A New Farming Eco-system

Context

Impact of the farm bills on markets and farmers.

Background

There is widespread discussion across the country on the possible effects of three recently passed agricultural bills by Parliament. Three bills that were passed are Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill and Essential Commodities (Amendment) Bill.

These bills have replaced the Ordinances issued in June 2020 and were passed in order to bring change in some of the key aspect in agricultural economy such as Price of agricultural commodities, Trade of agricultural products, farm services including contracts, and stock limits for essential commodities.

Government’s Arguments in Support of the Bill

The government has said these reforms will accelerate growth in the sector through private sector investment in building infrastructure and supply chains for farm produce in national and global markets. They are intended to help small farmers who don’t have means to either bargain for their produce to get a better price or invest in technology to improve the productivity of farms. The bill on Agri market seeks to allow farmers to sell their produce outside APMC mandis to whoever they want.

Farmers will get better prices through competition and cost-cutting on transportation. Although this Bill could mean states will lose commissions and mandi fees. The legislation on contract farming will allow farmers to enter into a contract with agri-business firms or large retailers on pre-agreed prices of their produce.

The Essential Commodities (Amendment) Bill, 2020, seeks to remove commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. This will end the imposition of stock-holding limits except under extraordinary circumstances.

Further, these bills will bring a boost in agricultural sector. It would raise farmer’s income and promised to double the income by 2022. It will make the farmer independent of government-controlled markets and fetch them a better price for their produce. These bills aim to develop a new system where farmers are independent to sell and purchase there produce outside the Mandis i.e. APMC (Agricultural Produce Market Committee). It will allow farmers an option to sell their produce directly to these new zones, without going through the middlemen and paying levies such as mandi fees. This will encourage the inter-state trade and reduce the cost of transportation.

It will help in creation of Farmer Producer Organization (FPO), focusing on marginal and small farmers as well. A combined effect of these bills will help in creating a One Nation, One Market in agricultural produce.

Farmers Argument

The Farmers have been apprehensive about the bill. They are mainly concerned that this will eventually end the Whole sale market and the assured prices, leaving them with no back up. They are also anxious over the MSP (Minimum Support Price) for their produce. Mostly farmers feel that private players will have upper hand and will exploit the farmers, by deciding the price of the farm produce as per their needs and they cannot return to the mandi or use it as a bargaining chip during negotiations.

Agri Market Reform and Expected Results

The Farmers Produce Trade and Commerce (Promotion & Facilitation) Act 2020 and The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act 2020, focused upon to create the foundation to build a world-class agriculture ecosystem that will benefit farmers, consumers, wholesalers, processors, and start-ups.

A FPO, which is an aggregation of farmers, provides higher bargaining power to farmers and helps them realize benefits from economies of scale. AIF and the market reforms have now provided additional enablers and opened up new opportunities for FPOs.

They can invest in farm equipment and infrastructure and build forward market linkages by entering into agreements with agribusinesses. This will improve access to advisory, technology, and investment, aligning variety mix and quality as per market demand, and ensuring higher incomes.

One of the best examples of a successful FPO is Maharashtra’s Sahyadri Farmers Producer Company Limited. At least 8,000 marginal farmers are registered under FPO, which exports more than 16,000 tonnes of grapes every season. It helps farmers enter into MoUs with leading FMCG companies and access high-tech infrastructure.

The reforms would also provide an opportunity to agribusinesses to build consistent supply and standardized variety by direct procurement from farmers, run their operations more efficiently, and boost export volumes and share of food processing.

This will also help eliminate other system inefficiencies such as high intermediary and logistics costs. For example, at least 1,000 seed potato farmers in Punjab, northern Haryana, and western Uttar Pradesh have benefited from an increase of 10%-30% in productivity and 35% margin above cost under agreement with Technico Agri Sciences Limited (a subsidiary of ITC). There are thousands of examples of agribusinesses working with farmers leading to higher farmer income and development of agribusinesses.

Conclusion

Agriculture, which employees the half of the population of India, is considered as the backbone of Indian economy. It has been in desperate need for the reform. The new and controversial bills are likely to be a solution for farmers' troubles.

With introduction of these new bills, on one side this will improve farm incomes, attract investment and technology, and increase productivity. It will also free the farmer from the control of middlemen who effectively run wholesale markets. But with these changes, they will lose their commissions, and state governments stand to lose crucial tax revenue.

Connecting the Article

Question for Prelims

With reference to the Farmers Producers Organization, consider the following statements:

1. It is a registered body and a legal entity.
2. Farmers are shareholders in the organization.
3. A part of the profit is shared amongst the farmers.

Which of the statements given above is/ are correct ?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Question for Mains

‘It has always been a challenge to transform farming in India, into a profitable job.’ Discuss this statement in the backdrop of agriculture market structure in India ? How can recent farm bills prove to be a remedy for present agri markets?