farm laws: Reform, or backtracking on reform, unlikely to help small farmers – The Economic Times

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The segment likely to gain by farm law reforms is of big farmers, traders and middlemen – arhtiyas and village banias – associated with agricultural trade.

Nilanjan Banik

Nilanjan Banik

I earned my Ph.d. in Economics from Utah State University, USA and a Master of Economics from Delhi School of Economics, India. My works focus on the application of econometrics in understanding issues relating to international trade, market structure, and development economics. I have project experience with Geneva Network, UK; Australian Department of Foreign Affairs and Trade, Australia; Laffer Associates, USA; RIS, New Delhi; ICRIER, New Delhi; CEPR, UK; ADBI, Tokyo; Asian Development Bank, Manila; SANEI; UNESCAP-ARTNeT, Thailand; TATA Trusts, Mumbai; Copenhagen Consensus, Denmark; and WTO, Geneva. Twitter: @banik_nilanjan; Email: nilbanik@gmail. For more visit: http://www.nilanjanbanik.inIndia has around 260 million people living in poverty, and 80% of them are small and marginal farmers (having less than 2 hectares of land), making up around 83% of all farmers in the country. Reform, or backtracking on reform, is unlikely to impact their livelihood. The segment likely to gain by farm law reforms is of big farmers, traders and middlemen – arhtiyas and village banias – associated with agricultural trade.

If farmers are to sell their produce, they have two options. The first is to sell directly to the government. GoI procures 24 essential food items through agencies such as the National Agricultural Cooperative Marketing Federation of India Ltd (Nafed) and Food Corporation of India (FCI). The second is for farmers to take their produce to the nearby government-designated mandi where in the presence of state officers, they can auction their produce to the middlemen.

Ideally, farmers should be able to sell all they want to Nafed or FCI collection centres at minimum support prices (MSP). Typically, MSP is higher than the market price, and one would think that farmers gain every time MSP is raised. However, farmers seldom get to sell their produce at MSP.

Every village does not have Nafed or FCI outlets. FCI currently procures a major portion of rice and wheat from a few select states. 70% of rice is procured from Punjab, Andhra Pradesh, Chhattisgarh and Uttar Pradesh, while 80% of wheat from Punjab, Haryana and Madhya Pradesh. Even if there is a Nafed or FCI outlet in or near the village, GoI may not purchase if farmers bring their produce before or after specified dates of procurement.

On many occasions, the government announces procurement dates a month or two after harvest time, making it impossible for small farmers to sell their produce at the MSP. To do so, they need to store their perishable stocks in cold storage, for which they need to book a minimum amount of 50,000 quintals for their produce, something next to impossible for marginal farmers. Nearly 20% of India’s fresh produce is wasted because of storage problems.

Another option is for farmers to directly take their produce to the local mandi. But given that there are only 7,700 mandis against 660,000 villages, a farmer has to arrange for transport, which again may not be feasible given the distance and cost of booking a 400-quintal capacity truck all for himself.

An easier way out is to sell to village-level aggregators. In fact, in most instances, these marginal farmers are so debt-ridden that they are obliged to sell their produce to village moneylenders. Only 15% of marginal farmers have access to formal credit. Most of the time they depend on informal sources for buying seeds, fertilisers, etc. The cost difference for loan rates between the formal and informal sectors is 30-45% annually. Farm loan waivers, usually announced before elections, do little to help small farmers.

Even if a farmer wants to sell his produce on his own at mandis, his bargaining power is low. Under the Agricultural Produce Marketing Committee (APMC) Act, state government officers are meant to oversee activities related to auctioning – that commodities traded are homogenous in quality, that the markets are equipped with basic infrastructure for weighing goods, making payments, etc. In reality, however, these middlemen form a cartel, and at the time of auction offer a substantially lower price to farmers. Evidence from West Bengal, for instance, suggests that there are instances where income for these middlemen is higher than that of farmers.

When GoI amended the APMC Act, the argument was that it would allow farmers and middlemen to trade in markets in addition to already existing mandis regulated by state governments. If additional markets for trading were created, the bargaining power of middlemen was likely to fall. Some of these markets could also be e-mandis through which a farmer would be able to sell his produce in other states.

Evidence from Rajasthan suggests that e-markets have led to farmers witnessing a price premium of 13%. But bigger farmers and middlemen fear that even as GoI is assuring them MSP in the near term, in the future when these GoI-regulated e-markets become popular, mandis will lose their relevance. And if GoI allows corporates to operate in these markets, the bargaining power of the middlemen and farmers will fall further, especially in the absence of a competition policy. Small and marginal farmers do not form a part of this narrative.

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