Transport and Marketing of Agricultural Produce and Issues and Related Constraints
- October 25, 2020
- Posted by: OptimizeIAS Team
- Category: MMN
Mains GS III
Topic: Transport and Marketing of Agricultural Produce
Overview: The topic in syllabus pertains to movement of produce from farm to fork. In this unit, we will discuss about –
- What agriculture marketing is?
- Transforming agriculture marketing – From “Selling to Marketing”
- Agriculture Logistics, Supply chains and Value chains
- Recent developments in Agriculture Logistics
- Agriculture Marketing Reforms and recent developments – Policy & Scheme Measures
- Forward linkages
- Federalism and Farm Laws
I. Introduction – “Agriculture selling vs Agriculture Marketing”
IV. Issues / Problems in Agriculture Marketing
V. Reforms in agriculture marketing – Policy measures + Scheme Measures+ Institutional
VI. Farm Laws and Federalism
VII. Way Forward
- Philip Kotler defines marketing as “the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit.
- Marketing = (Exploring+Creating + Delivering value + Satisfaction) Profit
- Whereas when we think of agriculture marketing, only one thing comes to our mind, which is farmer producing his produce, off-loading it to marketing yards, and that produce purchased by us to satisfy our appetite.
- That is what agriculture marketing means to us and we treat the overall agri-marketing system like that which does not satisfy the standard meaning of marketing process as defined by marketing legends like Kotler.
- So, there is an urgent need to transform the agriculture marketing of our economy from just producing and selling the agri produce to market and business the agri produce, which will not only generate profit for farmer but also will satisfy the need of consumers throughout the globe as with advent of WTO agriculture marketing has mushroomed not only in local market but throughout the world.
- If our thought process towards agriculture marketing will be narrow and restricted, we cannot think off doubling farmer’s income.
- After Independence, until Green Revolution of 1960’s the produce from our farmer’s field was below subsistence and to fulfil appetite of our population we were dependent on programmes like PL480 (USA’s food assistance program).
- Since then, successive governments have emphasised raising agriculture production to make India self-reliant in feeding its growing population.
- However, agricultural marketing hasn’t received the corresponding attention, despite having a direct relationship to increased crop production.
- Still today, we see the overall process of agricultural marketing as Selling and not as marketing. There is a need to re-engineer the overall agriculture marketing platform for sustained profits with consumer satisfaction.
Agricultural marketing system is defined in broadest terms as, physical and institutional set up to perform all activities involved in the flow of products and services from the point of initial agricultural production until they are in the hands of ultimate consumers.
Issues in Agriculture Marketing
- Skewed Risk Distribution: Globally, enhanced food production has changed the market dynamics leading to pressure on prices of our produce. Input costs are constantly on the rise, severely impacting farmers’ incomes, debt repayment capacity and their livelihood. What makes matters worse is that all the risks in the farm-to-market cycle are borne by the farmer — these include, among others, production, storage, and transport risks, outbreak of pests, and price uncertainty. Urgent steps need to be taken to minimize the risk for farmers and distribute the risk equitably across the agro-value chain.
- Quality of Produce: After Green Revolution and with various Lab to Land Programmes we have amplified the quantity of produce but the rising income and standard of life, sanitary and phytosanitary standards, mushrooming of processing industries there is a call for enhancing the quality of produce not only quantity of produce which has restricted the potential of agriculture marketing both at national and international market.
- Transaction and Marketing Costs: Price spread (is defined as the difference between the price paid by consumers and the net price received by the producer for an equivalent quantity of farm produce) is much higher due to traditional marketing system like APMC, though digital marketing government has been launched to minimize the price spread but in country like India it is a distant dream, as when the overall agriculture market in India would be integrated into one nation one market.
- Price discovery: at right time and right place is not streamlined in our country, may be a consumer is paying 80/- per kg of tomato but farmer may be selling to intermediaries at 20/- per kg. So due to in efficient price discovery mechanism agriculture marketing is not efficient as it should be.
- Poor Agriculture Logistics: Storage and transportation of bulky and perishable agriculture produce is an issue. Agriculture marketing cannot be developed until and unless agriculture logistics is developed.
- Poor Infrastructure of Agriculture Market: Though APMC markets are decades old and every transaction is levied with tax and cess to develop the market infrastructure but still the overall infrastructure is outdated without any sound system.
- Consumer Satisfaction: is top most priority in any marketing system, with lack of grading, sorting, standardization, hygiene farmers produce fetch less price in international market during export.
Reforms in agriculture Marketing
A. POLICY MEASURES
- Digitalization of Agriculture Marketing
- Contract Farming
- Freedom to sale and Purchase
- Essential Commodities and stock limits
- Minimum Support Price
1. Digital Agriculture Markets – To minimize the instance of price spread, a better price discovery mechanism & eliminate role of intermediaries digital platform e-NAM was launched in year 2016, which is an online trading platform for agricultural commodities in India. Not only e-NAM but also other initiatives like ITC e-Choupal has helped in linking farmers via the internet for procurement of agricultural products.
Why Concept of e-NAM Arrived ?
Fragmented, unorganized, procedurally ill, technologically archaic and fragile (in terms of infrastructure) India’s agricultural market system remains. The average area served by an APMC market is 496 sq. km., much higher than the 80 sq. km. recommended by the National Commission on Farmers.
- It would facilitate both intra and interstate agriculture trade.
- It is going to help in better price discovery for farmers
- The highlight of the scheme is the single point levy of market fees, i.e. on the first wholesale purchase from the farmer.
- It will further help in fulfilling dream of one nation one agriculture
- To make it more convenient for farmers to sell their produce at warehouses and collection centres set up by farmer producer organisations (FPOs).
- Decongesting mandis and maintaining supply chains of fruits and vegetables
Then the question is Why it didn’t gave desired result as expected?
Why e-NAM Failed ?
Just making a portal and asking marketing boards to join the same does not solve the challenges of market fragmentation, multi-level taxation and license issues in APMCs. The fact is that we have just made the design of rocket on software but still don’t have the fuel ready. Going online from offline is not as easy as it seems. We have already seen the chaos created by the implementation of GST.
- Slow Integration: The reason behind this slow integration is the fact that there is huge resistance for online trading both from the government and other stakeholders involved in the process, including intermediaries with powerful backgrounds. Talking about state governments, since market fee is a huge source of revenue for them, most of the states have been reluctant in introducing eNAM in their respective states from the beginning.
- Intermediaries as Villain: The fundamental flaw with online trading lies in the fact that intermediaries have been understood as villains, and the new system aims to completely eliminate intermediaries from farm-to-fork chain. Undoubtedly, existence of intermediaries has been one of the factors behind farmers’ low income, but it is unrealistic for the government to ignore the role they play in the entire chain from availing credits to farmers till marketing of their produce. Some even consider them as “Necessary Evils”. Their role in collecting farm produce, saving logistics cost, making prompt payments to farmers, sorting, packing and branding of produce can’t be ignored.
- Cost of Running centers: Can such technological environment of e-NAM work without proper fund, will they have to be on mercy of government fund everytime as fees and cess are almost negligible here. It is unrealistic to think that technologically-driven environment will run without collecting appropriate user fees/cess/taxes at various ends of the supply chain. Considering the low digital illiteracy in rural areas, it will require computer centres with high speed connectivity to be set up, which are easily accessible to farmers. Who will bear the cost of running such centres?
- E-NAM is not like Amazon/Flipkart delivering small sample and taking away if consumer not satisfied: Here the quantum of transaction is in bulk, the online auction and if any such discrepancy occurs is not so smooth as we have seen with above online giants. Moreover, e-auctioning that this electronic portal is about, is tough, indeed. It is not going to be easy for the buyers or traders to assess the quality of food grains sold by producers on the portal itself. We need to understand there is a difference between huge amounts of food grain transported and a small Amazon parcel that we can return if we find that the quality is not good enough.
2. Contract Farming – is defined as a system for the production and supply of agricultural/horticultural produce under forward contracts between producers/suppliers and buyers. The essence of such an arrangement is the commitment of the producer/ seller to provide an agricultural commodity of a certain type, at a time and a price, and in the quantity required by a known and committed buyer
Recent Development: The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 facilitates creating a national framework for contract farming through an agreement between a farmer and a buyer before the production or rearing of any farm produce.[FAPFS Act (‘Contract Farming Act’)]
What was the need of New act as Model Contract Farming Act 2018 was already there?
- The main aim of Contract farming is free trade off between farmer and buyer without any limit or restrictions but since due to APMC act restrictions were there for direct sale and purchase, the contract farming never evolved in its true spirit. A win-win situation for both players will only be there if the whole system is without any restrictions and new Farm acts have done the same.
- Model acts are not legally binding for states, the law passed by parliament now will be legally binding for the states to adopt Contract farming in true spirit not only in paper. According to Volume IV of the Dalwai Committee report, only 14 states have issued rules to govern contract farming. Despite this, it hasn’t taken off properly and only 15 companies have entered into contract farming for crops in Punjab, Haryana, MP, Gujarat, Maharashtra, Karnataka and Chhattisgarh.
What was the Need for New act as Indian Contract Act 1872 was already there?
- The contract act of 1872 was framed a way back with a perception that both the parties entering into contract has level field and any one party do not have upper hand. But the Contract farming in India will not be regulated well through this as farmer in India have weak bargaining power, so they may be exploited later on by big corporates as one such issue was recently in news, Pepsi had sued farmers for cultivating a potato variety grown exclusively for its popular Lay’s potato chips. So new act takes into consideration of this very aspect so that farmers are not exploited in longer terms.
- Farming agreement: The Act provides for a farming agreement between a farmer and a buyer prior to the production or rearing of any farm produce. The minimum period of an agreement will be one crop season, or one production cycle of livestock. The maximum period is five years, unless the production cycle is more than five years.
- Pricing of farming produce: The price of farming produce should be mentioned in the agreement. For prices subjected to variation, a guaranteed price for the produce and a clear reference for any additional amount above the guaranteed price must be specified in the agreement. Further, the process of price determination must be mentioned in the agreement.
- Dispute Settlement: A farming agreement must provide for a conciliation board as well as a conciliation process for settlement of disputes.
- The Board should have a fair and balanced representation of parties to the agreement.
- At first, all disputes must be referred to the board for resolution. If the dispute remains unresolved by the Board after thirty days, parties may approach the Sub-divisional Magistrate for resolution.
- Parties will have a right to appeal to an Appellate Authority (presided by collector or additional collector) against decisions of the Magistrate.
- Both the Magistrate and Appellate Authority will be required to dispose of a dispute within thirty days from the receipt of application.
- The Magistrate or the Appellate Authority may impose certain penalties on the party contravening the agreement. However, no action can be taken against the agricultural land of farmer for recovery of any dues.
Pros of contract farming
- Level playing field: The new legislation will empower farmers for engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters, on a level playing field without any fear of exploitation.
- Transfers the risk: It will transfer the risk of market unpredictability from the farmer to the sponsor and also enable the farmer to access modern technology and better inputs.
- Attracts private sector: This legislation will act as a catalyst to attract private sector investment for building supply chains for supply of Indian farm produce to national and global markets, and in agricultural infrastructure.
- Eliminates intermediaries: Farmers will engage in direct marketing thereby eliminating intermediaries resulting in full realization of price.
- Forward Prices: the legal environment for contract farming, with the assurance of a price to the farmers at the time of sowing, will help them take cropping decisions based on forward prices. Normally, our farmers look back at last year’s prices and take sowing decisions accordingly.
- Access to technology driven competitive markets – small farmers can access technology, credit, Inputs marketing channels.
- Cost Reduction – Assured market for their produce at their doorsteps, reducing marketing and transaction costs
- Risk Reduction – It reduces the risk of production, price and marketing costs.
- Diversifying markets – Contract farming can open up new markets which would otherwise be unavailable to small farmers.
- Continuity – In case of agri-processing level, it ensures consistent supply of agricultural produce with quality, at right time and lesser cost.
- Prompt Payment: For most hybrid seed production, the seed companies pay about 25% of agreed price to contract farmers on delivery of seed. Balance 75% amount is paid after conducting a genetic purity test, which is required for labelling of seed packets. This test can take about 70-80 days and farmers are paid the balance 75% of price only after this test confirms the purity of seed. The Ordinance provides for payment of 66% of seed price to farmers on delivery and 34% on certification. But the entire price has to be paid within 30 days. It has to be seen how the seed industry will adapt to this change of payment terms.
Cons and issues in contract farming
- Monopsony: Typically, contract firms enter into an agreement with farmers to grow differentiated crops. This turns the firm into a sole buyer and farmers into price-takers. Contracting firms can exploit this situation to their advantage by offering lower prices to farmers.
- Information asymmetry: Contracting firms do not have complete information on productivity and land quality. This can lead to a situation where farmers produce below-quality crops. On the other hand, farmers sometimes do not understand contract specifications like the quantity and quality to be produced, or the effect of price change. These market failures lead to suboptimal outcomes. Buyers may penalize farmers. Similarly, farmers may indulge in side-selling or leak the technology provided by the contracting firm.
- Foster more competition: The government needs to create market-based incentives for both farmers and buyers. It should improve farmers’ connectivity to spot markets and mandis across the country. E-NAM (National Agricultural Market) is a great initiative in that direction. This would encourage contracting sponsors to raise their bids and compete to enrol farmers to secure input supplies. The competition amongst sponsors would also incentivise them to offer better terms and services to farmers.
- Provide public goods: The government should maintain an information repository of farmers and contracting firms. The repository can provide details about farmers or farmer producer organizations with regard to land availability, default rate, and performance standards. Similarly, details of sponsors can include services provided, requirements of crops, and the default rate. This will help farmers and sponsors to evaluate each other prior to engaging in contracts. Also, the government can facilitate the establishment and enforcement of standards for crops. This will set clearer expectations regarding the contracted crop.
- Encourage softer means for enforcement: Incorporating risk-sharing mechanisms in contracts, incentive schemes, repeated contracting and renegotiation options, and simplified and transparent contract terms would help in contract enforcement. The government can educate farmers and make them more aware about contract farming and model contracts.
- Loss of flexibility – to sell to alternative buyers when prices increase
- Risk of indebtedness from loans provided by the buyer
- Environmental risks due to mono cropping, intensive cultivation. Short‐term corporate profits are made at the expense of long‐term productivity declines for farmers. Long term production of same crop disturbs the ecological balance. Say sugarcane cultivation in Uttar Pradesh has depleted the soil nutrients and ground water level of that area.
- Unequal bargaining power between farmers and corporates – “85% of farmers fall in the small and marginal farmers category. Currently they don’t have clarity on the contract farming clause, also, the legal challenges are too many.
Fear of Farmers
- Corporatization of agriculture: Farmers want that in future, the corporates should not dominate with the terms and conditions of the contract. Contract farming should not change the scenario into corporatization of Agriculture. The Big players should not utilize the loopholes in Act to exploit farmers for skimming profit.
- Risk Sharing: Since agriculture produce is based on climatic and natural factors, the agri produce will not be of same standard every time like any manufacturing factory, so the act should be modelled so that due to any calamities like flood, drought, pest attack the risk sharing should be done so that farmers are not at loss
- Intellectual Property Rights: Safeguard in the Act for farmers against the possibility of facing legal cases due to alleged violation of intellectual property rights. (Pepsico suing Punjab Farmers)
- Dispute Resolution: Dispute resolution mechanism should be at local level and they should get legal assistance from government as Indian farmers being poor and illiterate cannot afford such services and their knowledge is also limited
Successful Examples of Contract Farming
- The Classic Case of Pepsi Foods Ltd.
- Appachi’s Integrated Cotton Cultivation
- Seed production is mainly through contract farming between seed companies and producer farmers. The seed companies provide foundation seeds to farmers who, in turn, deliver certified seed to companies. The National Seed Corporation has a well-defined protocol for contract farming for seed production. Mostly, the farmers receive a price higher than the MSP and even the prevailing APMC prices. Generally, the farmers do not default on the delivery of seeds.
- The most successful example of contract farming in India comes from the sugarcane and poultry sectors.An evaluation of contract farming of broilers by P.V.K. Sasidhar and Murari Suvedi found that contract farming had low marketing risk and that the farmers were promptly paid. The working capital requirement of farmers was also low and extension services were provided by the aggregator. However, the average net return per bird was Rs 11.06 for contract farmers while it was Rs 17.05 per bird for those farmers who did not participate in contract farming. So, the poultry producers under contract farming were losing Rs 5.99 per bird. This is the cost for avoiding the risk of disease, fluctuation of market prices and expert guidance from veterinarians.On the whole, poultry farming is a successful example of small farmers benefiting from aggregators providing extension services, including feed and medicines and taking marketing risk. About 66% of poultry production is under contract farming. Poultry sector is uniquely placed as the prices of eggs are decided by the National Egg Coordination Committee, which takes demand and supply into account. So, unlike the farmers of most crops who face enormous fluctuation in prices, the poultry farmers are shielded from the same.
Models of Contract Farming as per FAO
The centralized model
- Involves a centralized processor and/or packer buying from a large number of small farmers
- Is used for tree crops, annual crops, poultry, dairy. Products often require a high degree of processing, such as tea or vegetables for canning or freezing
The nucleus estate model
- Is a variation of the centralized model where the sponsor also manages a central estate or plantation
- The central estate is usually used to guarantee throughput for the processing plant but is sometimes used only for research or breeding purposes
The multipartite model
- May involve a variety of organizations, frequently including statutory bodies
- Can develop from the centralized or nucleus estate models, e.g. through the organization of farmers into cooperatives or the involvement of a financial institution
The informal model
- Is characterized by individual entrepreneurs or small companies
- Involves informal production contracts, usually on a seasonal basis
The intermediary model
- Involves sponsor in subcontracting linkages with farmers to intermediaries
- There is a danger that the sponsor loses control of production and quality as well as prices received by farmers
3. Reform in APMC Monopoly
What is an APMC ?
- An Agricultural Produce Market Committee (APMC) is a marketing board established by a state government in India to ensure farmers are safeguarded from exploitation by large retailers, as well as ensuring the farm to retail price spread does not reach excessively high levels.
- Until 2020, the first sale of agriculture produce could occur only at the market yards (mandis) of APMC.
- However after the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 came into force it allows farmers to sell outside APMC mandis in India.
Evolution and Downfall of APMC’s – Advent of FPTC Act
- From the 1960s, there have been concerted efforts to bring all wholesale markets for agricultural produce in various states under the Agriculture Produce Market Regulation (APMC) acts. All states, except Kerala, Jammu and Kashmir and Manipur, enacted such laws.
- In the initial years, APMC acts helped remove malpractices and freed the farmers from the exploitative power of middlemen and mercantile capital. The golden period for APMC markets lasted till around 1991.
- With time, there was a palpable loss in growth in market facilities and by 2006, it had declined to less than one-fourth of the growth in crop output after which there was no further growth. This increased the woes of Indian farmers as market facilities did not keep pace with the increase in output and regulation did not allow farmers to sell outside APMC markets.
- With time, there was a palpable loss in growth in market facilities and by 2006, it had declined to less than one-fourth of the growth in crop output after which there was no further growth. This increased the woes of Indian farmers as market facilities did not keep pace with the increase in output and regulation did not allow farmers to sell outside APMC markets.
- The farmers were left with no choice but to seek the help of middlemen. Due to poor market infrastructure, more produce is sold outside markets than in APMC mandis. The net result was a system of interlocked transactions that robs farmers of their choice to decide to whom and where to sell, subjecting them to exploitation by middlemen.
- Over time, APMC markets have been turned from infrastructure services to a source of revenue generation. In several states, commission charges were increased without any improvement in the services. And to avoid any protests from farmers against these high charges, most of these were required to be paid by buyers like the FCI.
- In Haryana and Punjab, mandi fees and rural development charges for wheat and non-basmati rice purchased by FCI are four to six times the charges for basmati rice purchased by private players. This not only results in a heavy burden on the Centre but also increases the logistics cost for domestic produce and reduces trade competitiveness.
- “These drawbacks were recognised by experts and stakeholders and pressure started mounting for changes in market regulations. Successive governments at the Centre made repeated attempts to persuade the states to make appropriate changes in their APMC acts. But for 18 long years, the progress in reforms remained slow. The only choice for the Union government was either to ignore its responsibility towards farmers or use the constitutional route to address long-pending issues of market reforms,”
- The FPTC Act gives farmers the freedom to sell and buy farm produce at any place in the country — in APMC markets or outside the mandated area — to any trader, like sale of milk. The Act also allows transactions on electronic platforms to promote e-commerce in agriculture trade.
APMCs operate on two principles:
- Ensure that farmers are not exploited by intermediaries (or money lenders) who compel farmers to sell their produce at the farm gate for an extremely low price.
- All food produce should first be brought to a market yard and then sold through auction.
Some of the salient features of the APMC Model Act 2003 are as follows
1) Facilitates contract farming model.
2) Special market for perishables.
3) Farmers, private persons can set up own market.
4) Licensing norms relaxed.
5) Single market fee.
6) APMC revenue to be used for improving market infrastructure.
The model Agriculture Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017
was presented in April 2017 and seeks to replace APMC act 2003.It is seen as a major agriculture marketing reform to help farmers directly connect with the different buyers and enable them to discover optimum price for their commodities.
Recent Development: The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 [FPTC Act]
What was need for such new Act?
- Agricultural markets in India are mainly regulated by state Agriculture Produce Marketing Committee (APMC) laws. APMCs were set up with the objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce.
- APMCs can: (i) regulate the trade of farmers’ produce by providing licenses to buyers, commission agents, and private markets, (ii) levy market fees or any other charges on such trade, and (iii) provide necessary infrastructure within their markets to facilitate the trade.
- The Standing Committee on Agriculture (2018-19) observed that the APMC laws are not implemented in their true sense and need to be reformed urgently.
- Issues identified by the Committee include: (i) most APMCs have a limited number of traders operating, which leads to cartelization and reduces competition, and (ii) undue deductions in the form of commission charges and market fees.
- Traders, commission agents, and other functionaries organise themselves into associations, which do not allow easy entry of new persons into market yards, stifling competition.
- The Acts are highly restrictive in promotion of multiple channels of marketing (such as more buyers, private markets, direct sale to businesses and retail consumers, and online transactions) and competition in the system.
- During 2017-18, the central government released the model APMC and contract farming Acts to allow restriction-free trade of farmers’ produce, promote competition through multiple marketing channels, and promote farming under pre-agreed contracts.
- The Standing Committee (2018-19) noted that states have not implemented several of the reforms suggested in the model Acts.
- It recommended that the central government constitute a Committee of Agriculture Ministers of all states to arrive at a consensus and design a legal framework for agricultural marketing.
- A High Powered Committee of seven Chief Ministers was set up in July 2019 to discuss, among other things: (i) adoption and time-bound implementation of model Acts by states, and (ii) changes to the Essential Commodities Act, 1955 (which provides for control of production, supply, and trade of essential commodities) for attracting private investment in agricultural marketing and infrastructure
- The average area served by an APMC market is 496 sq. km., much higher than the 80 sq. km. recommended by the National Commission on Farmers (Chair: Dr. M. S. Swaminathan) in 2006
- The Standing Committee (2018-19) noted that Gramin Haats (small rural markets) can emerge as a viable alternative for agricultural marketing if they are provided with adequate infrastructure facilities. It recommended that the Gramin Agricultural Markets scheme (which aims to improve infrastructure and civic facilities in 22,000 Gramin Haats across the country) should be made a fully funded central scheme and scaled to ensure presence of a Haat in each panchayat of the country.
- The Committee of State Ministers, constituted in 2010 for agricultural marketing reforms, observed that complete deregulation of markets did not help in attracting any private investment. It noted that there is a need for an appropriate legal and institutional structure with a developmental type of regulation to ensure orderly functioning of markets and to attract investment for infrastructure development. The Standing Committee on Agriculture (2018-19) recommended that the central government should create marketing infrastructure in states which do not have APMC markets (i.e. Bihar, Kerala, Manipur, and certain union territories).
- This is a brief history which shows the need for introduction of three new farm Bills
- Trade of farmers’ produce: The Ordinance allows intra-state and inter-state trade of farmers’ produce outside: (i) the physical premises of market yards run by market committees formed under the state APMC Acts and (ii) other markets notified under the state APMC Acts. Such trade can be conducted in an ‘outside trade area’, i.e., any place of production, collection, and aggregation of farmers’ produce including: (i) farm gates, (ii) factory premises, (iii) warehouses, (iv) silos, and (v) cold storages.
- Electronic trading: The Ordinance permits the electronic trading of scheduled farmers’ produce (agricultural produce regulated under any state APMC Act) in the specified trade area. An electronic trading and transaction platform may be set up to facilitate the direct and online buying and selling of such produce through electronic devices and internet. The following entities may establish and operate such platforms: (i) companies, partnership firms, or registered societies, having permanent account number under the Income Tax Act, 1961 or any other document notified by the central government, and (ii) a farmer producer organisation or agricultural cooperative society.
- Market fee and cess abolished: The Ordinance prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for trade of farmers’ produce conducted in an ‘outside trade area’.
- Freedom to the Farmers: The Act provides the farmers the freedom of choice related to sale and purchase of produce.
- Promotes trade: It promotes barrier-free inter-state and intra-state trade and commerce outside the physical premises of markets notified under State
- Better price: It will open more choices for the farmer, reduce marketing costs for the farmers and help them in getting better prices
- One nation, one market: The Act will help create One India, One Agriculture Market and will lay the foundation for ensuring golden harvests for our hard working farmers.
- Balance between surplus and deficit areas: Say Tomato supply from Banglore to Patna or vice versa as per need
Case Study: BIHAR MODEL – Complete Repeal of APMC, What Happened there?
4. Reforms in Essential Commodity Act
- India has become surplus in most agri-commodities but farmers have been unable to get better prices due to lack of investment in cold storage, processing and export.
- The imposition of the curbs on stocking of farm produce and regulation of the prices of commodities, etc. under Essential Commodities Act (ECA) are some of factors responsible for less entrepreneurial spirit and thus less investment in the farm sector.
- Regulation of food items: The Essential Commodities Act, 1955 empowers the central government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities. The central government may regulate or prohibit the production, supply, distribution, trade, and commerce of such essential commodities. The Act provides that the central government may regulate the supply of certain food items including cereals, pulses, potatoes, onions, edible oilseeds, and oils, only under extraordinary circumstances. These include: (i) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave nature.
- Stock limit: The Ordinance requires that imposition of any stock limit on agricultural produce must be based on price rise. A stock limit may be imposed only if there is: (i) a 100% increase in retail price of horticultural produce; and (ii) a 50% increase in the retail price of non-perishable agricultural food items. The increase will be calculated over the price prevailing immediately preceding twelve months, or the average retail price of the last five years, whichever is lower.
Benefits of Amendments
- Ease of Doing Business: The amendment would deregulate the commodities such as cereals, edible oils, oilseeds, pulses, onions and potatoes. It will help to lessen the fears of private investors of excessive regulatory interference in their business operations.
- Any limits under ECA over these commodities will be imposed only in exceptional circumstances such as war, famine, extraordinary price rise and natural calamity.
- Economics of Scale: The freedom to produce, hold, move, distribute and supply will lead to harnessing economies of scale and attract private sector/foreign direct investment into the agriculture sector.
- Increase in investment: It will help drive up investment in cold storages and modernization of the food supply chain.
- Price Stablity: The amendment is expected to help both farmers and consumers while bringing in price stability.
- Minimising storage loss: It will also create a competitive market environment and also prevent wastage of agri-produce that happens due to lack of storage facilities.
- Encourage Entrepreneurship: With more certainty and less bureaucracy and license raj the more entrepreneurs will come in agri supply chain system.
- Encourage Export: As government interference will be minimum, private players will be interested in export of agri products as now they are in fear that when government order will be out which would delist that particular commodity for export. For example – Between 2014 and 2019 (five years), the government changed the rules on onion export17 times, more than three times a year on average. Farmers who export have no stable legal regime. This is inimical to India’s image as a stable and reliable exporter of
5. Minimum Support Price – The minimum support price is an agricultural product price set by the Government of India to purchase directly from the farmer. This rate is to safeguard the farmer to a minimum profit for the harvest, if the open market has lesser price than the cost incurred. [Discussed in Detail earlier – MSP Master Notes]
B. Scheme Measures
- Farmers Producer Organisation
- Agricultural Marketing Infrastructure (AMI)
- Krishi Udan and Krishi Rail
- Kisan Rath
- Agriculture Infrastructure Fund
- Agriculture Export Policy
- Agriculture Marketing and Farmer Friendly Reform Index (AMFFRI)
- PMGSY – Village connectivity for agri transport
- Innovative agri-marketing Models
6. Farmer Producer Organisation (FPO)
- The Farmer Produce Organisations (FPO) Scheme was initiated by the Small Farmers’ Agri-Business Consortium under the Ministry of Agriculture and Farmers Welfare.
- The FPOs help in grouping of small, marginal and landless farmers, and provide access to technology, quality seed, fertilizers and pesticides.
- Recently, Prime Minister Narendra Modi launched 10,000 Farmers Producer Organisations (FPOs) all over the country from Chitrakoot, Uttar Pradesh.
7. Agriculture Marketing Infrastructure Fund
- The Agri-Market Infrastructure Fund was announced in 2018 Budget for developing and upgrading agricultural marketing infrastructure in the 22,000 Gramin Agricultural Markets (GrAMs) and 585 Agricultural Produce Market Committee (APMC).
- At present, GrAMs are being developed from MGNREGA fund.
- The scheme being demand-driven, progress will depend on demand from states
- The fund will provide subsidised loans to states and Union Territories for 585 APMC mandis and 10,000 GrAMs.
- States can also utilise this fund for innovative integrated market infrastructure projects, including hub and spoke model and in private-public partnership mode.
- The Government has approved a new umbrella scheme “Pradhan Mantri Annadata Aay Sanrakshan Abhiyan” (PM-AASHA) which will provide Minimum Support Price (MSP) assurance to farmers.
- The Scheme is aimed at ensuring remunerative prices to the farmers for their produce as announced in the Union Budget for 2018.
- The increase in MSP can improve farmer’s income by strengthening procurement mechanism in coordination with the State Governments.
- Components of PM-ASHA –
- Price Support Scheme (PSS) Under the PSS, Central nodal agencies will procure pulses, oilseeds and copra with proactive role of state governments.
- Price Deficiency Payment Scheme (PDPS) – Under the PDPS, the state will provide the difference between the prices prevailing in mandis and the MSP.
- Pilot of Private Procurement & Stockist Scheme (PPPS) – In lieu of PSS and PDPS, in certain pilot districts the PPPS will be tried out.
9. Krishi Udan and Krishi Rail
- The Kisan Rail and Krishi Udan initiatives, announced in the Union Budget presented by Nirmala in Parliament, are part of government plans to build a national cold supply chain for perishables, including milk, meat and fish.
- Kisan Rails are the first ever multi commodity trains.
- Earlier, Indian Railways had run single commodity special trains like Banana Specials etc.
- These trains with refrigerated coaches will help in bringing perishable agricultural products like vegetables, fruits to the market in a short period of time.
- These will ensure that agro products reach from one corner to another corner of the country.
- Any farmer or any other interested party can directly book their consignments in trains, without any lower limit on the size of consignment.
- The consignment can be as small as 50-100 kgs, and can be booked from any stopping station to any other stopping station – giving full flexibility.
- The Indian Railways has introduced the first “Kisan Rail” from Devlali (Maharashtra) to Danapur (Bihar).
10. Kisan Rath
- The Kisan Rath app is a mobile app for farmers to help transport their produce in times of the lockdown. The app launched by the Union Ministry of Agriculture and Farmers Welfare is available in 8 languages. It will aid in both primary and secondary transportation. It will enable the transportation of produce like food grain (cereal, coarse cereal, pulses etc.), fruits, vegetables, oil seeds, spices, fibre crops, flowers, bamboo, log and minor forest produce, coconuts etc. Perishable goods can be transported using refrigerated vehicles.
- Primary transportation refers to conveyance of produce from farms to mandis, warehouses, farmer producer organisations, etc. Secondary transportation refers to movement of produce from mandis to railway stations, warehouses, processing units, wholesalers, intra-state mandis, inter-state mandis, etc.
11. Agriculture Infrastructure Fund
- Recently, the Union Cabinet has given approval to a pan India central sector scheme i.e. Agriculture Infrastructure Fund, to inject formal credit into farm and farm-processing based activities.
- Aim: To provide medium – long term debt financing facility for investment in viable projects for post-harvest management Infrastructure and community farming assets.
- The funds will be provided for setting up of cold stores and chains, warehousing, silos, assaying, grading and packaging units, e-marketing points linked to e-trading platforms and ripening chambers, besides PPP projects for crop aggregation sponsored by central/state/local bodies.
- Duration: Financial Year 2020 to 2029.
- Financial Support: Rs. 1 Lakh Crore will be provided by banks and financial institutions as loans to Primary Agricultural Credit Societies (PACS), Marketing Cooperative Societies, Farmer Producers Organizations (FPOs), Self Help Group (SHG), Farmers, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Agri-entrepreneurs and Central/State agencies or Local Bodies sponsored by Public Private Partnership Projects.
12. Agriculture Export Policy – 2018
- To double agricultural exports from the present $30 billion to $60 billion by 2022 and reach $100 billion in the next few years thereafter, with a stable trade policy regime.
13. Agriculture Marketing and Farmer Friendly Reform Index (AMFFRI)
- NITI Aayog launched “Agricultural Marketing and Farmer Friendly Reforms Index (AMFFRI). The index ranks states based on the degree of reforms they have undertaken in agricultural marketing.
- Maharashtra achieved the first rank, Second Gujarat
- AMFFRI has a score that can have minimum value “0” implying no reforms.
- It has maximum value “100” implying complete reforms in the selected areas.
- Launched on: 25th December, 2000.
- This scheme plays an important role by connecting villages with all weather roads which helps in seamless transport of agriculture commodities.
- Objective: To provide connectivity, by way of an all-weather road to unconnected habitations.
- Eligibility: Unconnected habitations of designated population size (500+ in plain areas and 250+ in North-Eastern States, Himalayan States, Deserts and Tribal Areas as per 2001 census) in the core network for uplifting the socio-economic condition of the rural population.
15. Innovative Agri-marketing Models
Direct Farmer to Consumer models
- Rythu Bazar – Andhra Pradesh and Telangana
- Apni Mandi – Punjab
- Uzhavar Sandhai – Tamil Nadu
C. Institutional Measures
- MANAGE (Hyderabad): National Institute of Agricultural Extension Management, known as MANAGE, formerly National Centre for Management of Agricultural Extension at Hyderabad, is an autonomous extension and agribusiness management institute located in Hyderabad, Telangana, India
- NIAM (Jaipur): The National Institute of Agricultural Marketing is a national level institute set up by the Ministry of Agriculture, on 8 August 1988 at Jaipur, Rajasthan, to cater to the needs of agricultural marketing
- NAARM (Hyderabad): The National Academy of Agricultural Research Management is a national-level research center located in Hyderabad, Telangana, India
Farm Bills and Federalism [Political Bulldozing vs Consensus building]
- Days after Parliament passed the controversial agriculture bills, several state governments have begun crafting strategies to avoid its implementation. This is a predictable consequence of a process of law-making that undermines India’s federal consensus. Agriculture is a state subject. The passage of national laws, on a state subject, marks a rupture in India’s federal trajectory.
- There is no argument that India’s agriculture markets, mandis in particular, have been stuck in a low-level equilibrium and need reform. Greater accessibility, transparency and competition are necessary goals. But even the most ardent supporters of the new laws recognise that liberalising agriculture markets requires negotiating knotty implementation issues. The Constitution assigned jurisdiction over agriculture markets to states due to the very localised nature of farm production. The first sale between the farmer and the trader is linked with the production process. This is location specific and it is states who are best placed to determine the contours of production and sale including, taxation, credit, building farmer producer organisations and physical markets.
- The current laws upend this. They bypass states by drawing on the Centre’s constitutional powers to regulate inter-state and intra-state trade — note that the Act dealing with Agricultural Produce Marketing Committee (APMC) reform is titled The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020. But they leave a critical institutional vacuum about how state-specific implementation investments, crucial for running efficient markets, will be negotiated and managed, when states are bypassed. Moreover, they create an artificial distinction between “markets areas” (regulated by the mandi system under state governments) and “trade areas” (now under the central Acts), thus risking a regulatory maze.
- Beyond implementation, the choice of bypassing states in the quest to reform raises questions fundamental to the federal bargain. Our national debates on agriculture, and indeed other factor markets, have been framed by a deep disenchantment with state governments. This is not unjustified. States have routinely failed to challenge political interests. Agriculture subsidies and minimum support price (MSP) systems are intertwined with vested interests in states. Punjab, for instance, has failed to challenge this regime despite significant fiscal and environmental damage. On markets, states have done more. Karnataka experimented with electronic market integration, Madhya Pradesh with private single-licence yards, Maharashtra built infrastructure for private markets. However, the pace was uneven.
- State “failure” raises an important federal conundrum. What is the Centre’s role when state political economy is the binding constraint for reform? As the economy becomes more complex, there is a sound economic rationale for pursuing the goal of a common national market across factor markets. This requires consensus-building, a task that rests squarely with the Centre. But when states allow political concerns to override, should the Centre bypass states by bulldozing reforms?
- Our disenchantment with states has legitimised the bulldozing approach. But this undermines reforms. For instance, the artificial distinction between “markets areas” and “trade areas” in these laws, has resulted in a new battleground as states are now expanding their market territory. Punjab has declared its intent to declare the entire state a market area. Haryana stopped trade from Uttar Pradesh.
- Further bulldozing breaks trust. There is much more to agriculture reforms than mandis. Several elements of the production process including subsidy reforms and the vexed MSP question need untangling. As agricultural economist, Sudha Narayan, has noted, the Punjab farmers’ concerns with MSP are different from those of the Bihar farmers. Arriving at an appropriate pathway of subsidy, price support and procurement reforms will require extensive consultations. By riding roughshod over state-specific concerns, there is a real risk of foreclosing the possibility of future reforms on these issues, which are necessary to achieve the goal of infusing competition and giving farmers genuine choices. There is a delicious irony here. India’s reform successes, where reform efforts have broken ground, are entirely about state-led innovation. It is thus, worth asking whether an alternative process that focused on building trust and creating a deliberative platform, such as the proposed national council for agriculture markets, aimed at persuading states to hasten reforms and synchronise legislation, may have been better.
- India’s federal project has often found itself in tension with the project of economic reforms. Policy narratives have been dominated by growing impatience with consensus-building and negotiating state politics. We look for reform champions and crises to push big ideas, thus legitimising, across political parties, central government encroachment on state subjects. The new agriculture laws are symptomatic of this larger federal conundrum. However, this government’s use of its brute majority and suspension of parliamentary procedure to push these bills have taken away the only institutional check and balance against total centralisation of power — parliamentary deliberation.
- What was needed to reform agriculture was political statesmanship and consensus-building for genuine cooperative federalism. Instead, we got political bulldozing and have ended up with a poorly-drafted law, a broken reform process, and a weakened federal compact.
Federalism in Indian constitution
- Federalism essentially means both the Centre and states have the freedom to operate in their allotted spheres of power, in coordination with each other.
- Article 246 deals with the 7th Schedule of the Indian Constitution which specify the divisions of power between Union and States.
- The Seventh Schedule of the Constitution contains three lists that distribute power between the Centre and states.
- Union list contains 97 subjects in the Union List, on which Parliament has exclusive power to legislate (Article 246);
- The State List has 66 items on which states alone can legislate;
- The Concurrent List has 47 subjects on which both the Centre and states can legislate, but in case of a conflict, the law made by Parliament prevails (Article 254).
- Article 254 (2) of the Constitution essentially enables a State government to pass a law, on any subject in the Concurrent List, that may contradict a Central law, provided it gets the President’s assent.
- Article 249 gives Parliament the power to legislate concerning a subject enumerated in the State List in the national interest.
- State of West Bengal v Union of India (1962), the Supreme Court held that the Indian Constitution is not federal.
- S R Bommai v Union of India (1994), a nine-judge Bench held federalism was part of the basic structure of the Constitution.
- The respective legislative powers are traceable to Articles 245 to 254.
- The Constitution is federal in structure and independent in its exercise of legislative and executive power.
- The constitutionality of parliamentary laws
- Union of India v H.S.Dhillon (1972): Constitutionality of parliamentary laws can be challenged only on two grounds —
- that the subject is in the State List, or
- that it violates fundamental rights.
- Ram Krishna Dalmia v Justice S R Tendolkar (1958):
- The Supreme Court will begin hearings after presuming the constitutionality of these laws; therefore, there is huge burden on states and individuals who challenge these Acts
- Generally, the Supreme Court does not stay the implementation of parliamentary laws.
- Federalism, like constitutionalism and separation of powers, is not mentioned in the Constitution. But it is the very essence of our constitutional scheme.
- Any reforms in a federal set-up will yield desired results only when the Centre and states closely work together. The Centre must keep in mind the Fifteenth Finance Commission’s recommendation (in its interim report for 2020-21) to incentivise states to move to the new agri-marketing regime
- The growing politicisation of the market committees and cartelisation by traders and intermediaries that suited vested interests, apart from a business-as-usual approach taken by the government machinery, impeded the desired outcomes. Such vested interests must be operated
- There is a perceivable fear amongst farmer-organisations that these reforms will end the MSP system and promote corporate farming. There may be little truth to such apprehensions. On the contrary, the experiences from the East and Southeast Asian countries show that such reforms lead to evolution of competitive markets and benefit both producers as well as consumers. Such myth must be addressed clearly to each stake holder
- In India, there are numerous examples from poultry and dairy sectors, where private sector players and cooperatives are providing alternative markets to farmers. The private sector is expected to invest in agri-logistics, provide improved technology and offer guaranteed procurement. Such a scenario opens enormous opportunities for agricultural diversification, towards high-value commodities, processing and exports. The Agriculture Infrastructure Fund, recently created by the government, would be of much use in this direction.
- The apprehension of states losing market fees may not entirely materialise as FCI and other government agencies usually procure farmers’ marketable surpluses (paddy and wheat) in the APMC yards/mandis. The paradigm shift in agricultural marketing will trigger a demand-driven and technology-led revolution in the agricultural sector.
- The condition for success is to strengthen farmers through farmer producer organisations or cluster farming at the back-end and incentivise front-end actors (such as e-retail, organised retail and delivery companies, big buyers, processors and exporters). Agri-tech start-ups can play a meaningful role in all these activities. Failing to do that, we fear, would mean that the reforms again don’t yield the desired results. The government should also launch an aggressive campaign to counter rumours/fears of the farmers and explain benefits of these reforms through print and electronic media.
- Time-inconsistency’ problem, or in simple terms, the policy credibility problem. This situation arises when a decision maker’s preferences change over time in such a way that the preferences are inconsistent at different points in time. This is relevant in present context because the policy signals are not very clear in the last few years as relates to agricultural marketing, for example from 2016 to 2020 we have seen dynamic shift in policy from e-NAM to PM-ASHA to PM-KISAN to Trio of Farm Acts and Amendments.