A 1991 moment for agriculture (Major reforms can now work wonders)

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 A 1991 moment for agriculture (Major reforms can now work wonders)

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• Agri-marketing systems reformed: The Modi govt. has finally brought long-pending reforms in agri-marketing, in May 2020. If final rules truly follow the spirit of the FM's announcements, then efficient value chains will be built, and farmers' returns will rise. Consumers will get better products.
• Eleven points: The package has 11 points, 8 of which are miscellaneous in nature, and the remaining 3 are where excitement lies. The first 8 do not hold much promise, as many earlier programmes (Doubling Farmer Incomes by 2022, 99 irrigations projects by 2019 etc.) did not deliver results.
• Three good points: These are - (i) Amending the Essential Commodities Act (ECA) of 1955, (ii) bringing a new law to allow farmers to sell produce to anyone outside the APMC mandis, and (iii) Contract farming legal framework.
• FIRST - Amending the ECA, 1955: It sprang from the Defence of India Rules, 1943, when India faced a big famine, and also effects of World War II.

1. The scarcity-era prompted this legislation
2. By 1965, due to droughts, India had to import wheat from the US (PL480) and became a "ship to mouth" economy
3. What about 2020? India is the largest rice exporter globally, and second-largest rice and wheat producer (after China)
4. Indian grain stocks are overflowing, but the laws are from 1950s, that do not allow private investment in storage
5. Why not? The ECA law can put stock limits on any trader, processor or exporter, so risk is huge (for large investors)
6. Hence not many private storages were built, and when farmers bring their produce to market (after harvesting), the oversupply harms prices
7. In lean season, prices rise sharply, hurting consumers
8. So both farmers and consumers are hurt, at different times, and more storage will help counter this problem.

• SECOND - New Central law to allow outside-APMC sale: Farmers suffer more in marketing their produce than in producing it. APMC markets are monopsonistic with high intermediation costs. If farmers are allowed to sell outside APMC yards, then - (i) more competition between buyers will arise, (ii) mandi fee and commission will be lowered, and (iii) state govt. cesses will reduce. Once the inter-state trade is made possible, prices will get integrated. Surplus production region farmers will get better prices, and consumers in shortage regions will get lower prices.  
• THIRD - Contract farming: Once this is legalised, farmers will get price assurances at the time for sowing. That will help proper cropping decisions (based on forward prices). But big buyers entering into contracts with individual farmers is an inefficient process. Rather, first the FPOs need to be built at scale (Farmer Producer Organisations).

1. Benefits will be uniform quality, lower transaction costs, and farmers' better barganing power with large buyers.
2. NABARD can provide working capital at 7 per cent interest (same as that of crop loans). The present MFI rate is 18-22 per cent.

• Don't impose stock limits: Even after these reforms, if the govt. suddenly decides to reimpose stock limits if prices of perishables rise by 100% (and non-perishables by 50%), then the entire reform will be killed. Instead, try seeing what's the "extra burden" due to such price increase (seaonsally) on household budgets.
• Summary: This is the 1991 LPG moment for agri marketing in India, and the fine print will carry the day finally!
• The three major legal changes proposed in agri-marketing system of India can finally prove to be the 1991 LPG moment for farmers and consumers.

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