Agri-Market Reforms Ignore Reality

Context: While a free market-based system has been the focus of the new farm laws, it does not reflect the diversity of the Indian agro-economy or the interests of small farmers

Challenges to a free market based agricultural system:

• Low number of buyers than sellers in agricultural markets: while in the market for manufactured products, the buyers are more than sellers.
• Demand-supply mismatch: supply in agricultural markets is highly seasonal while demand is stable, thus helps large buyers who have the storage capacity.
  • It also leads to large intra-year variations in prices: Price difference between peak and trough for vegetables are 23%. (Reserve Bank of India (RBI) Bulletin, December 2020)
• Imbalance in the market power of farmers and wholesale buyers: According to the RBI, the ratio between the consumer price and the price that a producer receives ranges between 28 % and 78 %.

Alternatives to free market in agricultural product market

1. Public sector involvement in procurement and distribution: At present procurement is limited to 23 % of the total value of crop production, restricted to wheat and rice in places like Punjab and Haryana.
   • Extending the principle of decentralisation (similar to Odisha, Madhya Pradesh and Chhattisgarh) and assisting the states in procuring crops that need guaranteed marketing support.
2. Increase private sector participation: with market monitoring and intervention by public entities.

• • Private sector shall become organised, and they shall make a regular intervention in markets with a high degree of price volatility like those for potatoes, onions and tomatoes.

3. Involve cooperatives of farmer producers in processing Industry: for perishable products, where processing is necessary to reduce wastage.

• • It will give farmers a stake in the value chain and will shift farmers from staples to higher-value crops, for which demand is increasing.
  • E.g. India’s dairy cooperatives give farmers a stake in the entire value chain.

Way Forward: keep the diversity of India in mind.

• Mix the possible alternatives: All three, public sector procurement agencies, private wholesale purchasers, including retail chains, and cooperative/producer companies, are required. 
• The choices for agricultural marketing must be left to the states: as required by the Constitution and for practical reasons, given the diversity of the agricultural economies in India.
• Impose limited trade restrictions: restrictions shall be there only as an exception.

Conclusion: An agricultural marketing system reflecting the diversity of Indian agriculture and the interests of farmers and low-income consumers will be consistent with efficiency, equity and national security.