Farm Reforms: Is This the 1991 Moment for India’s Agri-Business Sector?

The industry has hailed the hotly debated pieces of legislation, but it must be seen if gains eventually reach the small farmer.

“I personally see it as a 1991 moment for agriculture in India and it should be embraced and not opposed,” says Kapil Mehan, strategy advisor to few agribusiness companies and the former managing director of fertiliser company Coromandel International.

Mehan is referring to the three hotly debated farm bills that recently became law after being passed by parliament.

Most from the corporate world seem to echo this view and is evident from their reception to the bills calling it transformative in nature. But as is apparent life is not going to change tomorrow, especially for farmers with small holdings. One major reason why there is another level of debate in their circles that even today sees a crying need for ecosystem gaps to be bridged evident in a pitch that, far from demonising the mandis (marketplaces), seeks more of them.

Is it therefore a moment to rejoice, as many within the agribusiness sector, would want us to believe? Or are there unattended concerns being glossed over, as the protests by various political parties and farmer groups convey?

In focus are the three pieces of legislation: Farmer’s Produce Trade and Commerce (Promotion and Facilitation) bill 2020, Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and the Essential Commodities (amendment) Bill, 2020.

Measures outside of the Bills

S. Sivakumar, who heads the agri-businesses and IT at ITC and one who has been the brain behind ITC’s e-choupal model and has worked with many management gurus, including C.K. Prahalad finds the agri reforms passed by both the houses of parliament as quite transformative and with good reason.

He feels “the bills need to be seen along with the other measures taken by the government recently.”

Also read: Interview: ‘A Level-Playing Field for Farmers Can Only Come Through an MSP Regime’

On what specific change each bill will get, he says, the Farmer’s Produce Trade and Commerce (Promotion and Facilitation) bill allows farmers to bypass the Agricultural Produce Market Committee (APMC) regulated markets and will lead to the formal sector beginning to engage with the farmers directly on a long term basis. The Agreement on Price Assurance bill strengthens the farmers’ bargaining power by laying out the model terms for an agreement with a buyer of farm produce. The Essential Commodities amendment removes the Damocles’ sword hanging on larger players of the Act being rather loosely invoked and will ensure that the other two bills can translate into action.

Karnataka State Farmers Association members take part in a protest rally against the State Government over their various demands, in Bengaluru, Monday, September 21, 2020. Photo: PTI

But then, to him, these bills cannot be seen in isolation and need to be read along with the other supportive measures announced by the government. For example, the Farmer Producer organisation guidelines that create farmer institutions and empower them through collectivisation. The Agri & Allied infrastructure and the Micro Food Enterprises (MFE) funds that are meant to put money in the hands of farmers to build post harvest infrastructure and enable higher value capture by the farmers. Also, since October last year, the government enabled farmers to hedge by allowing commodity options settlement directly based on spot prices instead of a practice of options devolving into the futures first. “This will help farmers lock in prices at the time of planting, yet look for an upside should the prices go up at the harvest time.”

What also needs to be included among the slew of measures, says Sivakumar, is the PM Kisan scheme where direct benefit transfer will help farmers deploy the cash in right inputs and services once the ecosystem is created because of the new bills.

All of it, he says, translates into farmers getting greater choice in where to sell their produce, agri-linked companies getting  incentivised to invest more in building the value chain with many of the restrictions and cumbersome procedures getting eliminated. And, for companies like ITC, which already procures about two-thirds of its total agri supplies directly from the farmers, enable new investments coming into building the supply chain. “The agri reforms have now played a role in building a demand responsive production system, which is good for all the stakeholders, “ he says.

Also read: Top-Down Decision Making Will Not Help Improve Farmers’ Incomes

Also, “once the supply chain infrastructure moves closer to the villages, even the smaller farmers who won’t have large output benefit, especially if they join the FPOs.”

Fragmented holdings

If the measures are all to help the farmers and alleviate their woes then why are they protesting?

V.M. Singh, convenor of the All India Kisan Sangharsh Coordination Committee, which is at the centre of all the agitation feels the fragmented holdings of farmers makes them ill-equipped to participate in a free market setting.

He argues his point with an example of the experience with the maize crop. He says, “the bills may have been passed and made into an Act two days ago but the ordinances on these were promulgated on June 5th 2020 and the moment an ordinance is issued, it is a law. Thereafter, we had the maize crop coming in and during July and August and the MSP (minimum support price) declared by the government for maize was Rs 1760 per quintal and this year it is Rs 1850 per quintal but the government did not procure even a grain and maize was being sold at less than Rs 1000 per quintal – ranging between Rs 700 and Rs 900 a quintal across Bihar, Madhya Pradesh, Haryana, Uttar Pradesh, Punjab and Rajasthan.”

Pointing out that “if the new law was in place then the shackles were removed with the ordinance and the farmers could have sold in any market but no one ended up doing so,” he says, “this is because they did not have the resources or the means to send the produce as 86 per cent of the Indian farmers have land holdings less than 2 to 3 acres.”

Members of various farmers’ organizations stage a protest over agriculture related ordinances, in Hisar district, Sunday, Sept. 20, 2020. Photo: PTI

Add to this, he says, “even though the MSP was in force the government did not intervene and procure the grains. Compare this with those who would have ended up buying the entire maize produce of 285 metric tonnes at throw away prices and making huge gains selling in markets that fetched high prices.”

To Singh, this only means that “those with means, the corporates in this case, only stand to gain and which is one reason, they are celebrating these measures.” He says, “the open market is only for the corporates and not for the farmers. The farmers can benefit if there is a guarantee that produce will have to be bought at any price above the MSP with MSP being the true base price.” He says, it is very important that such a guarantee is enforced in the form of a legislation as it is missing in the current farm bills.

Also read: Farm Bills: English Newspapers Condemn RS Deputy Chairman’s Decision to Hold Voice Vote

Regional variations

C.H. Hanumantha Rao, economist and an expert in agriculture sector, adding the caveat that he has not had access to much of the developments around the bills, says “my own impressions are that there are lot of regional variations that are coming across in the various protests being made to the agri-reforms”.

“For instance, in Punjab and Haryana, the minimum support prices and the public distribution system have been operating effectively there and in any case there is not much of multiple cropping done there as in other states and therefore arguably there is no objective need for an alternative mechanisms, which is not the case in many other states,” he says.

Long-awaited changes 

But then Mehan argues that it is with good reason that it has to be seen as the 1991 moment “because with three significant agricultural marketing reforms, agricultural marketing and supply chain will get modernised which hasn’t seen any developments since seventies as it largely remained a public sector domain.”

Sourcing from farmers, he opines “has remained an unorganised activity with opaqueness in price discovery along with lack of standardised quality apart from the post harvest losses and other issues.” But then, aren’t the corporates already directly sourcing from the farmers? He says: Currently, there are only a few large corporates whereas what the sector needs is multiplicity of such engagements. At the moment, bulk of the direct procurement is by informal aggregators with no real infrastructure of their own and only taking the produce to the local trader.

For those quick to conclude that the agri reforms have resulted from some recent enlightenment, Dr Sanjaya Baru, former media advisor to Dr Manmohan Singh, writer and distinguished fellow, Institute for Defence Studies and Analysis, cautions that much like the 1991 reforms, which followed years of research and recommendations by various committees, the agri reforms too have been mooted for several years now.

Also read: With the Farm Bills, the Government Has Abandoned Farmers to Market Forces

“The reforms of 1991 came out of various committee reports through the 1980s – Abid Hussain committee, Narasimhan committee, Dagli committee and many others that recommended all those changes. Though it was done in a dramatic manner, the ideas were not last minute thinking. Similarly, here too a lot of work has been done and case for reform of the APMC was made by economists during the Manmohan Singh government, especially the former Planning Commission member, the late Saumitra Choudhuri.”

For the moment, the good news for the farmer is his woes are in focus. What however needs to be watched is whether it ends up shaking him or his sector.