Beyond MSPs & loan waivers, Modi govt must make agricultural market reforms its top priority

For the vast majority of Indian farmers, the declaration of MSPs without procurement has no effect on prices.

Farmers in West Bengal | File photo: PTI

The new Narendra Modi government has begun its second term with the agricultural sector in crisis. Farm incomes in India are growing at perhaps the slowest rate in the last 15 years even as there’s a renewed policy push to double farmers’ incomes. After a long season of farmers’ protests, agrarian distress is yet to find a solution that isn’t a temporary band-aid.

The policy debate was initially dominated by two longstanding demands of farmers’ movements: higher, guaranteed Minimum Support Prices (MSPs) and farm loan waivers. More recently, the political focus has shifted to income support schemes for farmers and the rural poor.

But what is urgently needed is a comprehensive and systemic approach to agriculture, with reforms in agricultural markets as a top priority.

Not only are agricultural commodity markets central to supporting farmers’ incomes, they are the connective tissue of the economy. They connect agricultural production with circulation and consumption; interlink livelihoods and logistics across agrarian and non-agrarian sectors; shape relations between cities, small towns and villages, and those between local, regional, national and global markets.

Historically, the regulation of agricultural markets in India has been fragmented. This time, however, the effort to build a National Agriculture Market (NAM) provides a unique context for reforms. But to achieve this vision, the central government needs to take a more contextual and comprehensive approach to market reforms.

From dashboard to drawing board

So far, the focus has revolved around e-NAM, which was launched in 2016 and aims to provide a ‘pan-India electronic trading portal, which networks the existing APMC mandis, to create a unified national market for agricultural commodities’.

In its first phase of implementation, the eNAM scheme is reported to have networked 585 APMC (agricultural produce market committee) mandis across 18 states. Of these, less than half (252 mandis) have reported online trading activity.

Field reports, including the findings of a high-level government-appointed expert committee, outline the challenges on the ground. In several cases, computer terminals have remained in their boxes, in others, data from offline auctions or government procurement has been retrospectively entered into the e-NAM portal. Some mandis have avoided moving high-volume commodities online due to delays in facilitating exchange, others only use e-NAM on a single day of the week or in off-season before reverting to business as usual.

In states where regulated markets are not the primary channel for trade, mandi functionaries have struggled to attract buyers and sellers into market yards, let alone getting them to bid online. And where auctions are common practice, enforcing a system of direct electronic payments for all transactions is a significant challenge for farmers, traders and commission agents with prior history of credit advances and cash rotations.

Learning from the first phase of implementation, there is a definite need for a reorientation in the approach, beginning with the back-end first.

Reforming agricultural markets

Agricultural marketing reform is the proverbial ‘hot potato’. Regulatory measures to reform agricultural markets are primarily resisted on two grounds.

First, local traders, commission agents and regional processors, who have gained from the dominant regulatory regime, often exercise considerable local and regional clout. The state governments find it difficult to initiate and sustain reforms to open up agricultural markets to competition.

State procurement, the government’s primary instrument for price support, is the second. For the vast majority of farmers, the declaration of MSPs without procurement has no effect on prices. And in states like Punjab and Haryana, where the government has become virtually the only buyer of wheat and (non-Basmati) paddy, it has diminished market competition and diversification, largely reducing mandis to seasonal procurement centres.

Public procurement has also often ended up strengthening the hand of the commercially and politically powerful in the regional markets by routing procurement through intermediaries (arhatiyas/commission agents in Punjab or agro-processors in West Bengal).

There is now significant evidence to suggest that states need to change their approach towards agricultural markets.

Here’s how they can do it, with a focus on farmers’ welfare:

Push for regulatory reform & public investment

It has been seen that when farmers are able to choose between multiple market sites and options to sell their produce, they gain not only in terms of price, but also in other areas of commodity exchange, such as accurate weighing, reduction in marketing costs and timely payment. This is why the regulatory reform to open up the current APMC mandi system to competition from multiple channels and sites of exchange is so important.

At the same time, removing statutory restrictions without pushing for public investments to enhance the regulatory capacity and the logistics infrastructure is unlikely to yield long-term results. In Bihar, for instance, a blanket repeal of the APMC Act has led to proliferation of small, self-regulated private horticultural markets. At the same time, it has also led to huge infrastructural holes in major agricultural markets.

Changing terms of exchange

In India, any policy that aims to strengthen the terms of farmer participation in markets must first understand the structural constraints that different farmers face in different commodity markets.

These include constraints related to ownership of and access to land, and the extent and impact of fragmentation of farming plots. Tenant farmers, sharecroppers, and small and marginal farmers experience a range of constraints while accessing resources essential for agricultural production and marketing. Further, farmers also experience unfavourable terms for credit, inputs, water, storage, transport and insurance.

Even medium and large farmers rarely have access to risk-mitigation instruments. Each of these areas needs investments to support research and analysis as well as policy design and implementation.

Diversification and scale

A critical part of the relationship between production and markets is the farmer’s capacity to respond to markets by changing production decisions and diversifying cropping systems.

We have long been suffering from the ecological and economic consequences of cereal-centricity in agricultural policy. Over the next several years, the central and state governments must chart a course to help farmers through a complex cropping transition in different regions.

Procurement could primarily cover neglected and underdeveloped regions and prioritise nutritious commodities, especially pulses and millets, along the lines of recent initiatives in Odisha. States could also consider developing a framework for MSPs that incorporates risk and social externalities as proposed in the 2016 committee report on incentivising pulse production. The recent announcement of a set of incentives by the Haryana government to shift farmers from the cultivation of paddy to other crops (such as maize, arhar and soybean) is another sign that this is an increasingly urgent priority.

Significant public investment is needed to enable Indian farmers – who are already, given all the constraints, highly responsive and adaptive – to make complex production and marketing decisions as both climate change and global commodity markets redefine the nature, frequency and extent of volatility.

This calls for a long-overdue revival of a broken public agricultural extension system and building resource support institutions and networks at all levels.

The author is a Senior Visiting Fellow at CPR and Associate Professor of Sociology and Anthropology at Ashoka University. 

This is the twenty-second in a series of articles titled “Policy Challenges 2019-2024” under ThePrint-Centre for Policy Research (CPR) collaboration. A longer version of this piece is available on the CPR website at www.cprindia.org. The full policy document on a range of issues addressed in this series is available on CPR’s website.