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Long Overdue

The agriculture sector has been crying for reforms for decades. These Bills resurrect a 1991-moment to finally liberate Indian agriculture and promise a win-win situation for farmers, consumers, start-ups as well as corporates. If in the process, APMC and mandis become history, only the middlemen and rent-seekers will shed tears.


In the midst of raging protests, Parliament has passed three Bills aimed at long overdue reforms of the agriculture sector, especially for the marketing of agricultural produces.

The Bills which replaced ordinances promulgated earlier are: (1) Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill; (2) Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill and (3) Essential Commodities (Amendment) Bill.

Their impact on the agriculture and income of the farmers is likely to be far-reaching, if backed by proper regulatory and institutional mechanisms to ensure fairness and transparency.

These Bills will at long last dismantle the LicensePermit Raj which has kept agriculture captive to the caprices of the mandis run by the Agricultural Produce and Marketing Committees (APMC) in various states and the middlemen mafia that control them.

The APMC system was introduced to protect farmers from exploitation of intermediaries and to ensure better prices for their produce through auctions, but has been hijacked to serve exactly the opposite purpose by restricting the farmer from selling directly to food-processors, exporters or retailers as all produces are required to be routed only through mandis or markets notified under the various state APMC Acts, which over time have become restrictive, extortionate and monopolistic.

A highly controlled structure like this positively discourages the much needed private investments in cold storage, food processing and marketing infrastructure to modernise agriculture and for the development of a unified panIndian agricultural market.

The whole system is extremely opaque, and is plagued with multiple licenses, fees and levies, besides agents who act as intermediaries between the farmers and buyers and collect commissions from both.

The levies and commissions increase cost with a cascading effect and distort markets while erecting strong entry barriers.

To remove barriers, the Centre has been prodding the states to follow the model bills drafted by it during 2016-18, but save a few states, others have shown no eagerness, when the Centre promulgated the ordinances now replaced by the Bills.

Understandably the arhtiyas ~ who are commission agents, middlemen and money lenders all rolled into one ~ are outraged. The Bills will finally end their stranglehold over farmers and mandis.

They have gone on strike, throwing the grain procurement process into chaos. A study in Punjab has found that arhtiyas provide two-thirds of all loans to farmers in unbanked villages and 55 per cent of farm loans in villages even with banks, indicating their absolute control over farmers’ lives. Because of them, the Farmer Producer Organisations (FPOs) which can procure directly from farmers at remunerative prices could never strike deep roots in rural India.

Their tremendous lobbying power has forced resignation of a Union Minister and led to fierce protests in those states where the middlemen rule the roost, mainly Punjab and Haryana. In Punjab alone, there are 40,000 of them controlling 1800 mandis. In Haryana, there are 32,000 arhtiyas.

They form a vicious cartel among themselves to hoard and dictate price and enjoy formidable political clout.

Only now they are facing an existential crisis. The protests, scattered and unorganised though they are, are primarily directed against the provisions of the first Bill pertaining to ‘trade area’, ‘trader’, ‘dispute resolution’ and ‘market fee’.

This Bill will create an ecosystem to enable the farmers trade their produces outside the ‘mandis’ without any barriers in both intra ~ and inter-state trades, while reducing marketing and transportation costs to get better prices including through the electronic trading platforms.

The e-NAM portal launched by the Centre in April 2016 to facilitate establishment of a unified national agriculture market has remained dysfunctional so far with only 3 per cent of farmers registering with it, and suffers from multiple problems including non-functionality of platform and lack of enabling amendments in the state APMC Acts. The ‘trade area’ defined in Section 2 of the Bill excludes the existing APMC mandis to give farmers the freedom to trade their produce within or outside them.

In the mandis, they will continue to get the government administered Minimum Support Price (MSP), while outside the mandis, the prices will be determined by the market. Definition of a ‘trader’ is so wide that practically anyone with a PAN can operate in both the mandis and trade areas, though for trading in the mandis, a licence/registration under the concerned APMC Act would be necessary, just like the arhatiyas.

Drawing upon the Centre’s residuary power under the Concurrent List that includes ‘trade’, as distinct from ‘marketing’ of agricultural produces which falls under the State List, Section 6 of the new Bill specifically prohibits any market fee, cess or levy to be imposed by the states in a trade area, for reducing the cost of transaction.

Currently these charges add significantly to the cost and hence increase prices of traded goods in the mandis; e.g., Punjab collects total fees of 8.5 per cent on wheat, comprising market fee of 3 per cent, rural development charge of 3 per cent and arhatiya’s commission of 2.5 per cent, while Haryana levies 6.5 per cent.

On rice procurement, Punjab charges 14.5 per cent, Andhra Pradesh 13.13 per cent and Haryana 11.5 per cent. Thus trade outside mandis will be hugely attractive to corporates and farmers both, since corporates can use this difference to pay better prices to farmers to wean them away from the mandis.

Agricultural states also stand to lose some revenues on this account. Punjab will lose about Rs 1,500 crore; however, most of it again goes back to the APMC Boards only.

Thus prices will get delinked from the government-administered MSPs, and farmer groups fear that this is a prelude to the abolition of MSP and hence collapse of the APMC mechanism itself. Despite the Government’s specific assurances to the contrary – the MSP has already been raised on several crops – these fears may not be unfounded, but would ultimately work to the advantage of farmers and consumers both, even though big corporates will also derive benefits.

An open system like this will reward quality, with better crops commanding higher prices and forcing farmers to collaborate to improve quality and productivity. Pegging open market prices to the MSP as demanded by the protesters is a no-brainer; only the market can incentivise investments in technology and infrastructure so that resources including labourers locked-up today in unproductive agriculture can be released to other sectors, thereby increasing productivity of agriculture and nudging the released workforce to skill themselves for manufacturing or services.

The protesters are arguing that uneducated farmers will be disadvantaged in negotiating prices with the big firms, but competition is likely to ensure fair price, provided cartelisation is prevented.

The dispute resolution mechanism under Section 8 allows the disputes to be settled mutually through a Conciliation Board to be constituted by a subdivisional magistrate, with the district collector being the final appellate authority. Opponents fear this is not robust enough to safeguard the farmers’ interests, since it denies the farmers the liberty to approach civil courts.

But given our clogged civil justice system famed for its tardiness, such a provision would only serve the vested interests by delaying justice.

The second Bill ushers in the system of contract farming in India. Farmers can now enter into long-term contracts (upto five years) with agri-business firms for selling their future produces at a pre-agreed price, assuring them future income for planning ahead.

The burden of risk and unpredictability of seasons will thus shift to the sponsor agri-business firms, and the small and marginal farmers owning less than 5 hectares of land who constitute more than 86 per cent of the total farmers in India, will stand to gain from aggregation and direct contract with firms without intervention of middlemen.

Through the firms, farmers will be able to access modern technology and agricultural practices to reduce cost and boost incomes. The argument that a sponsor may not like to enter into a contract with multitudes of small farmers is baseless, because the multitudes are not blind to their own benefits.

This will rather push them to form big co-operatives to increase their bargaining power.

The FPOs also can help. The third Bill seeks to remove items like cereals, pulses, oilseeds, onions and potatoes from the list of essential commodities, to eliminate stockpiling of these items except in extraordinary circumstances like war.

This liberates the farm sector and allows the market to determine the price levels of all commodities to the benefit of both the farmers and the consumers. The agriculture sector has been crying for reforms for decades.

These Bills resurrect a 1991-moment to finally liberate Indian agriculture and promise a win-win situation for farmers, consumers, start-ups as well as corporates. If in the process, APMC and mandis become history, only the middlemen and rent-seekers will shed tears.

The writer is a commentator. Opinions are personal