Are the agricultural reforms enough?

Price is dependent on the interaction between demand and supply components of a market. This is a holy line in preamble of any microeconomics text book. COVID-19 has disrupted the supply chains by labour shortages, resulted in the rise of prices of essential commodities. The pandemic increased costs of operations of supply chains and exposed the weak supply chain in agricultural sector. Despite a series of strong measures taken on the supply side by various governments, no government till date took any serious measures on improving the marketing of agricultural produce.

The finance minister brought in a series of reforms in law and liquidity measures to support the long-suffering farming community of this country. A few decisions are historic which can change the fate of farmers, if implemented properly. Some of the highlights and the challenges in implementing the reforms is as follows:

Credit facility to farmers
The growth rates of Agriculture sector declined from 18.2% in 2014–15 to 16.5% in 2019–20. One of the important reasons for this decline is Gross Capital Formation. Untimely availability of loans, interest rates and poor price realisation punished the farmers of this country perpetually. An emergency working capital of Rs. 30,000 crore through NABARD, accessible through RRBs and District Central Cooperative banks provides timely credit support to farmers.

Amendment to Essential Commodities Act
The farmers have long suffered because of this one single law: Essential Commodities Act. The government had the power to confiscate any stock of grains, if found with farmers. Instead of providing a reliable supply chain and marketing mechanism, the government has taken away the only power that the farmer has, to get a fair price and control the price in the market. Amendments to this law is a historic decision in this context. In addition to this reform, accessible storage infrastructure framework need to be formulated. This brings stability to market prices, while providing fair prices to farmers. A reliable Contract farming and Farmer Produce Organisations(FPO) framework along with the amendment proposed will play a major role in doubling the farmer’s income.

Agriculture Marketing Reforms to provide marketing choices to farmers
The state of Karnataka took a historic decision to facilitate private market yards for procuring food produce. Agricultural Produce Market Committees, are largely controlled by political groups and do not provide a competitive/fair price to the farmers. APMCs resulted in monopoly and did not benefit farmers. Easing norms and letting private market yards and e-procurement will create an efficient marketing framework.

Agri Infrastructure Fund
Effective use of agricultural machinery helps to increase productivity and production of farm output along with timely farm operations for quick rotation of crops on the same land. By raising a second crop or multi-crops from the same land, there is improvement in the cropping intensity and making agricultural land commercially more viable. This fund, proposed by the Finance Minister will help in improving the post harvest management.

Aspects to be looked into:
Agricultural Marketing is ineffective in India and has been perpetually punishing farmers. Supply chains are largely controlled by middlemen and dispersed efforts increase the cost of produce before it reaches the market. The supply chains are long tenuous and are one of the reasons for poor marketing and price realisation for the farmers. Entry of players like Reliance Fresh/Walmart will compress this supply chain and provide better price realisation for farmers.

Journal of stored products and post harvest research has published in its research, the impact of lengthy supply chains in price realisation. Here is how the price realisation varies as the length of supply chain varies

Amending the Essential Commodities Act will surely put the farmer in a better position in better price realisation. Bringing in private market yards and encouraging organised retail in agricultural market will reduce the length of supply chains, reduce the consumer prices and provide for better price realisation for farmers.

Although the reforms proposed by the Finance Minister are not 100%, it is a step in the right direction. Agriculture being a state subject, the states should also keep aside their vested political interests and come forward in welcoming the reforms and take an opportunity for the first time in this country to do something significant to the farmer.

Jai Jawan, Jai Kisan

Jai Hind!!