Addressing the Agricultural Economic and Outlook Foreign Trade Forum in 2018, Robert Johannson, the then chief economist of the US Department of Agriculture (USDA) had said: “Real farm prices, when indexed for inflation, have fallen sharply since 1960.” With median farm incomes being in the negative for several years, and with farm bankruptcy growing to $425 billion, US farmers are struggling to survive.
Some 12 years ago, I read a shocking report in the New York Times detailing how a small dairy farmer, distressed over falling milk prices, first shot each of his 51 cows and then shot himself. Severe agrarian distress in American agriculture, a citadel for open markets in agriculture, was something unheard of. Reports now say that farm suicide rate in rural America is almost double that of suicides in urban areas. A clear reflection that open markets in agriculture have not worked for farmers even in America.
In India, as per the Shanta Kumar committee report, 94% of farmers in India are dependent on the markets. Only 6% of the farmers in the country are able to sell at the guaranteed Minimum Support Price (MSP). Studies have also shown that only some 36% of farm produce was sold in the mandi (APMC yards) and the remaining was sold outside to private trade. The question that crops up is, if the markets were so efficient, Indian agriculture shouldn’t have been in the grip of a severe agrarian crisis. In other words, markets failed to prop up farm incomes in India.
Ostensibly aimed at transforming agriculture and increasing farmers’ incomes, the contentious farm legislations passed by Parliament last week are expected to bring in private investments in agriculture. But the continuing farm protests in Punjab and Haryana, and now across the country, reflect the apprehension and scepticism farmers have, arguing that liberalising Indian agriculture will actually create private monopolies and drive out the small farmers. With capital investments flowing in without any regulation and in the absence of any rights-based safety net enshrined for farmers, they fear that in reality, the new laws are aimed at providing a free run for large companies.
At the heart of the debate is the raging battle for retaining the MSP. Although the government has assured farmers that MSP and the regulated APMC mandi will stay, it has allowed purchase by private traders outside the mandi without paying any market fee. It means, for instance, that in Punjab, which has a vast network of APMC markets linked with village link roads, trading inside the mandi will invite 6% tax for traders (including rural development fee) but outside the mandi, anyone having a PAN card can buy from farmers directly without paying any tax. Farmers fear that such a system will make the APMC mandi redundant over the years, which in turn means that MSP, too, will go. The fear is not completely unfounded. Over the years, several committees have talked of MSP being a barrier in price discovery and the need to dismantle APMC markets.
The slogan ‘one country one market’ therefore in reality turns out to be ‘one country two markets’ – one inside the regulated mandi, and another outside its premises. The claim that such a system will allow farmers to get a higher price outside the mandi and if they don’t, they can always come back and sell it at MSP within the APMC, is something that farmers have been contesting. Since the government announces MSP for 23 crops, it procures only wheat and paddy and some quantities of cotton, soyabean, pulses, mustard etc. Experience so far has been that the market prices of the 23 commodities for which MSP are announced are often much lower, and in the absence of assured procurement, there is no choice for the farmer. Take the case of maize; the ruling market price is between Rs 800 to Rs 1,000 per quintal, whereas the MSP is Rs 1,850 per quintal. Farmers have been selling maize at a distress price.
An earlier experiment in bringing in open markets in agriculture in Bihar has failed to attract private investments and, in the process, failed to provide farmers with higher prices. In 2006, there was excitement all around when Bihar repealed the APMC Act. Economists were upbeat, saying that Bihar will turn out to be the harbinger of a new market-driven revolution in agriculture. It has been 14 years, and we are still waiting for the miracle to happen. A 2019 study of the National Council of Applied Economic Research (NCAER) on ‘the experience of Bihar after the abolition of APMC Act in 2006’, warned: “It is easier to dismantle institutions than to build them. The consequences could be very serious for the farm sector and the farming community.”
Over the years, a number of discrepancies have emerged in the functioning of the APMC markets. There is cartelisation and at some places even mafias have sprung up. There is definitely a need to reform these regulated markets, remove the political influence and bring in professionalism in its operations. Considering that there are close to 7,000 APMC markets in the country, the challenge is to set up a total of 42,000 markets, ensuring that a mandi is available within a five km radius. In any case, even if private markets are to be set up, there is a need for regulation.
After all, let us not forget that the legendary Sir Chhotu Ram, known to be the man behind Punjab’s mandi system, enacted the Punjab Agricultural Produce Markets Act, 1939, making it mandatory for traders to be registered in the regulated mandis. As Revenue Minister of the erstwhile Punjab province during the days of the British Raj, his basic concern was to free farmers from exploitation in the hands of unscrupulous traders and middlemen. Eighty years later, the policy effort is to de-regulate trade, leaving it open to free markets. While it is alright to blame small traders and middlemen operating in the mandi for the flaws that have crept in, how can one be sure that the big players with larger financial clout and bigger stakes not abuse and misuse market freedom?
The real freedom for farmers will therefore be when farmers know for sure that wherever they sell -- within the mandi or outside it, in Mumbai or in Bengaluru, they will at least get the Minimum Support Price. The need therefore is to bring in a fourth ordinance which makes MSP (for all 23 crops for which prices are announced) a legal right for farmers, ensuring that no trading happens below it. At the same time, make MSP the price below which no contract farming can take place.
Since agribusiness companies and the policymakers are claiming that farmers are being misled and they will, in reality, get higher prices, why not then make MSP a legal right and build confidence and trust among the farming community?
(The writer is a well-known agricultural economist)