Modi Government's Agricultural Market Reforms: Old (and Discredited) Wine in a New Bottle?

Instead of dismantling the regulated APMC mandis, the government needs to make them stronger and build supporting infrastructure like warehouses.

It happened in 2003. The Atal Bihari Vajpayee government allowed private companies to purchase wheat directly from the farmers. Major global trading companies, including Cargill, Australian Wheat Board, Bunge and Louis Dreyfus, went on a buying spree. What happened as a consequence was in a way reminiscent of the dark days of the Great Bengal Famine in 1943. With the private sector diverting the food supplies and eventually exporting it, millions of people were deprived of food.

Not left with enough wheat to meet the public distribution requirement, the then food and agriculture minister Sharad Pawar (after the UPA government was sworn in in 2004) had no other option but to resort to wheat imports. By the end of 2005-06, India had imported nearly 80 lakh tonnes of wheat at almost double the price it paid to domestic wheat growers, creating a furore within the country. That was the biggest food import by India after the days of the Green Revolution. Realising their mistake, the UPA government in 2007 quietly withdrew the model Agricultural Produce Marketing Committee (APMC) Act, which many had considered to be a big market reform.

The new agricultural market reforms with the catchphrase ‘one country, one market’, which the government is now planning to introduce, are not much different. Aimed at creating a common agricultural market, they harp on the same failed principles of improving efficiency and raising farm incomes by the increased application of information technology, thereby apparently bringing in transparency. Freeing up trade in agriculture produce by giving farmers a wider choice of markets means setting up private markets, which primarily hinges on slowly and steadily dismantling the 7,700 APMC mandis that exist.

First, let us look at the dominant argument that it is overregulation by APMC mandis and the formation of local trade cartels that actually limits the price received by farmers. What is not being said is that it is actually the payment of the minimum support price (MSP) at the APMC mandis that provides farmers with an assured price. Prices will otherwise crash, forcing farmers to resort to distress sales. In Punjab, which has a network of well-established APMC mandis, come what may, wheat farmers are able to get the MSP of Rs 1,625 per quintal. In Bihar, where there are no APMC mandis since 2007, the best price farmers get is around Rs 1,100 or Rs 1,000 a quintal. What Bihar therefore urgently needs to do is to set up APMC infrastructure.

The electronic National Agriculture Market (eNAM) has the underlying objective of helping farmers access markets across the country. So far, 417 mandis in 13 states have joined the eNAM platform. Cutting across the hype, again what is not being said is that the story of the eNAM is similar to the now-defunct eChaupals. If you recall, eChaupals were introduced with aim of using information technology as an autonomous agent for change and hailed as the lone success story to bridge the information divide. Now no one even mentions the name eChaupals.

The eChaupals were launched in the year 2000 with much fanfare. I remember some popular magazines had even done cover stories claiming that eChaupals had ‘empowered’ farmers by providing information and removing ‘corrupt’ intermediaries. What was not said was that ITC-IBD, which operated eChaupals, was also an intermediary. Its underlying objective was to procure soyabean for the international value chain. Subsequently, it was established that notwithstanding the hype, the price ITC-IBD paid to soyabean farmers over the years was almost equal to what the traditional mandis were offering.

Nevertheless, by 2005, eChaupals had converted into a rural retail network of malls known as Chaupal Saagars to sell fast-moving consumer goods to villagers. The eChaupal debacle therefore has lessons galore that simply cannot be brushed aside. Dismantling the APMC regulated markets and bringing in instead eChaupals or eNAM networks suffers from the same ideological thinking. Let us also not forget that to up the ante, even eChaupals had received numerous awards and recognitions. That’s the way the dominant narrative is conveniently changed to favour private markets. Eventually, it is the traditional APMC-regulated markets that have proved to be the sole beneficiary to farmers. And let me make it very clear – if there was no APMC mandi network established, there would have been no Green Revolution.

Over the years, there is no denying that APMC-regulated mandis have turned into a den of corruption. The challenge therefore is to make these mandis more efficient and modernised, and of course evolve a management system bereft of political control and free of muscle power of the organised cartels that operate. In my understanding, having studied the agricultural markets both within and outside the country over the past few decades, what India requires is:

• To expeditiously expand the existing network of APMC mandis. At present, India has a network of 7,700 APMC mandis against the requirement of 42,000 mandis needed within a radius of five km. Each mandi should be connected with an electronic trading platform but nothing to be traded below the MSP announced.
• Like in Punjab, a network of village link roads needs to be constructed linking a mandi and a village. This should form the basis for the ‘ease of doing farming’, enabling farmers to transport their produce without any hiccup.
• Any produce which a farmer brings to the mandi must be procured by the traders in the mandi at the procurement price. The concept of fixing ‘model price’ in eNAM market yards should be disbanded with immediate effect. In fact, the MSP, which is announced for 24 crops but implemented for only purchasing wheat and rice, should be the model price at which trading should be conducted in any mandi. In other words, the MSP should be made statutory.
• To encourage farmers to gradually shift towards bringing better quality of produce, a grading system should be introduced in the mandis. Three decades back, Punjab had set up machines for cleaning and grading wheat in the mandis, for which farmers received Rs 2 extra per quintal. But it wasn’t promoted with zeal.
• Like in the Spot Markets, if traders can make arrangements for physically stocking the produce for future trading, I see no reason why traders (or a cooperative of traders) cannot procure and stock commodities like onion, chana, potato and tur, which they procure from farmers.
• The network of mandis should also be linked with a network of warehouses. If the government can build offices for gram sabhas in roughly 2.5 lakh panchayats, I see no reason why agricultural warehouses cannot be constructed the same way. This will provide the right kind of investment for ensuring food security as well as for increasing farm incomes.

Devinder Sharma is an expert on Indian agriculture.