R. Ramakumar

Farmers Protest in India 2020 | UPSC

R. Ramakumar is a Professor at the Tata Institute of Social Sciences, Mumbai

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.

RESOURCE EXPLOITATION

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.

SELLING POINT

• 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.

TRANSACTION COSTS

• 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.