Market Failure: On Agriculture Sector Reforms

Context:  The ambitious initiative of the Narendra Modi government to bring about far-reaching reform in agriculture through 3 bills has run into a strong push back from the farmers

Background:

• Farmers’ agitation: Strong pushback from farmers against three Bills that seek to replace ordinances issued in June, on key aspects of the farm economy — trade in agricultural commodities, price assurance, farm services including contracts, and stock limits for essential commodities.

Issues with the introduced reforms: 

• Abolition of Minimum support price (MSP): Fears that the free market philosophy at its core could spell the end of MSPs for produce that has so far been centrally procured by the government. 

• Intruding into State subjects: Some states suggest that as the agriculture and markets are State subjects, there should be no tinkering with the MSP and Agricultural Produce Market Committees (APMC)

• Fall in revenue for states: provisions in the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, providing for unfettered commerce in designated trade areas outside APMC jurisdictions without levy of any fee

• Centre becoming all the more powerful: Empowering the Centre to issue orders to States in furtherance of the law’s objectives.

• Impact on small farmers: 

• Low accessibility: There is currently one market under the APMC system for 434.48 sq. km on average — well below the recommendation of the National Commission on Farmers (NCF), at one market for 80 sq. km. 

• Without strong institutional arrangements, laissez-faire policy may harm lakhs of unorganised small farmers.

• Mere liberalization does not lead to private investment: Fore, E.g. When Bihar removed the APMC system; markets suffered a loss of fee revenue, with no significant private investments in the sector.

Way forward

• Repair the existing system: Fund the expansion of the APMC market system, removing trade cartels, and providing farmers with good roads, logistics of scale and real-time information. 

• Empowering the famers: Emphasis should be on empowering farmers through State Farmers Commissions rather than opting for heavy centralization