Agriculture

The Kharif 2020 Crop May Tell Us Whether the Centre's Agri-Market Reform is Working

The first major impact of the Farmers’ Produce Ordinance is likely to be seen in the basmati paddy crop.

In just about two weeks, the Kharif produce will start arriving in the markets.

This will be the first season after the promulgation of the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020, which introduced the concept of ‘trade areas’, outside the physical jurisdiction of APMCs.

Transactions in a trade area are exempted from the market fee, levies and other charges applicable in the APMCs.

Punjab and Haryana have been in turmoil since the promulgation of the ordinance as the farmers fear that the entire system of procurement at minimum support price (MSP) may be on the block. October and November 2020 will therefore be a testing ground for state governments, APMCs, corporate buyers of agricultural produce and the new entrants who will explore the business opportunity in ‘trade areas’.

This year saw a record high procurement of 390 lakh metric tonnes (LMT) of wheat. Rice procurement in the Kharif marketing season (KMS), from October 1, 2019 to September 30, 2020, is already the highest ever at 510 LMT.

Additional allocations due to COVID-19

Due to COVID-19, the government made an additional allocation from April to November 2020 and called it Pradhan Mantri Garib Kalyan Yojana (PMGKY). For these 8 months, the total allocation is 321.12 LMT. Out of this, 214.33 LMT was for rice and 106.78 LMT for wheat. This comes to 40.14 LMT per month. The Food Corporation of India (FCI) and state governments would have found it impossible to find storage space for rice procurement in KMS 2020-21 but for the increase in allocation under PMGKY from 5 kg per person per month to 10 kg.

The normal allocation under PDS in 2020-21 for wheat and rice is 239.23 LMT and 313.76 LMT respectively. There is a token allocation of 0.17 LMT of coarse grains too. Thus, the total allocation for 2020-21 is 587.30 LMT, which comes to 46.08 LMT per month.

Since the Centre offered both wheat and rice free of cost, the state governments have lifted more than 90% of the allocation. This has come as a boon to the FCI and rice procuring states. On September 1, 2020, the food grain stock in the Central pool was 773.61 LMT. Last year on the same date, the stock was 712.71 LMT.

An employee inspects a godown of Food Corporation of India (FCI) where rice bags are being stored in Srinagar, April 14, 2020. Photo: PTI /S. Irfan

Despite much higher procurement of wheat and rice, the Central pool stocks on September 1 are higher by just 60.9 LMT. It is clear that the allocations under PMGKY have greatly helped the FCI and the state governments to create storage space for rice procurement in KMS 2020-21. Both for the National Food Security Act (NFSA) and PMGKY, the government has allocated more rice than wheat.

This has vacated the storage capacity in covered warehouses for procurement of rice.

However, the impact of Farmers’ Produce Trade and Commerce Ordinance on procurement of paddy will be watched with great interest. Punjab and Haryana levy 6% and 4% fee/taxes respectively in their APMCs. These taxes are paid by the Centre to the states/APMCs. This year, if the paddy procurement takes place outside the physical jurisdiction of APMCs, the Centre can save this expenditure.

I think it is unlikely to happen – at least this year – because FCI’s share in paddy procurement is less than 10%. About 90% of the procurement is carried out by the state agencies. They are therefore unlikely to set up procurement centres outside mandis. In Uttar Pradesh, many paddy procurement centres are outside APMCs and it has to be seen if the government of UP will treat this as purchase in ‘trade area’ and it will be exempted from payment of 2% market fee.

Chhattisgarh and Odisha are decentralised procurement (DCP) states in which the market fee is 2%. AP and Telangana are also DCP states which have a market fee of only 1%. Since the FCI hardly procures any paddy in DCP states, it is unlikely that the procurement of paddy by state agencies in these states will be outside APMC markets.

Also Read: Bihar Did Not Meet Even 1% of its Wheat Procurement Target

Basmati may face the first major impact

The first major impact of the Farmers’ Produce Ordinance is likely to be felt by basmati paddy. India produces about 75 LMT of basmati paddy, which is milled to produce about 50 LMT of basmati rice. A report prepared for APEDA in December 2018 (Basmati Acreage & Yield Estimation by Geotrans Technologies Private Ltd) projected the basmati rice production to be 21.4 lakh MT in Haryana, 19.6 LMT in Punjab and 7.3 LMT in UP.

The rice exporters are not eligible for reimbursement of market fee and other taxes/levies paid to APMCs. They would therefore like to save these taxes. The ordinance enables them to purchase basmati paddy in a ‘trade area’ at the premises of rice mills and thus avoid payment of market fee/taxes. This can save them 6% in Punjab and 4% in Haryana, thus making them more competitive than Pakistani basmati rice.

Basmati Rice. Credit: Flickr/cookbookman17 CC BY 2.0

The Agmarknet portal shows that basmati paddy arrivals during October-December 2019 were 14.6 LMT in UP, 13.1 LMT in Haryana and 10.7 LMT in Punjab. If the arrivals are lower this year, it could be due to the impact of the ordinance. A company named Fortune Agromart Private Limited has already set up a private auction yard for paddy in Khurja in Bulandshahr district of UP.

Since the transactions in a ‘trade area’ will not be known to the government, the only source of information is Agmarknet. In order to assess the impact of the Farmers’ Produce Ordinance, the Centre and the states should ensure that the data of arrival of paddy in mandis is accurately and promptly recorded in the portal. There is also a need to monitor this data to assess the extent of transactions outside the APMCs. The only other way of knowing what is happening in a ‘trade area’ is to make it mandatory for all warehouses to register with the Warehousing Development and Regulatory Authority (WDRA).

In 2019-20, India exported 44.5 LMT of basmati rice and earned $4.3 billion. The export of non-basmati rice was 50.4 LMT and earned $2.01 billion. Even during the COVID-19 induced lockdown, 12.8 LMT of basmati rice and 19.2 LMT of non-basmati rice were exported from India. On the back of good global demand, there is every reason to expect that farmers should receive a higher price for their paddy this year. The price and arrival trends of paddy (as well as other crops like maize, cotton, soybean and tur) in the next three months will therefore be invaluable to policymakers and researchers for assessing the impact of Kharif 2020 and the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020.

And lastly, a concurrent evaluation of transactions in a ‘trade area’ is necessary to assess the extent of trade that shifts out of APMCs. Also, we need to know whether the APMC is still the source of price signals to farmers, even if they are selling in a ‘trade area’.

Siraj Hussain was Union agriculture secretary and CMD of the Food Corporation of India. At present, he is visiting senior fellow, ICRIER.