoI’s
vision of DFI 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 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), was an attempt by GoI, to usher in a comprehensive agri-marketing reforms. However, the Acts
have been repealed, in response to the year-long agitation by a section of
farmers against the Acts. It is, therefore, imperative for the central and
state governments, along with agriculture scientists, economists, farmers,
agri-tech companies, corporate sector, and all stakeholders to start a
consultative process to facilitate state governments to enact agriculture
marketing reform Acts, and for GoI to enact a law facilitating easy inter-state
movement of agri-commodities/ produce. Further, in order to develop an
efficient nation-wide agri-marketing
system, e-NAMs need to be scaled up and made more efficient, and all private
markets and accredited warehouses should be linked to e-NAMs.
The prices of agricultural
commodities are generally at their lowest during the harvest season as the
supply far exceeds the immediate, short-term demand, and increase significantly
during the lean season when the demand exceeds the supply. This adversely
affects the farmers who realise lower prices of their produce in the harvest
season. Futures markets provide a market mechanism to balance this imbalance of
the supply–demand pattern of agricultural commodities. Trading in futures not
only provides price signals to the market of today, but also of months ahead,
and affords guidance to sellers (farmers/ growers/ processors) and buyers
(consumers) of agricultural commodities in planning ahead and, in financing and
marketing commodities from one season to the another. While commodity exchanges
in India were allowed only futures trading in commodities, the Securities and
Exchange Board of India (SEBI) has, subsequently, laid out rules for the
introduction of commodity options. The launch of options will boost overall
market participation and also complement the existing futures and make the
commodities market more robust and efficient. The combination of futures and
options can give market participants the benefit of price discovery of futures
and simpler risk management of options. However, SEBI has banned futures and
options trading in major agriculture commodities, viz. chana, mustard seed,
soya bean and its derivatives, crude palm oil, moong, paddy (Basmati) and wheat
on 21 December 2021, for a period of one year, as part of GoI’s efforts to curb
inflation. While the impact of a ban on futures and options on curbing
inflation is debatable, it prevents market participants, most importantly the
farmers in the spot market, of a crucial source of price information. Spot
markets (viz. the mandis) for agricultural commodities are fragmented across
geographical locations, and futures prices provide a critical reference point
for pricing in these spot markets[3].
Development of Rural
Infrastructure and Efficient Agri-Value Chains
Investment in rural
infrastructure is a pre-condition to enable the acceleration of agricultural
growth, creation of new economic opportunities, and generation of employment. The
Union Budget 2021-22 had made available the Agriculture Infrastructure Fund (AIF)
to APMCs for augmenting their infrastructure facilities. Also, 1,000 more
APMC mandis were to be integrated with
e-NAM. There are about 1.7 crore farmers registered in the existing 1,000
e-NAMs, which have displayed transparency and competitiveness into the
agricultural market. The AIF, with a corpus of INR 1 lakh crore was created by
GoI under Atma Nirbhar Bharat Abhiyan,
for the development of farm-gates and aggregation points, and post-harvest
management infrastructure. The scheme involves credit support by banks and
financial institutions to primary agricultural credit societies (PACS),
marketing cooperative societies, farmer producer organisations (FPOs), self-help groups (SHGs), farmers, joint
liability groups (JLG), multipurpose cooperative societies, agri-entrepreneurs,
startups and central/state agency or local body sponsored public-private
partnership projects. Interest subvention and credit guarantee for loans up to INR
2 crore is also available to eligible borrowers.
Further,
setting up of mega food parks, integrated cold chains, food processing units,
agro-processing clusters, and implementation of Operations Greens Scheme, under
GoI’s comprehensive package of PM Kisan SAMPADA Yojana (PMKSY) , will not only
provide a big boost to the growth of food processing sector in the country but
also ensure higher income to farmers, while creating huge employment
opportunities especially in the rural areas, reducing wastage of agricultural
produce, and enhancing the export of processed foods. The Production Linked
Incentive (PLI) Scheme for the food processing sector is a step in the right
direction.
India
is the largest producer of milk in the world, having increased from 146.3
million tonnes in 2014-15 to 198.4 million tonnes in 2019-20 (GoI, 2021). Dairying is an important secondary source of income
for millions of rural households engaged in agriculture. The success of the
dairy industry has resulted from the integrated co-operative system of milk
collection, transportation, processing and distribution, conversion of the same
to milk powder and products, to minimize seasonal impact on suppliers and
buyers, retail distribution of milk and milk products, sharing of profits with
the farmer, which are ploughed back to enhance productivity and needs to be
emulated by other farm produce/producers. A focus on dairy value chain could
significantly improve the income of smallholder farmers. Therefore, in order to
double income of farmers, it is important to focus on dairy value chain through
FPOs/ FPCs and cooperatives. India is also the second largest producer of fish,
fruits and vegetables in the world. Promotion of value chains for horticulture,
poultry and fisheries, involving FPOs/ FPCs, could significantly give a fillip
to the income of small and marginal farmers.
Agriculture Export
Reforms
India
ranks among the top ten exporters of agricultural products in the world. According to WTO’s World Trade Statistical
Review 2021, the country’s share in global agricultural exports increased from 1.1
percent in the year 2000 to 2.2 percent in 2020, valued at $39 billion, In
order to catch-up with Brazil ($89 billion) and China ($82 billion), India
needs to bring about structural reforms in the agriculture sector, including a
stable trade policy regime (Roy, 2021).
The
Agriculture Export Policy (AEP), 2018 of GoI, aims at achieving an export target
of $60 billion by 2022 and $100 billion within a few years, thereafter. This is
indeed a humongous task, and achieving the target would involve a paradigm
shift from a “business-as-usual” approach to a well-calibrated, comprehensive,
strategic and result-oriented agri-export
policy and action plan.
The
agri-export strategy should include integration of value-added agri-produce
with global value chains (GVC), by adopting the best agricultural practices
involving productivity gains and cost competitiveness. Also, in order to boost
exports of dairy products and make the dairy sector globally competitive, GoI
needs to consider the development of Dairy Export Zones (DEZs) in collaboration
with state governments (Roy, 2021). The AEP has recommended the establishment
of Agriculture Export Zones (AEZs), to facilitate value addition of
agri-commodities for increasing exports in a WTO compatible manner. In order to
ensure higher income to farmers, FPOs need to be linked to AEZs to supply
SPS-compliant agri-products.
Conclusion
The full benefit from linking
agricultural markets in India and putting them on electronic platform will be
available to farmers when a single trading license is valid across the country
and when a farmer gets the option to sell her/his produce in any market
throughout the country.
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. Further, 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. Effective implementation of comprehensive agricultural reforms, with a high priority accorded to agri-marketing reforms, could lead to sustainability of Indian agriculture, and facilitate the achievement of doubling farmers’ income by 2024-25, while mitigating agrarian distress.
References
Chand, Ramesh. (2016). “e-Platform for National
Agricultural Market”, Economic & Political Weekly, July 9, 2016 vol
lI no 28
Government of India, (2017). Report of the
Committee on Doubling Farmers’ Income, Volume IV, Ministry of Agriculture
and farmers’ Welfare, New Delhi.
[1] Second
Advance Estimates of National Income 2021-22, National Statistical Office, Ministry of Statistics and Programme
Implementation, Government of India
[2]
Source: Food Corporation of India
[3] https://www.bloombergquint.com/opinion/the-ban-on-agri-commodities-futures-is-weak-in-law-and-economics (accessed on 28 February 2022).
