IASbhai Daily Editorial Hunt | 1st Dec 2020
“Either write something worth reading or do something worth writing.” – Benjamin Franklin
EDITORIAL HUNT #269 :“Farmers Protest in India 2020 | UPSC”
Farmers Protest in India 2020 | UPSC
R. Ramakumar is a Professor at the Tata Institute of Social Sciences, Mumbai
The perils of deregulated imperfect agrimarkets
The Farm Acts were legislative misadventures, while much more is needed to address the genuine fears of farmers
SYLLABUS COVERED: GS 3 : Agriculture
Which policy stances have set alarm bells ringing among farmers. Discuss -(GS 3)
- Farmer’s agitation
- More Mandis are needed
- Private investment in Agriculture
- The fate of MSP
- Way Forward
- NEW DELHI’S RESPONSE : The state believes that many private markets will be established, middlemen would disappear, farmers would be free to sell to any buyer and farmgate prices would rise.
- CORPORATE PLAYERS : They believe that farm gate prices would fall with the intensification of a corporate presence in agricultural markets.
- GRADUAL ELIMINATION OF MSP : Farmers also believe that the state, ultimately, wants to phase out the Minimum Support Price (MSP) system.
SOURCES : ALJAZEERA | FARMERS PROTEST IN INDIA 2020
MORE MANDIS NEEDED
- APMC MANDIS : Mandis controlled by Agricultural Produce Marketing Committees (APMC) are monopsonies(a market situation in which there is only one buyer) in rural areas.
- SUSPICIOUS NUMBERS : Official data show that even for paddy and wheat, respectively, only 29% and 44% of the harvest is sold in a mandi, while 49% and 36% is sold to either a local private trader or an input dealer.
Farmers are forced to sell outside the mandis for two reasons:
- The first is that there are not enough mandis.
- The second reason is that most small and marginal farmers do not find it economical to bear the transport costs to take their harvests to mandis.
INDIA NEEDS MORE MANDIS
- In 1976, there were 4,145 large markets in India, with the average area served at 775 km2.
- But there were only 6,630 mandis in 2019 with an average area served of 463 km2.
- Using another set of criteria, a government committee in 2017 had recommended that India should have at least 10,130 mandis.
- So, by all counts, India needs not less but more mandis.
- INCAPACITY : Thus, they end up selling their harvest to a village trader even if at a lower price.
- INCREASING FARMERS INCOME : The situation will change only if economies of scale rise substantially at the farm-level.
- EXISTING OPPORTUNITIES : The freedom to sell outside mandis already exists in many States.
- DIRECT BENEFIT TRANSFER : 19 States have allowed the direct purchase of agricultural produce from farmers.
- MARKETS OUTSIDE APMC : 13 States have allowed the establishment of farmer’s markets outside the APMC.
WHY PRIVATE INVESTMENT IS NOT FLOWING IN?
- PRIVATE INVESTMENT : Despite such legislative changes, no significant private investment has flowed in to establish private markets in these States.
- LESS SPOTLIGHT : Private markets have emerged in some pockets for some crops, but these are by no means widespread.
- HIGH TRANSACTION COST : The reason for poor private investment in markets is the presence of high transaction costs in produce collection and aggregation.
- COST BENEFIT ANALYSIS : When private players try to take over the role of mandis and the village trader, they incur considerable costs in opening collection centres and for salaries, grading, storage and transport.
- ADDITIONAL COSTS : Corporate retail chains face additional costs in urban sales and storage, as well as the risk of perishability.
- IDEAL DEAL : This is why many retail chains prefer purchasing bulk quantities of fruits and vegetables from mandis rather than directly from farmers.
- TAXATION AT MANDIS : Even if private markets emerge, the size of transaction costs are likely to offset any decline in mandi taxes.
- ASSURANCE : As a result, there is no assurance that farmers would receive a higher price in private markets.
- COST CUTTING : In fact, if transaction costs exceed mandi taxes, the costs would be transferred to the farmers as a lower price.
- STRONG CLUTCHES : This, then, would imply a stronger squeeze on the farmer than at present.
- DEREGULATING MANDIS TAX : A fall in mandi taxes would reduce the surplus available with APMCs for such investment.
- DOUBLE TAXATION : States such as Punjab, the government charges a market committee fee and a rural development fee.
- DEPRIVED RURAL INVESTMENT : If surplus is less then , such rural investments will also be adversely affected if mandis are weakened.
SOURCES : BBC
THE FATE OF MSPS
- MSP’s WILL FILL BUFFER STOCKS : MSPs would continue to survive on paper as New Delhi will have to procure to maintain a minimum buffer stock.
- WEAKENING SIGNALS : However, many policy signals point to a strategic design to weaken the MSPs.
- LABOUR COST : First, input and labour costs are rising sharply in agriculture.
- LOGARITHMIC DECREASE : However, MSPs are rising at a far slower rate over the past five to six years than in the past.
- FIXING THE MSP’s RATES : State has not yet agreed to fix MSPs at 50% above the C2 cost of production.
- BALANCE SHEET OF FARMERS : As a result, farmers continue to suffer a price loss of ₹200 to ₹500 per quintal in many crops.
- PROCUREMENT POLICY : Third, the Commission for Agricultural Costs and Prices (CACP) has been recommending to New Delhi that open-ended procurement of food grains should end.
- MARKETING CENTRES : In Punjab, Haryana and western Uttar Pradesh, most crop sales are at the MSP through procurement centres including the mandis.
- INCLUSION OF PRIVATE PLAYERS : If mandis weaken and private markets with no commitment to MSPs expand, they fear a gradual erosion of their entitlement to a remunerative price.
- UNHEALTHY TRADE PRACTICES : If mandis weaken and private markets do not sufficiently replace them, they fear that the void would be filled by unscrupulous and unregulated traders.
STEPS TO BE TAKEN
- PROPER FRAMEWORK : Discussions between the government and the farmers can be structured using a broad framework based on two focus points.
- EXPANDING MANDIS : India needs an increase in the density of mandis, expansion of investment in mandi infrastructure and a spread of the MSP system to more regions and crops.
- UNIVERSALISATION OF PDS : This should happen hand-in-hand with a universalisation of the Public Distribution System as an affordable source of food for the poor.
- IMPROVISED INFRASTRUCTURE : Second, we need not just more mandis, but also better mandis.
- INTERNAL REFORMS : APMCs need internal reform to ease the entry of new players, reduce trader collusion and link them up with national e-trading platforms.
- UNIFIED LICENSING : The introduction of unified national licences for traders and a single point levy of market fees are also steps in the right direction.
“Deregulated imperfect markets may become more, not less, imperfect than regulated imperfect markets”
SOURCES: THE HINDU EDITORIAL HUNT | Farmers Protest in India 2020 | UPSC