This Article is From Dec 03, 2020

PM Modi's Farm Reforms Should Be Welcomed - Feroze Varun Gandhi

300,000 farmers have blockaded Delhi, setting up camps in five major border areas with Haryana; most of them have travelled from Punjab and Haryana on foot and in a convoy of tractors, bringing supplies to make this a lasting protest. The farmers are protesting against a recent set of agricultural reforms, which the opposition claims will leave such farmers at the whims of large corporations. The government has responded with empathy, seeking to have a discussion. Meanwhile, the opposition has played an unconstructive role, misinforming farmers to the true intent of such reforms. This has led to unreasonable demands - a push for removing a marginal fine for stubble burning, for example.

While agriculture is considered the third rail of Indian politics, reforming agricultural marketing can and often is construed as playing with the economic wellbeing of marginal farmers and the urban poor. With agriculture a state subject, the reform of marketing channels has been an ad hoc process across India's states, with contract farming in particular mistrusted, given its similarity to the old zamindari days.

In this regard, the government, under the visionary leadership of the Prime Minister, has taken a courageous step to reform the sector - the central government introduced and parliament passed the "The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020". Let's consider the content of this bill - Section 4 simply states "Any trader may engage in the inter-State trade or intra-State trade of scheduled farmers' produce with a farmer or another trader in a trade area"; this allows farmers to sell across state boundaries. Section 6 states that "No market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers' produce in a trade area"; this simply means that state governments cannot levy market fees, cess or levies outside APMC areas.

Additionally, parliament also passed the "The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020" - Section 3 states "A farmer may enter into a written farming agreement in respect of any farming produce"; it lays out a framework for contract farming. 

Nowhere do the bills talk about removing the MSP regime or abandoning the current APMC system. In fact, the centre has increased its purchase of staple crops at MSP prices - ~38.9 million tonnes of wheat was procured in 2020 compared to 34.1 in 2019; 31.6 million tonnes of rice in 2020 compare to 26.6 million tonnes in 2019; ~69% of the procurement in the kharif season was done in Punjab.

This was not done in isolation; states (including Punjab) have tried to reform the sector but mostly failed. Punjab has implemented significant reforms to its APMC Act, allowing for direct purchase of perishable crops, including fruits and vegetables, by retail chains, but further reforms are significantly opposed by commission agents (many of whom are currently protesting). Any private players seeking access to Punjab's farmers are required to seek permission from the Mandi Board to set up any direct purchase points, keeping such markets limited. Bihar repealed its APMC Act in 2006, with an unregulated private wholesale market ecosystem growing instead. Now, farmers come and sell in nearby markets, with unpaved roads, and little to no infrastructure. Meanwhile, price discovery is unlikely - there is no competitive open auction, and there is no recourse for farmers to any institutional authority if wholesale traders press their claim.

Of course, one can have an ideological issue with contract farming - after all, India's prior experience with this in the colonial era was not positive. However, there are different forms of contract farming - Nestle, for one, sources milk through a local intermediary, who in turn procures milk from small farmers to reduce cost. This enables the firm to enlist a large number of small farmers - most of its suppliers are farmers with < 5 milch animals. Similarly, Mother Dairy Fruits and Vegetables Limited employs growers' associations to reduce transaction costs - as a result, ~50% supplies come from small and marginal farmers. This creates a win-win situation for both farmers and firms, with firms benefiting from reduced transaction cost and procurement risk, and a higher number of small and marginal farmers can be empanelled to reap the benefits of contract farming.

Consider another example in horticulture - apples cultivated in Himachal Pradesh (about 93% of the total fruit production in the state) usually undergo a long journey to reach urban consumers. A range of traders, pre-harvest contractors and commission agents, big and small, licensed through the local mandi, purchase apples without due regard to quality or variety. With limited infrastructure in the regulated markets, long delays are often experienced during the sale process, rotting away supply, while operating costs, borne by the farmer, can be steep. Many farmers simply prefer to sell their produce in the local markets, instead of approaching such intermediaries. The state's Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd has sought to make this process easier by building a wide network of post-harvest facilities, incorporating cold-storage, warehousing and food processing. Collection centres have been set up every 3-4 km in major apple bearing areas, while cold storage facilities enable the produce to last longer. Farmers are required to deposit their produce at such collection centres, while collecting receipts which are later exchanged for payments. However, given its social charter and its bureaucratic DNA, payments to farmers can be a bit slow. In comparison, private enterprises have set up integrated storage, handling and transportation infrastructure for apples across the state of Himachal Pradesh. Sale agreements with multi-year contracts have been signed with thousands of farmers for direct procurement through agents. Such farmers, now members of its sourcing network, are supplied with free plastic crates for the collection of apples. While such firms gain access to high-quality, high-elevation apple-growing areas, cultivators get income security. Given populist pressure, such firms are required to purchase all apples from such members and not just the "A" grade ones which are ideal for far away markets - the remaining apples are typically sold off in local markets through intermediaries. And such firms make payments on time.

In some ways, the biggest contract farming model is run by the Government of India itself - wherein the farmer is required to plant the crops suggested by the government on his own land and sell the harvest to the government at pre-agreed prices. The Green Revolution was a resounding success but it came with its own costs - the MSP became a benchmark reference price instead of acting a as safety net and centrally-driven agriculture with a high emphasis on cereals and sugarcane led to agriculture not being adequately diversified. Mono-crop culture also encouraged excessive water usage with an adverse impact on soil and reservoir quality, particularly in Punjab and Haryana.

If the objective, especially of corporate/contract farming, deteriorates to making short-term high profits from land, then with a monoculture focus and pre-described cultivation techniques, the Indian farmer will just become an implementation agent with no freedom to think or innovate or act for the betterment of his land, his soil and his crop, with holistic farm-management practices being ignored. The capability of a farmer for traditional food-grain farming and long-term food security may be compromised as farmers move en-masse to lucrative cash crops. Our policies need to ensure that the farmer does not sacrifice recommended farm-management practices and become a pawn in a partnership whose fate rests solely with the channel partner. 

In this regard, we must welcome the deep structural reforms instituted by this strong government under the leadership of the Prime Minister.

(Feroze Varun Gandhi is a member of the BJP and a three-time member of parliament.)

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