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Long awaited agricultural reforms bring cheer to the sector

Finance Minister Mrs Nirmala Sitaraman made some significant announcements today which will bring transformational changes to the agricultural sector. Given the fact that agriculture is a state subject, this effort by the Centre is commendable.


The first one is the proposed amendments to the Essential Commodities Act. Many economists have been recommending this for many decades. Scrapping this obsolete Act would have been ideal but the deregulation of most of the agricultural commodities and scrapping of the stock limits has created a similar impact. This will make it possible for large and small private players to purchase agricultural commodities on a large scale. This will increase competition and will make it possible for the farmer to realize better prices. This is fantastic news. Of course, the government will always keep the power with itself to interfere in case of a national emergency which is fine. But this is a step in the right direction.


Amending the Agricultural Products Marketing Committee Act (APMC) has also been pending for a long time. Looks like political alignment is difficult for all the states to amend the APMC to allow free trading of agricultural commodities across mandis and states. The control for this was in the hands of the states. So, now the Centre has come up with a solution which is the second reform.


The central government will bring a law that allows for inter state trading and movement of agricultural produce. The new law will provide a choice to the farmer to sell produce at attractive prices and he will not be bound to sell to exploitative traders at the local mandi. This will remove barriers to free interstate trade and will help the farmer in realizing a better price. This is a good solution. The devil is in the detail but the intent seems to be right.


This measure will have limited success unless it is backed by availability of digital platforms that allow farmers to sell their produce all over the country. There is no doubt that promoting digital platforms that provide market access to farmers to buy inputs and to sell output will go a long way in eliminating middlemen and in better price discovery for the farmers.


There are many digital platforms for trading agricultural produce which are operating in different parts of the country. Some of them have gained significant traction. It would be better if the government carries out an assessment of those platforms and creates a national grid of such platforms with government’s own ENAM so that a comprehensive solution is available to farmers all over the country.


It is still an unfulfilled requirement to allow futures trading in agricultural commodities. This has not been addressed in this announcement. Farmers should be able to sell part of his crop in futures trading to cover his costs so that he is never in a distress situation. This is how it operates in the western countries. We need to see a similar situation here too. We hope to see this in the near future.


Contract farming is another area which will allow farmers to tie up with corporates for a contract production of desired crops. This needs to be scaled up with necessary policy support, to give desired benefits to the farmers. The third reform announced today deals with facilitative legal framework to enable farmers to enter into contracts with processors, aggregators, large retailers, etc in a fair and transparent manner. This helps in liberating the farmers and gives them freedom to tie up their production in advance at an advantageous price. Enforcement of contracts, especially with farmers, is a problem in India. If the market price is lower than the contracted price the buyer will end up with more volume than the

contracted one and if the market price is higher the buyer will not get the contracted quantity. This danger always exists in spite of the best intentions of the government.


Digital quality assessment is important when we want to promote on line transactions through which farmers can sell their produce. Standardisation of quality parameters across the country and providing digital tools to assess quality of agricultural produce on line are important for the success of this initiative. There are some new digital Agritech start ups who are providing this facility. It might be necessary for the government to bring such Agritech start ups into a network with the digital market place applications.

Apart from the above reforms the announcement today dealt with a financing facility of One lakh crore rupees in building a farm gate infrastructure. This is a welcome move, although it is only a financing facility being provided to FPOs and Primary Agricultural Cooperatives, Agri entrepreneurs and Start ups and not an investment by the government. The farmgate infrastructure is desperately needed to increase farmers incomes. Village level cold storage facilities and cold chain infrastructure, envisaged under this programme, will go a long way in providing a stable base which the farmers can use to discover a better price for their produce. This can dove tail into the third reform of attracting corporates into entering into forward contracts with farmers. While one lakh crore is not adequate to cover the full country it is a step in the right direction.


Overall this is a good effort. It is still not enough to travel the full distance. But it is a step in the right direction. This is a bold reform. The real test lies in developing the rules of each of the laws and in the finer details. Hopefully the bureaucracy will help in making this a functional and result oriented effort and not lose its efficacy in complicated rules.


After a long time we have had a positive effort from the government for the agriculture sector. We should welcome this in spite of the possible shortfalls we may have in achieving the full objectives.


Note- The above article was published on The Times of India Blogs on May 16, 2020


The writer is Director General, Federation of Seed Industry of India and Co-Founder of ThinkAg.


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