According to KV Subramanian, the Chief Economic Adviser (CEA) to the government of India, the Indian agriculture industry is now prepared for major growth as a result of crucial reforms, notably Farm Bills, implemented by the government over the previous year or so.
He stated that, over the last many decades, India has had a much bigger supply of agricultural commodities than demand, and the significance of the Essential Commodities Act (ECA), 1955, has dwindled.
According to Subramanian, ECA considers storing and hoarding to be similar. As a result, any entity stockpiling agricultural produce was labeled a hoarder.
‘There is now a clear distinction between storing (which is critical in agriculture due to the seasonality of production) and hoarding. Despite this, ECA equated storage with hoarding. ‘Storage is a very important part of agriculture to provide price stability,’ the CEA stated during a webcast commemorating NABARD’s 40th Foundation Day.
Subramanian cited the 2019-20 Economic Survey as stating unequivocally that even when ECA was enforced to regulate prices, it was barely successful in truly curbing price volatility.
Agriculture: a lack of competitiveness
The CEA observed that even if there is only one buyer (monopsony), the seller will be exploited. This is exactly what has been happening with small and marginal farmers (SMFs) for the previous many decades, he noted.
‘Assume I am a tiny farmer growing, say, onions or potatoes, and I am well aware that these onions or potatoes will perish in a matter of days. Then I’m desperate to get rid of it as soon as possible. And if the buyer of that particular produce understands that I am desperate to sell it, it will go to waste, rot, and I would receive no value for it at all,’ Subramanian explained.
So the buyer is equally fully aware of this, which he then uses to effectively corner the entire benefit of the trade, he added.
‘And the study has revealed that in the trade between Arhatiyas (commission agents/intermediaries) and SMFs, the latter often receive only 10-15% of the value generated in that particular trade. The rest of the value is captured because of the essential feature that production is seasonal and often perishable, and the SMF has little choice,’ he explained.
Subramanian emphasized that the Farm Bill now allows the SMF to choose whether or not to sell it produces to this intermediary. He is free to go sell it to someone else.
‘And I believe that is the most crucial point. Everyone benefits from competition. In the agriculture sector, this has been absolutely lacking. The Farm Bills create that competition, allowing the SMF to go to the intermediary and say, If you’re not going to offer me a good price, I’ll sell it to someone else. And the fact that these companies will compete for the farmers’ produce as well, ensuring that the SMF receives adequate value for his or her produce,’ Subramanian added.