CURRENT STATUS OF FARM SECTOR IN INDIA
India has been following traditional method of farming involving the family members and keeping them engaged to save on cost of mechanization. More over the Land holding pattern plays a spoilsport for risk taking actions like modernization and price realization of the produce. Our country needs to move from basic farming to more efficient, sustainable, and productive cultivation. The existing policies fail to recognise how crop choices, input costs, and the supply chain are intertwined, perpetuating marginal farming miseries. We should understand that growing more food isn’t the solution unemployment. There is enough food, especially considering calories as opposed to micronutrients. Exports are possible but have multiple complex procedures to be followed which requires the expertise of the traders who make most of the profits generated. The apt solution would be to provide alternate jobs to the youth outside farming, which would solve multiple issues related to the agri sector.
Farming in India is plagued by issues like it is nonsecure, inefficient and non-remunerative to cultivators. The price of the commodities has always been derived from the Supply-Demand situation. Many times distress sales, especially in villages, where it is common practice during bumper seasons happen. The Small and marginal farmers are severely affected and they are time and again forced to mortgage their surplus to the commission agents to obtain loans at times when they are/were in distress. Distress sale happens due to lack of all-weather roads, Storage facility, repayment of loans, local forces, minimal Govt. Support, restricted markets, and surplus production. Many of you may be surprised to know that India wastes some 20% of its fruits and vegetables, around 30-40% of paddy and highly perishable/seasonal ones (which are often worth much more in rupee terms) may lose more. Well Known economist Ajit Ranade and others point out, a number of improvements are needed in terms of markets, flexibility, etc., allowing farmers to choose whom they sell to, at what terms, etc.
It is important to note that farming revenues will not rise much even as India’s income rises. In fact, the ratio of total agriculture income to total population is relatively flat across countries regardless of per capita income. We must understand that farmer incomes normally rise only when there are few people engaged in farming with big land holdings.
Now focusing on the current turmoil in the country on the Farmers bills introduced in the parliament, why are we having protests !!!. The current NDA Govt, with an eye to double the farmer’s Income by 2022 has introduced the following bills
- THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES BILL, 2020
- THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION
AND FACILITATION) BILL,
Farmers Empowerment and Protection bill is to provide for a national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner and for matters connected therewith or incidental thereto.
THE MAIN PROVISIONS
- The new legislation allows to creates a framework for contract farming through an agreement between a farmer and a buyer (processors, wholesalers, aggregators, wholesalers, large retailers, exporters etc.) prior to the production or rearing of any farm produce, on a level playing field. The minimum period of an agreement will be one crop season or one production cycle of livestock. The maximum period is five years unless the production cycle is more than five years.
- The price of farming produce should be mentioned in the agreement before sowing of the crops. For prices subjected to variation, a guaranteed price for the product, and a clear reference for any additional amount above the guaranteed price shall be specified in the agreement.
- If a situation of higher market price arises, farmers will be entitled to this price over and above the minimum price. This will shift risk of market unpredictability from the farmer to the sponsor.
- Prior price determination will ensure that farmers are shielded from the rise and fall of market prices
- The sponsor’s will support & finance the farmers access to modern technology, better seed and other inputs. In a way it will synchronise marketing and improve income of farmers.
- Effective dispute resolution mechanism has been provided by way of three-level dispute settlement mechanism: the conciliation board, Sub-Divisional Magistrate and Appellate Authority.
- It also paves way for Impetus to research and new technology in agriculture sector.
THE RESERVATIONS / CONCERNS
Farmers will be at the mercy of the Sponsors Under contract farming for determining the price of the produce.
Farmers are simple and are less educated to understand contract farming
Meagre land holdings deprive small farmers to practice contract farming, sponsors will shy away from them.
In case of dispute, big companies will be at an advantage and will flex their financial muscle power to dominate.
Farmers will loose land to MNC’s, They will become a pawn in the hands of MNC’s.
CLEARING APPREHENSIONS / HIGHLIGHTING ADVANTAGES
The farmer will have full power in the contract to fix a sale price of his choice for the produce. They will receive payment within maximum 3 days.
Farmer Producer organizations (FPO’s) will be a game changer for small farmers which are being formed throughout the country. These FPOs will bring together marginal farmers and work to ensure remunerative pricing for farm produce
Contract farming will remove the involvement of traders. The purchasing consumer can uplift the produce directly from the farm.
The local dispute redressal mechanism will help in settling the matter, one need not visit courts.
The contract farming will remove the fear of crop loss and will ensure higher cultivation.
Agrotech firms can take a big role to improve productivity, mechanization, pricing and storage.
THE FARMERS’ PRODUCE TRADE AND COMMERCE legislation is to provide for the creation of an ecosystem where the farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels; to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside the physical premises of markets or deemed markets notified under various State agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto.
The provision of unrestricted trade from the APMCS will bring in a substantial increase in the availability of buyers for farmers’ produce. By allowing traders to trade freely without any license or stock limit an increase in competition among them will result in better prices realization for farm produce. It will also promote barrier-free inter-state and intra-state trade commerce.
The farmers will not be charged any cess or levy for sale of their produce and will not have to bear transport costs. They will be free to sell their produce outside the Regulated markets.
The Bill has also made a provision for an electronic trading in transaction platform for ensuring a seamless trade electronically. In addition to APMC’s, freedom to do trading at farmgate, cold storage, warehouse, processing units etc.
Farmers will have access to direct marketing/online aggregators for their produce thereby eliminating traders/intermediaries resulting in full realization of price devoid of commission.
THE RESERVATIONS / CONCERNS
The APMC’s will close in near future and procurement at Minimum Support Price will stop if farm produce is sold outside APMC mandis
Lot of Suspision is on what will be the future of government electronic trading portal like e-NAM
ADVANTAGES / GOVT CLARIFICATION
Procurement at Minimum Support Price will continue, farmers can sell their produce at MSP rates in the Mandi’s if the price falls in the open market.
The MSP will be based on the expenditure on farming of a produce add to it the profit margin.
Regulated Markets / Mandis will not stop functioning, trading will continue here as before. Now onwards farmers will have the choice to sell their produce anywhere and to anyone
The e-NAM trading system and other govt online trading firms will also continue in the mandis. Trading in farm produce will increase on electronic platforms over next decade resulting in quick results and greater transparency.
Multiple commodities have been freed from the restrictions on stock limits. Under Essential Commodity Act, the central government can regulate the supply of certain food items only under extraordinary circumstances (such as war and famine). Stock limits may be imposed on agricultural produce only if there is a steep price rise.
In all likelihood, the pre-conditions of price rise (100% increase in retail price for perishables, 50% increase in non-perishables, over the preceding 12 months or an average of last 5 years, whichever is lower) will be frequently met in case of any failure of monsoon (as in 2014-15 or 2015-16) or excessive rain (as for soybean in 2019-20) or pest attack (as in case of the Fall Armyworm attack on maize in 2019-20).
This provision of restricting agricultural produce to APMCs was obsolete and aimed at discouraging black marketing by hoarding and price rigging and was initiated at the time when India faced shortages for decades due to famines continuously hitting the country in 60s and 70s, before Green revolution large scale imports were made of these items to take the country out from starvation.
The current situation is of surplus food production and enough buffer stocks of grains .The restrictions have become big constraints marring the interest of farmers and benefitting the middlemen sitting at Mandi’s.
This also makes the route for the contract farming more sensible as much land are left uncultivated by the farmers due to lack of resources year after year, a better utilisation of land can be accomplished by the third-party having capabilities to cultivate. This will not only add to GDP but will certainly add to reduce unemployment in the agriculture sector. No restriction on storage will pave the way to stock more without fear at the time of bumper crop.
IN THE END I WOULD LIKE TO CONCLUDE BY SHARING FEW THOUGHTS.
The sweeping reforms will entail that most of farmers will benefit from the legislations.
Contract Farming has been successful mainly in the Poultry, Cotton, Barley and Fisheries Sector, how it can be leveraged to the other sectors the time will tell. Some contract farming in the seed cultivation has been successful. Potato farming via contract is also giving good results in some states.
There are apprehensions on the part of farmers to enter into contracts as they are not organised and are ill-equipped for any legal battle with corporates. Only last year, a few Gujarat farmers were sued for more than Rs 1 crore for illegally growing and selling a potato variety registered by PepsiCo. On the intervention of the state government, PepsiCo withdrew the cases but the incidence left a question mark over the future of contract farming in which resource-poor farmers were pitted against a powerful multinational. Political interference is one of the concerns of the corporates to enter into the Farm sector in India.
Organised players wishing to enter contract farming major concern is the place of minimum support price in their agreements. They are generally reluctant to sign agreements as they are not sure if the states will hold them accountable if the agreed price is below MSP. Indepth clarity is required in government policy on this account.
The current payment terms have a different mechanism under contract farming, how they will adapt to the 30 day time period, difficult to predict. Currently contract farming has been working on mutual understanding and informal contracts in some of the states between farmers and buyers.
How the online mechanism will be a success not sure since presently modern retail has been purchasing perishable produce from mandis mostly. Since the volumes of fresh produce are still low for modern retail and it has to compete with roadside vendors, it has been reluctant to invest in backend infrastructure.
The biggest worry is, who will keep a track of the stocks of the grains ! One of the major deficiencies in our management of food stocks is that the government just does not know the stocks which are held by the private sector
The best provision in the ordinance is that there will be no market fee, cess or levy on the transactions in the trade area. Few govts may loose on the revenue and feel that Regulated markets/APMCs in due course will collapse leading to exploitation.
The APMC’s will have to now improve and withstand the competition in order to survive and attract farmers.
This will pave way for “one India, one agriculture market” while also attracting private investments in a sector hamstrung by varying regulations and an enhance use of AI /ML for managing the irregularities and reaping higher yields.
The real challenge will be to see that how the Govt manages the Stockholding limit and control exploitation by the adhatiyas/traders
State Govts will have less jurisdiction to settle the matter and will have to follow the Centre’s directives, which is against the spirit of federalism
A valid suggestion is the Govt should listen to the farmers and “Just add a clause to the bill that MSP will be made a legal right. Add to that the MSP calculation has to be realistic. Also it should be extended to crops like Onion, Potato, Tomato, Garlic, Maize.
The Possible Solution is the formation of FPO’s across the country (Yuva Mitra)
You need FPO’s Farmers Producers Organisations which ideally has around (500 to 5000 members )
Only 30 % to 40% do farming and harvesting
20 % take care of Supply and Logistics
20% take care of Marketing and Promotion
20% take care of Mechanisation and Automation
As you know, that one cannot perform all the tasks, so it has to be delegated as per the strength of each individual.
These reforms will pave way for Investment from agrotech firms, food processing industries will be set up, as they will be fewer restrictions.
The Farmers need to have meaningful cyclic crop rotation so as to reduce the fluctuation in the Pricing of price-sensitive crops ( Onion,Pulses,Garlic)etc.
A critical observation is, will this lead to setting up multiple food processing industries to minimize the effect of a bumper crop and lower prices.
One more concern is that Free Market has not worked in Bihar. This system does not exist in the private mandis that have come up in Bihar often leading to low prices for farmers and extreme volatility between seasons. For instance, the price of maize in Bihar plunged from around Rs 2,200 a quintal last year to around 1,300 per quintal this year.
In the end let me share the views of Mr Shashank, Chief Executive Officer of DeHaat, (watched on a debate) is very optimistic and opines that this will be a game-changer in longer run and would pave way to improve the lives of farmers.
DeHaat™ is one of the fastest growing start-ups in Agri Tech sector and one of the very few companies providing end-to-end solutions and services to the farming community in India. We are building AI-enabled technologies to revolutionize supply chain and production efficiency in farm sector. Currently we are operating in eastern India – Bihar, UP and Odisha – with 265,000 farmers in our service network and our goal is to bring our services to 5 million farmers by 2024.
Founded by the alumni from IIT Delhi, IIT Kharagpur, IIM Ahmedabad and other top institutes – DeHaat is now a fully funded start-up with a growth rate of 3-4x annually. The impact we have created at grass root level over the last 8 years of our operations has been phenomenal, as recognized and felicitated by NASSCOM, Forbes, ET, Niti Aayog, and Bill Gates Foundation.
AgroStar is India’s foremost AgTech start-up working on the mission of #HelpingFarmersWin by providing a complete range of agri solutions at the fingertips of farmers. AgroStar’s tech platform provides a combination of agronomy advice coupled with service and agri input products that enable farmers to significantly improve their productivity and income
In my opinion, more such firms will take a lead.
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