Making agricultural market reforms successful

AGRICULTURE / GOVERNANCE/ ECONOMY

Topic: General Studies 2:

• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 
• Issues related to direct and indirect farm subsidies and minimum support prices 

Making agricultural market reforms successful

Context: The recent reforms in agriculture and agri-marketing has potential to boost agricultural sector.

Major Policy Changes include

• The removal of restrictions under the Essential Commodities Act (ECA) should help attract private investment in agriculture
• The two new ordinances are expected to enable inter-State trade and promote contract farming, thereby providing a large number of options to farmers

However, there are several difficulties that need to be addressed before the full benefits of these policies are realised. Some of these are

• ‘Time-inconsistency’ problem, or in simple terms, the policy credibility problem. 
• This situation arises when a decision maker’s preferences change over time in such a way that the preferences are inconsistent at different points in time.
• This is relevant in present context because the policy signals are not very clear in the last few years as relates to agricultural marketing, as we will see below.

How has agri-marketing policy changed over years?

1. In 2016, the electronic national agricultural market (e-NAM) was launched 

• • The e-NAM was intended to be a market-based mechanism for efficient price discovery by the farmers. 
  • In the first phase, 585 markets across 16 States and 2 Union Territories were covered. 
  • States needed to amend their respective Agricultural Produce Market Committee (APMC) Acts to put in place three prerequisites for the success of this programme — 
    • a single licence across the State; 
    • a single-point levy of the market fee; 
    • electronic auctioning in all the markets. 
  • Reason for failure of e-Nam: Several States could not or did not carry out these amendments and the e-NAM proved to be far less effective than desired.

2. In September 2018, government launched PM-AASHA

• • Since e-NAM did not yield expected results, the government reverted back to public price support measures through PM-AASHA
  • The main objective of this programme was to provide an assured price to farmers that ensured a return of at least 50% more than the cost of cultivation. 
  • The programme was confined to pulses and oilseeds to limit the fiscal costs, although many other crops, which did not receive the benefits of the MSP-procurement system, also needed this coverage. 
  • Public procurement, deficiency payments and private procurement were the main planks of this programme

• • Reason for uninspiring performance of PM-AASHA 

• • • Only public procurement was carried out in a meaningful way. 
    • Deficiency payments were only implemented on a pilot basis in Madhya Pradesh 
    • Private procurement was not initiated, even on a pilot basis, in any State.
    • Budgetary allocation was meagre: only ₹500 crore have been earmarked in 2020-2021.

3. In 2019, PM-KISAN Yojana

• • The uninspiring performance of PM-AASHA necessitated a more radical and direct approach which evolved in PM-KISAN scheme
  • This programme involved a fixed payment of ₹6,000 per annum to each farm household with a budgetary outlay of ₹75,000 crore. 
  • This programme has worked reasonably well so far with many States topping up the amount at their end. 

Conclusion/ Way Ahead

• The frequent flip-flops in farm policy — from a market-based e-NAM to a public funded PM-AASHA and now back to market-based measures — needs to be avoided as it does not inspire much confidence in the minds of private investor
• Coordination between the Central & State governments, and also among various States becomes crucial for the success of any policy reforms
• Absence or failure of credit and insurance markets may lead a farmer to depend upon the local input dealer or the middleman to meet his/her farming needs. This, in turn, may tie him to these intermediaries and constrain his choice of output markets.
• Restrictions on land leasing in many States leads to inefficient scale of production. Reforms in the output market alone are not sufficient and must be supplemented and complemented with liberalisation of the lease market

Connecting the dots:

• Contract Farming
• Organic Farming