Abstract
Introduction
Recently, India’s political discourse has seen a rise in issues pertaining to agrarian dissent. In March 2018, Mumbai witnessed a protest, wherein 40,000 farmers from across Maharashtra assembled to demand better crop prices and loan waivers (Satheesh, 2018). A similar protest was observed in November 2019, when thousands of farmers marched to Delhi to demand debt waivers and higher crop prices (Al Jazeera, 2018). In the first nine months of 2020 alone, India saw more than 50 major farmer protests (Pandey, 2020). These indicate that there was a lot of discontent amongst farmers in India, due to issues ranging from debt, low prices of agricultural commodities, lack of irrigation infrastructure, etc. All the simmering issues related to agriculture and allied activities in the country culminated in a major protest shortly after the government of India passed the controversial farm laws in September 2020.
These laws, namely, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; the Farmers Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020; and the Essential Commodities (Amendment) Act, 2020, were passed with the intention of modernizing the Indian agricultural market through encouraging private investment, entrepreneurship and competition (Krishnamurthy, 2021). However, the agrarian community of India felt that this step would take away the safety net offered by the state and put them in a vulnerable position. This led to a nationwide protest by the farmers; its impact was especially felt within the states of Punjab, Haryana and some parts of western Uttar Pradesh, often among large landholding farmers (Haq, 2020). The protest was helmed by the Samyukt Kisan Morcha, which is an umbrella organization representing 32 farmers’ unions. In light of the protest, in January 2021, the Supreme Court of India had to put a stay order on these new laws (Anwar & Shakeel, 2021). Subsequently, on 19 November 2021, the Prime Minister of India announced the repeal of the farm laws with immediate effect (Indian Express, 2021a). Hence, in this context, this article reviews agricultural marketing in India and its challenges, policies and politics with a deeper lens. The next section discusses an overview of agricultural marketing in India. Section 3 provides a discussion of the agricultural reforms in the past.
Agricultural Marketing in India: An Overview
The history of regulation of agricultural markets in India can be traced to the recommendations of the Royal Commission on Agriculture in 1928, which found its way into the Model Bill of 1938. Upon the independence of India, the Agricultural Produce Marketing Regulation (APMR) Act was constituted, which proved to be a landmark legislative instrument for state regulation of agriculture in India. It had provided the state governments in India with the choice to form of the Agricultural Produce Marketing Committees (APMCs), which was adopted by many states in the 1960s. At the time of their formation, and many years thereafter, APMCs were hailed as an innovative and democratic solution towards ensuring better prices of agricultural produce through auctions and protection of the farmers from the high cost of marketing and loss of produce (GoI, 2009). The APMC, also referred to as mandi, is the physical market infrastructure which is found in all states in India (except Jammu and Kashmir, Bihar, Kerala and Manipur). They serve as physical entities which regulate market practices such as weighing, methods of sale, methods of grading and methods of payment. To date, there are 7,246 functioning mandis in India (Pingali et al., 2019).
At the APMCs, the government is mandated to procure certain ‘notified’ agricultural commodities from farmers through traders and middlemen (commission agents). These traders and agents are licensed by the APMC and charge a commission to the farmers in exchange of facilitating the procurement of their produce. Additionally, the APMC charges a market fee from the farmers and traders, which is used for the construction and upkeep of the physical infrastructure. The APMCs were envisioned as a platform for marketing activities for the farmers, which would curb exploitation by traders and mercantile capital. However, over time, due to vested interests, myopic policymaking and bureaucratic shortcomings, the APMC system saw marked deterioration. The implementation of the Essential Commodities Act and other regulations compromised the freedom and competitive nature of the market system. As the states got revenue from the APMCs, the state governments started installing their nominees on the boards of the APMCs which led to the creation of a nexus between the political class and the trades and middlemen of the APMCs. Furthermore, the APMR mandated the licensing of traders at the APMCs, and for the said licence to be issued, owning a shop/go-down space within the boundaries of the APMC was mandated. This became a major barrier to the entry of new entrepreneurs and encouraged rent-seeking behaviour. Also, the licensed middlemen/traders organized themselves into associations. Both these factors stifled the entry of new entrepreneurs, which in turn compromised the price bargaining power of farmers (GoI, 2013).
Hence, over time, the system, instead of facilitating efficient marketing practices which benefitted the farmers, became an instrument for the political–trader/middlemen nexus to further their monopolistic practices. This led to a lack of competition for the APMCs, which in turn was reflected in the high marketing charges levied on farmers and well poor upkeep of market infrastructure.
Additionally, the culture of excessive state control discouraged free trade of agricultural commodities across and within state boundaries and private investment in the sector. This led to long and mismanaged value chains, which led to a large number of intermediaries in the chain and compromised the price received by farmers for their produce. This is reflected in the low producers’ share of the consumer’s price of agricultural commodities in India. It is estimated to be in the range of 32% to 68% in the case of perishables such as fruits and vegetables, while in paddy, it is in the range of 56% to 89%, and for wheat, it ranges from 77% to 88% (GoI, 2013).
The politicization of APMCs, the cartelization of traders/middlemen and the lack of entrepreneurs in the space led to various issues over time. The said issues could be clubbed into the following categories:
Challenges in obtaining licence High market charges Poor market infrastructure Long and inefficient supply chain and inadequate remuneration to farmers.
State of Agriculture in India
The various challenges in India’s agricultural marketing are reflected in the low incomes of agricultural households in India. The Situational Assessment Survey of 2018–2019 (June–July), conducted by the National Statistical Office, found the nominal monthly income of agricultural households in India to be ₹10,218 (NSSO, 2020). In 2012–2013, it stood at ₹6,426 per month (NSSO, 2014). While the compounded annual growth rate (CAGR) of monthly nominal income stands at approximately 8%, growth in real income has been fairly low. Upon deflating the nominal income by the Consumer Price Index for Agricultural Labour (CPI-AL), the CAGR of real income from 2012–2013 to 2018–2019 stands at just 3%. Upon using the wholesale price index of all commodities, the real growth rate of agricultural income from 2012–2013 to 2018–2019 in India stands at 6.1% (Indian Express, 2021b).
The low income from agriculture has prompted the farmer population to look for other avenues of income. Table 1 highlights the different sources of income for farmers in India and the change in their contribution to the total income over time.
Table 1 indicates that from 2002–2003, the share of farmers’ income from cultivation fell from 45.8% to 37.7% in 2018–2019 (NSSO, 2020). This drop has been supplemented by a rise in income from wages and salaries from 38.7% to 40.3%, as well as the rise in the share of income from farming of animals from 4.3% to 15.7% during the same period.
Contribution of Income Sources to Total Farmers’ Income from 2002–2003 to 2018–2019.
While most of the Indian states have faced detrimental consequences due to the mismanagement of the APMCs, it has been beneficial for the farmers of Punjab, Haryana and the western part of Uttar Pradesh. Notably, these were the areas which erupted in protest upon the passing of the farm laws. Figures 1 and 2 highlight the total procurement of wheat and rice for the central pool and the percentage of wheat and rice procured from the states of Punjab, Haryana and Uttar Pradesh.
Figure 1 highlights that while the total procurement of wheat in India has fluctuated on a year-on-year basis, overall, it has shown an increase from 225.13 lakh metric tonnes in 2010–2011 to 433.44 lakh metric tonnes in 2021–2022. The percentage of total wheat procured from the states of Punjab, Haryana and Uttar Pradesh has dropped slightly from 80.08% in 2010–2011 to 63.10% in 2021–2022 (FCI, 2022a).
Figure 2 demonstrates that the total procurement of rice in India has shown an increase from 350.6 lakh metric tonnes in 2010–2011 to 518.62 lakh metric tonnes in 2021–2022. The percentage of total rice procured from the states of Punjab, Haryana and Uttar Pradesh has shown a slight increase from 37.50% in 2010–2011 to 39.80% in 2021–2022 (FCI, 2022b), indicating that over the years, the government has disproportionately procured large quantities of wheat and rice from these states. This could be attributed to the political and social capital wielded by the farming communities in this region.
Past Attempts at Agricultural Reforms
Given the rise of systemic challenges and the low farmers’ income, there have been many attempts at reforming the agricultural sector in India since the early 2000s. These attempts sought to deregulate the regime and encourage investments in the sector. The 10th Five Year Plan (2002–2007) identified the Essential Commodities Act, 1955 (ECA) as a major barrier towards encouraging investment in storage and warehousing. Subsequently, many agricultural commodities have been taken off the ECA. Notwithstanding these efforts, the rigid rules framed under the act continue to exist. The Union Budget of 2002–2003 recognized the importance of agricultural diversification and food processing. To this end, an inter-ministerial task force was constituted, based on whose recommendations, the Model APMCs Act was passed in 2003. (GoI, 2013) This was done with the intention of revitalizing the APMC system through standardization, grading and quality certification of produce. The provisions under the Model APMC Act were as follows:
Setting up of private yards and direct purchase centres for direct sales Facilitating public–private partnership for the development of the agricultural market Developing a special market for perishables Regulation and promotion of contract farming Prohibition of commission agents in the transaction of agricultural produce.
The Model APMC Act did not have the desired impact on the ground. Selective provisions, such as exemption of fruits and vegetables from the purview of APMC, were carried out by several states. Bihar repealed the APMC Act in 2006, but it did not translate into a competitive agricultural marketplace and a higher price realization for farmers. Instead, it seemed to have benefitted the larger wholesalers and the owners of flour and rice mills. Madhya Pradesh also reformed its APMC rules whilst retaining many of its important features. These reforms led to the entry of large corporates in the procurement of agricultural commodities (e.g., ITC) and were also accompanied by a growth in cooperative banks (Kapur & Krishnamurthy, 2014). This led to a weakening of the credit and output market nexus controlled by the traders and the commission agents. This was beneficial for medium to large farmers, but the small farmers continued to be dependent on traders, commission agents and moneylenders.
Given the lukewarm response to the Model APMC Act by the Indian states, the government of India set up the Empowered Committee of State Ministers in-charge of Agricultural Marketing on 2 March 2010. The committee was to persuade states to adopt the Model APMC Act and suggest measures for the promotion of barrier-free national markets in agriculture, efficient dissemination of agricultural information and promote grading, standardizing, packaging and certification. The broad recommendations put forth by the committee were as follows:
Reforming agricultural markets Promotion of investment in marketing infrastructure development for agricultural produce Standardization of marketing fee/commission agents Encouraging contract farming Reducing barriers to free markets Developing a market information system Grading and standardization of agri-produce Strengthening Farmer Producer Organisations (FPO).
While the implementation of the Model APMC Act did not see the desired results in India, some other efforts of the government have seen a better response. For instance, with the Gramin Agricultural Markets (GeAMs) initiative, the government has been successful in strengthening the ‘Rural Haats’ (informal agricultural markets) of India. This scheme makes way for developing these ‘Rural Haats’ into viable alternatives of the APMCs by facilitating direct market linkage to the farmers resulting in better price realization (GoI, 2019). This has been especially beneficial to those farmers in interior rural areas, which are at a substantial distance from the APMCs and face high costs of transportation of agricultural produce and other barriers to entry. This initiative is especially impactful given that about 42% of the total marketable surplus of all agricultural produce and 90% of the marketable surplus of resource-poor farmers of India is traded in these ‘Rural Haats’ (NSSO, 2014).
Furthermore, in 2015, the government of India launched the e-NAM (National Agricultural Market) portal, which was aimed at developing a pan-India electronic trading portal for agricultural commodities which would remove trade barriers and entry restrictions in agricultural marketing (NABARD, 2018). The e-NAM portal seeks to create a unified online agricultural market by connecting all the existing APMC mandis of India. It aims to address the challenges pertaining to physical entry barriers for trade and information asymmetry between buyers and sellers. By 17 June 2018, 585 regulated markets across 16 states and two union territories were integrated into the e-NAM portal, 1.05 crore farmers had registered on the e-NAM portal, out of which 45.25 lakh farmers had traded on the platform. The number is growing and as of 31 October 2020, the e-NAM portal has 1.68 crore registered farmers, 1,798 FPOs and 1.50 lakh traders. The platform has handled agricultural trade worth ₹91,000 crores since its inception (Manjula, 2021).
Recent Farm Laws and Their Objectives
In an effort to address the various challenges with the agricultural marketing system of the country, the government of India passed the Indian Agricultural Acts of 2020, which are popularly referred to as the farm laws. These laws were passed by the Indian Parliament and received the assent of the President of India in September 2020. The details of the farm laws are as follows:
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020: It was also referred to as the APMC Deregulation Act, given that its main focus was on reforming the APMC system by bringing about the following systemic changes (MoAFW, 2020). The objectives are as follows:
Removal of interstate and intrastate barriers in trade of agricultural commodities. Trading in all agricultural commodities (not only fruits and vegetables) outside the APMC yards. Ban on APMCs levying cess or market fee for trading outside designated market yards by farmers or traders. Doing away with the mandatory licence for operating e-trading platforms. Relaxing e-trading norms and allowing FPOs or any other organization or individual with a PAN to engage in e-trading. The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 (Contract Farming Act) intends to provide an enabling framework for contract farming. The key changes proposed for this are:
Written agreement between the farmer and the buyer to be made before the start of season Mandatory requirement to mention ‘guaranteed price’, agreement to be registered with the respective state registration authority. Full payment at the time of delivery Provision against liability from crop loss due to natural calamity and insect and pest attack for farmers Decentralized dispute settlement. Essential Commodities (Amendment) Act, 2020 (Amendment of Essential Commodities Act, 1955) relaxes regulation and stock limits for notified commodities:
Regulation of food items only under extraordinary conditions (famine, natural calamity, extraordinary price rise) Stock limit will not apply to processors and others at the higher end of the agricultural value chain under certain conditions. Stocks for public distribution system and targeted public distribution system exempt from ceilings.
Arguments Against the Farm Laws
Notwithstanding the many shortcomings regarding efficiency and competition, the APMCs of India still provide critical support to the farmers of India. The APMCs of India serve the important role of price signalling for the farmers. This is especially helpful for small and marginal farmers to make informed decisions with regard to the sale of crops. At present, only two-fifths of the total agricultural marketable surplus is traded at the APMC. This volume is likely to reduce upon the introduction of reformative measures. This would place the small and marginal farmers in a disadvantageous position as their ability to set up a fair reference price would be compromised. Additionally, the APMCs collect and publish data regarding the date of market arrival of agricultural produce, trade volume and prices of agricultural commodities. The absence of APMCs would lead to information asymmetry and might contribute to the exploitation of India’s small and marginal farmers (Gaon Connection, 2021).
This issue has been observed in the state of Bihar, where the state government had scrapped the APMCs in 2006. Subsequently, the agriculture market of the state shifted from a government-regulated model to one which was private and unregulated. This led to a shortage of infrastructure pertaining to weighing, sorting, storage and procurement of produce. This has been reflected in the growth rate of the state’s agricultural and allied sectors, which has dropped from 14.9% in 2004–2005 (at 1999–2000 constant prices) to 0.6% in 2018–2019 (at 2011–2012 constant prices) (Singh, 2014).
The proposed contract farming bill was intended to provide security for farmers through the provision of guaranteed price, protection in the event of crop losses and full payment at the time of delivery. However, evidence indicates that a spurt in contracts from private players would be unlikely. At present, contract farming in India is limited to certain pockets such as potato cultivation for chips production, vegetable production for supermarket chains and cultivation of gherkins for export. The unpopularity of contract farming in India can be attributed to the different ground realities more than the regulatory framework. The small landholding size discourages the businesses from entering into contracts directly with the farmers. It instead encourages the role of traders/aggregators. This results in ‘loose arrangements’, where some of the conditions of production and pricing are specified by the buyers in the absence of an actual formal contract. This puts the farmers in a vulnerable position, given there is no safety net, if the buyer withholds the purchase (Singh, 2012).
It is important to note that Indian agriculture has components of both the formal and informal economy. This is because a majority of farmers in India operate on less than one hectare of land; hence, they are able to produce a limited surplus for markets. This creates the need for multiple informal intermediaries for aggregation, marketing and preliminary value addition (grading, sorting, etc.). The three farm laws might result in the emergence of non-state local and regional monopsonies or oligopolistic cartels in India’s agricultural market. And, given the dynamics of bargaining power in the agricultural markets, the laws would have put the small and marginal farmers in a vulnerable position over time (Manjula, 2021).
Summary
To address the various challenges with the agricultural marketing system of the country, the government of India passed the Indian Agricultural Acts of 2020, and the laws were repealed in November 2021. Although agrarian reforms are a must for the Indian agricultural sector to sustain the growing competition, which would eventually aid in the system’s repair, the scenario of different states suggests that a balanced approach from the part of the government is also welcomed from the welfare point of view of the agrarian community.