Agri Reforms: Good days ahead for Indian Agriculture?

While the average Indian Farmer is faced with multiple problems from a production/ yield standpoint, the sale of produce remains to be the largest of his problems. The current laws restrict the farmer to sell his produce creating a monopsony – a scenario where there is only 1 buyer for the produce; APMC where the produce gets Auctioned.

Most APMCs are rife with corruption and rent-seeking due to which the farmers are not rewarded for their produce. Of the total price paid by the end consumer – the farmers receive only a third of it in the best times and this can go as low as 5% in the worst of times. This means that if you purchase onions for 100 rupees a kilo, the farmer who produced it received a paltry 30 rupees per kilo in the best case, the rest of the money is pocketed by the traders and middlemen.

Last year, a farmer from Nashik got a price of paltry ~ 1k he received upon the sale of 750 Kgs of onion – which was his 4-month effort. Upset with this, he sent the amount he received to PM relief fund as a protest. At the same time, the onion was trading at ~ 25 Rs per Kilo in the district. This shows how inefficient our system is in transferring the value across the supply chain

In June, the Indian government has passed 3 different ordinances pertaining to agriculture. Many experts have praised the government for walking the talk on the Agri reforms – which have been long pending for the sector. Some say that this is the 1991 moment for Indian Agriculture and believe that it will be the start of a new era in Agriculture if implemented properly

Let us understand what these 3 ordinances are and look at how the farmers will benefit in each of these cases –

The first is concerning the essential commodities act. The ordinance has modified that the stock limits will not be imposed on items like cereals, pulses, edible oils, onions and potatoes.

Essential Commodities Act, promulgated in 1955 can put stock limits on any trader, processor, or exporter at the drop of a hat with an idea to curb the artificial scarcity leading to price rise. As a result, the Storage facilities in the country aren’t well developed as the traders aren’t sure when the stock limits can be invoked. Due to lack of storage facilities, when farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet. All this hurts the farmer. In the lean season, prices start flaring up for the consumers. Also due to the lack of storage facilities roughly 40% of the food goes waste. A part of this can get corrected due to this ordinance

The second ordinance pertains to the direct engagement of farmers with other buyers like Food Processors/ Aggregators. This ordinance eliminates the farmers’ dependency on APMC for the sale of their produce. It has been observed in the past that the APMCs have become a ground to serve the interests of the trader cartels alongside pocketing the commissions. These traders exploit the fact that the farmers have nowhere else to go and hence they connive against the farmer and ensure that the stock is purchased at a very low price. With the new changes to this ordinance, the farmer can engage with food processors like ITC/Reliance directly or through aggregators. This reduces the intermediation providing the farmer fair price discovery

The third ordinance pertains to contract farming. Currently, the farmers decide on the crop plantation basis the price they get the previous year. Due to this, they are subjected to price risks and often end up on the losing side. With the new ordinance, they can enter into a contract with Aggregators or buyers on forward prices shielding them from the market price fluctuations. This will make the Agricultural Supply Chain efficient in terms of price transmission from your local market to farmer’s pocket.

These ordinances not only present a growth opportunity to farmers but also a great stimulus to the new age aggregators like Ninjakart/ Agribazaar who are working towards digitizing the agri-value chains. They will save on the commissions they pay to APMC to procure the same produce. This can result in Agri Tech become the next sector of choice for the investors to put in their money (currently only 3% of the PE money flows into this sector) and improvise the state of farming in the country.

The post is written by our EZPP partner Vamsi Gorthi with relevant edits and changes by our editorial team. Vamsi is a JBIMS graduate currently working with Ernst & Young.

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