Jan 20, 2014

How to kill farmers

At the AICC meeting in New Delhi, Rahul Gandhi made a mention of how he had asked his Congress chief ministers to exempt fruits and vegetables from the Agriculture Produce Market Committee (APMC) Act.  As per his directive, most Cong chief ministers had already removed fruits and vegetables, which have contributed much to raging food inflation, from the APMC Act by January 15. But has it helped reduce food inflation?

The prices had already come down in December much before Rahul Gandhi’s directive could make a difference. But what is more important is to understand whether the APMC Act is the villain of the story or whether the fault lies somewhere else. Let’s take a deeper look.

A day after Parliament approved FDI in multi-brand retail in Dec 2012, a newspaper report highlighted how the big retail was exploiting both the farmers as well as the consumers. The wholesale cash-n-carry Bharti-Walmart enterprise was buying baby corn from contract growers in Punjab at Rs 8 per kg, selling it in wholesale at Rs 100/kg and finally the consumers were paying Rs 200/kg. In other words, a farmer got only 4 per cent of the end price the consumer paid.

Take the case of paddy in Bihar, which is the only State to have repealed the Agriculture Produce Marketing Committee (APMC) Act way back in 2006. It had freed farmers from what many pro-reform economists call as an ‘archaic provisions of a socialist era’ thereby allowing farmers the freedom to sell their produce to whomsoever they like. Against the procurement price of Rs 1,310 per quintal that Punjab farmers got this year, Bihar farmers have somehow managed to sell paddy at something around Rs 800-900 per quintal. This is nothing but a distress price, a classic example of ruthless exploitation by the private trade.

Ironically, the Commission for Agricultural Costs and Prices (CACP) which is supposed to ensure remunerative prices to farmers lists Bihar as the top ‘market-friendly’ State as far as agriculture is concerned. Punjab, which has a network of mandis and provides an assured price to farmers year after year, is at the bottom of the chart. At a time when being market-friendly is the new mantra, CACP is asking the Punjab government to disband the APMC Act and allow markets to operate freely. In other words, it wants Punjab farmers to go the Bihar way.

What probably Rahul Gandhi has never been told is that only about 30 per cent of India’s farmers get the benefit of procurement prices. Rest 70 per cent farmers are in any case dependent upon the markets. If the markets were so helpful for these 70 per cent farmers, encouraging entrepreneurship and thereby improving livelihoods, I am sure by now the farmers in the food bowl of the country – Punjab and Haryana – would have demanded repeal of the APMC Act.

But it didn’t happen. The reason is obvious. APMC Act, despite all its flaws, provides an assured price and market to farmers. It is primarily for this reason that Punjab farmers are refusing to diversify from wheat and rice cultivation in the absence of an assured price mechanism for other crops. Madhya Pradesh this year is expected to take over Punjab in wheat production, not because of leaving farmers to the tyranny of the markets but providing them with a bonus above the procurement price.

I am amused when some economists blame APMC for the monopolistic market structure that restricts the entry of free trade and competition thereby denying farmers an economic price for his produce. This is completely wrong an assumption. Under the APMC Act, farmers bring produce to the designated mandis where the private trade is first allowed to make purchases. It’s only when there are no private buyers left that the Food Corporation of India (FCI) or the State procurement agencies step in to lift whatever is available at the minimum support price.

This is what irks the private trade. It doesn’t want to pay the minimum support price to farmers. If it can get paddy at Rs 800-900 per quintal in Bihar for instance why should it shell out Rs 1,310 per quintal to Punjab farmers? While I say this, the Gurgaon Chambers of Commerce and Industry have already asked the Haryana government to remove the APMC Act completely which will allow them to procure cheaper raw materials for the industry.

To say that market structures do not permit the entry of new players who want to set up cold chains and invest in other infrastructures is all bunkum. In seven years after repealing the APMC Act Bihar has seen any revolution in agricultural marketing. Farmers have been left in the lurch. Nor is the private trade interested to make investments. In fact, the industry wants to exploit the already existing supply networks in the frontline agricultural states like Punjab and Haryana.

Prior to the Green Revolution, and before the Agricultural Prices Commission was set up, farmers were free to sell their produce to anyone who offered them good prices. It was known to be an exploitative system wherein the trade squeezed the profit margin of farmers at the time of harvest. It was only when procurement prices were introduced that farmers got an assured price for their produce, and that is what encouraged them to produce more. An assured price and an assured market formed the very foundations of the Green Revolution. Procurement prices help farmers realise a fair and better price for their produce. This system needs to be improved and strengthened, not dismantled. 

There is no denying that over time some aberrations have cropped up in the way the mandis (as the public grain markets in India are known) operate. The APMC laws have the provisions to effectively regulate these mandis. But rarely has the government ever stepped in, and in fact it is because of the political cover to the powerful middlemen coterie that the entire mess has generated. For instance, why do the State Governments make a political appointee as the chairman of the APMC committee? 

But to take away horticultural produce from the purview of the mandis, and that too after the 2005 amendment in the APMC Act had allowed the private buyers to bypass the mandis and purchase wheat and rice directly from the farmers, is primarily aimed at killing the procurement system. This is the first step. More will soon follow. In other words, knowingly or unknowingly Rahul Gandhi is very cleverly suggesting destruction of the very foundations of food self-sufficiency built so assiduously over the past four decades. #

An abridged version appeared in The Hindustan Times, Jan 20, 2014.
Leaving farmers to reap the bitter harvest 

Read also: Cartels cause runaway inflation. DNA Mumbai, Dec 30, 2013.

1 comment:

Anonymous said...

I completely agree with the points given in the article.