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A 1991 moment for agriculture : On Agriculture Reform
What has happened
The third tranche of the Atmanirbhar Bharat Abhiyan focused on improving the infrastructure gaps and governance issues plaguing the farm sector. It had 11 major points, of which eight are related to miscellaneous items like financing farmgate infrastructure. The other three Agricultural Reforms relate to:
- Amending the Essential Commodities Act (ECA) of 1955
- Bringing a Central legislation to allow farmers to sell their produce to anyone, outside the APMC mandi yard, and enable barrier-free inter-state trade
- Creating a legal framework for contract farming
Amending the Essential Commodities Act (ECA) of 1955
The Central government will deregulate the sale of six types of agricultural produce, including cereals, edible oils, oilseeds, pulses, onions and potatoes.
Background of the Essential Commodities Act, 1955:
- The ECA has its roots in the Defenceof India Rules of 1943 when India was plagued by famines and facing the effects of World War II.
- It was relevant in the mid-1960s due scarcity of food grains caused by back-to-back droughts.
- India needed a legislation to tackle illegal stockpiling as it was dependent on PL480 imports from the USA.
In present times, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice. It’s self-sufficient with huge buffer stocks and doesn’t require a law to ensure availability of food grains.
Shortcomings of the Essential Commodities Act, 1955:
- The Economic survey (2019-20) describes the Essential Commodities Act (ECA) as anachronistic and scarcity-era legislation irrelevant today.
- It discourages private investment in storage facilities as the ECA can put stock limits on any trader, processor or exporter.
- Frequent and unpredictable imposition of blanket stock limits distorts
- movement up the agricultural value chain
- development of a national market for agricultural commodities
- It has remained unsuccessful in controlling the volatility of the prices of Dal, Sugar and Onions.
- ECA enables rent seeking and harassment by overzealous bureaucracy.
- Poor remuneration for farmers when prices plummet immediately after harvesting due to lack of storage facilities.
- It also leads to inflation in the lean season caused by distress selling due to lack of warehousing and storing facilities.
- Private Investment: Removalof stock limits will encourage private sector investment in agricultural value chain.
- Creation of warehouses and post- harvest agricultural infrastructure (processors, mills and cold chain storage).
- Better remuneration: Prevent distress selling by the farmers due to lack of warehouses.
- Inflation control:Lack of storage facilities in the lean season leads to flaring up of prices for the consumers.
- Wastage: Prevent wastage of agri-produce that happens due to lack of storage facilities.
- Prevent harassment by the bureaucracy and cut down red tapismin farm sector.
- Balance of Payment: Promote exports leading to more forex earnings that would improve the Balance of Trade.
- The provision of re-imposition of stocking limits under the ECA if the prices go up.
- The law provided deterrence to black marketing and hoarding.
- The risk of future inflationary food price spikes in case of total deregulation.
This amendment can help both farmers and consumers by bringing in price stability and preventing wastage of agri-produce.
Central legislation on Agri-Marketing
It allows farmers to sell outside the APMC yards and enables barrier-free inter-state trade.
Advantages of the proposed law:
- Greater competition amongst buyers by breaking the monopoly of APMC markets
- Creation of a unified national market and connecting farmers to end users.
- Lower the mandi fee and the commission for arhatiyasor intermediaries.
- Reduce multiple cessesimposed on APMC markets by state governments
- Better returns: The proposed law will open more choices for the farmers and help them in getting better prices.
- Better spatial integration of prices:By facilitating the movement of agri-goods and removing barriers in inter-state trade
- Remove regional distortions: Farmers of regions with surplus produce will get better prices and consumers of regions with shortages, lower prices.
Contract farming law
Third, the Contract farming law plans to bring in legal framework to provide more certainty and choice for farmers.
Advantages of the law:
- Provide assurance of a price to the farmers before sowing.
- Cropping decisions will be based on forward prices instead of the last year’s prices.
- Lower NPAs: Minimize market risks of the farmers leading to less loan defaults and consequently lower NPAs
- Promote the idea of Farmer producer organizations’ (FPOs) for collective bargaining.
Challenges and Way forward:
- Asymmetric position: Big processors and organized retailers will have an upper hand dealing with individual farmers.
- Promote farmer producer organizations (FPOs) to improve the bargaining power vis-à-vis large buyers.
- FPOs will help ensure uniform quality and lower transaction costs.
- Most of the FPOs get loans at high rates as they depend on microfinance institutions.
- Role of NABARD:It can ensure that all FPOs get their working capital at cheap interest rates.
These governance reforms can go a long way in building efficient value chains and ensuring better returns for farmers.
‘In the long term, The Essential Commodity Act did opposite of what it is intended for’. Critically Analyse