Marketing reforms in agriculture: Will they deliver?

The standoff between the Union government and the farmers has reached an intense phase. Both sides are firmly sticking to their stand with regard to the claims and demands. Prime Minister Narendra Modi has once again reiterated the government’s stand on the farm laws.

One of the main arguments of the government is that the enacted laws allow the entry of more private players in the agriculture market and that this will increase competition among the buyers of farming produce which in turn increase the demand for the same. This incremental rise in the demand for agricultural produce enhances the relative bargaining capacity of the farmers in assuring better remunerative prices to increase the net income of the farmers.

This theoretical assumption is based on the reason that the market is a perfect platform to bring economic efficiency by reorienting allocative efficiencies of resources. Another fundamental assumption behind the farm laws is the logic of market efficiency which places the economic decision-making in the hands of individual producer (here farmer) and consumer (buyer of the farming produces). Set in this backdrop, it is essential to analyse the extent of validity of these theoretical propositions with some of the ground realities of market conditions in agriculture.

The larger goals of bringing “market competition” in the agricultural market and in improving the “common ownership” of the farmers in price mechanism are indeed necessary. The reforms in the agrarian sector are long overdue. However, without addressing the structural and institutional bottlenecks and market imperfections, the good intent behind these laws is not going to fetch the proposed outcomes. The logic of applying market competitiveness to the farming produce needs a critical scrutiny from the viewpoint of structural issues that inhibit the farmers from reaping the benefits of marketing reforms.

As per the data estimated by the National Sample Survey Office (now National Statistical Organisation) for 2013, 94% of marginal, small and semi-medium agricultural households are having indebtedness. This seriously affects bargaining power of farmers to negotiate the price of farm produce with sponsors or buyers. Another pertinent issue is that the marginal, small, semi-medium and medium farmers are not in a position to store the produce on their own and are constrained by various factors.

The economic unaffordability to have own storage facilities effectively preclude them from reaping the market benefits intended in these legislations. In addition to this economic dimension, the other demands such as education, health and social commitments (like marriage, birth and other ceremonies) push the farmers to sell their produce as early as possible. Being placed in such an unavoidable conditions, the farmer is in a double disadvantageous position and faces a dilemma whether to sell her/his produce or not. This can be illustrated as follows:

Situation 1: Here, the farmer sells her/his produce immediately to the buyer on a first come, first serve basis other than the local credit giver. Now, suitable explanation has to be given to the moneylender or else the farmer should be ready to face the consequences in the form of paying high interests or agreeing to the terms and conditions of the credit giver.

Situation 2: Here, the farmer sells the produce to the local credit giver only; however, owing to the already taken debt, there won’t be any monetary return in this case. Moreover, to meet social commitments, more debt has to be taken only to fix the farmer into the vicious cycle of indebtedness.

Open market

A marginal, small and medium farmer has to cross these situations in order to sell her/his produce in the open market that will come with the enacted farm laws. Even with all difficulties, if the farmer overcomes these hurdles, the issue of storage capacity, maintenance of the produce till the arrival of a good price in the market and the economic and social cost of the storage arrangements deprive the farmer from reaping the real benefits accredited in easing the market restrictions.

To make this happen, a credit policy along with necessary institutional arrangements for its effective implementation of the same is necessary. Only then real market benefits may reach the farmers.

The vicious cycle of indebtedness and its implications on tweaking the farmer’s liberty to sell the farm produce in the open market other than the APMC or registered mandis is the heart of the problem. The foregoing analysis indicates that the ideal market conditions which were assumed in framing the farm laws are inconsistent with the realities at the ground. Allowing the entry of markets in neither a fully industrialised nor a fully socialist market economic regime is going to deprive the very economic decision-making which the government claims.

There is a need to create conducive environment for the market players to operate in a truly competitive manner by strengthening the logistical and other infrastructural facilities to yield the intended benefits out of these farm laws. In the present form, the market reforms seem to benefit only to the large farmers who have the capacity and capability to store their produce for longer periods.

These laws are useful only when the required structural changes in the agricultural price and credit policies are brought in by the state governments. This is imperative to benefit the marginal, small and semi-medium farmers whose hands are tied and whose freedom is already curtailed by indebtedness which acts as effective barrier in exercising the economic decision-making to augment the benefits from these market reform measures.

The success of farm legislations depends on breaking this debt cycle so as to truly liberate the farmers from the clutches of credit givers to facilitate the market benefits. The BJP in its election manifesto of 1998 had promised that a supportive price for the farm produces will be linked to that of the general price index. The time is ripe now to implement the same.

(The writer is a PhD Fellow and Guest Faculty at Institute for Social and Economic Change and University Law College, Bangalore University, respectively)