Selling Distrust: A Brief Analysis of the APMC Raj in India
Sarvepalli Radhakrishnan once said, “In silence, the cruellest lies are told”. However, even amidst garrulous souls, the truth is often shrouded, disguised in the gift wrap of vested interest, the recipient of truth is often the casualty.
Eerily similar is the din surrounding the “Farm Bills”, a collective of three Bills passed in the Lok Sabha and the Rajya Sabha, purported to be anti-farmer, anti-welfare, and anti-MSP. While its movers cry foul and scour manifestoes of the Opposition parties to spill part of the dirt on them as well. As always, what matters is obscured by what is moved.
This piece aims to declutter the debate by examining what is called the Agricultural Produce Market Committees and the changes that the most controversial of the farm bills, The Farming Produce Trade and Commerce Bill, 2020, seeks to bring about.
Mark the Markets
Post-Independence agriculture suffered from the gangrene of feudalism. Albeit land reforms by the states and partially by the Centre sought to operate on this festering wound, the scourge outwitted the surgeon. Feudal relations metamorphosed into fixed tenure based agriculture, and traders extracted produce from farmers, bounded by the debt owing relations.
In this schematic entered the Agriculture Market Committees, largely buoyed by legislation – the one in Karnataka enacted in 1966. “Agriculture”, “Trade and commerce”, and “Markets and fairs”, were State subjects under the Seventh Schedule, hence the State legislatures enacted multiple laws guaranteeing the APMCs de jure monopoly in acting as centres for agricultural products’ sale.
The entry of APMCs into the market was contemporaneous to two other phenomenal events in Indian agriculture. One, the Green Revolution. From the clarion call of Lal Bahadur Shastri of Jai Jawan, Jai Kisan, to the world of High Yielding Variety Seeds, the Green Revolution sprang out of necessity. The imports of wheat increased by 20% in 1965-1966, in addition to the country’s plight with PL- 480, which essentially was ‘tied aid’ – aid with political compulsions from the United States. The Food Corporation of India was established under the FCI Act in 1965 and commandeered the incipient revolution. Second, and more instructive, was the now ignored fiasco of centralising wheat procurement in 1973. With a gleefully low harvest and rising Wholesale Price Index(WPI) inflation, the government took upon itself the task of wheat procurement and transportation. To be sure, private producers were allowed but were limited by stocking and pricing ceilings. This volte-face ended up annihilating markets, and the procurement by the government fell short of the preceding year. The policy was scrapped a year later.
Drafts and Demands
Recognising the immense variability of APMC laws across the state, the Government of India tried to inject uniformity via a few draft laws. The first one was the APMC Model Act, enacted in 2003. Among others, this model Act called for farmers and prospective buyers to establish markets for agro-produce anywhere in the country, thus signalling to the states to end the virtual APMC Raj. The Act, however, stopped short of preventing APMCs from levying charges on private markets, that are usually extracted from buyers and sellers.
Levelling the Levy
The issue of levies and duties on farm produce under APMCs remains a vexed one. A lucrative revenue prospect for the states, it nevertheless dampens prospects of liquidity as the lack of digital penetration in most of rural India eventually leads to the farmers paying the levy in cash.
This apart, the collection of levies include multiple charges: licensing fee, market fee, commission fee, and so forth. Also factor in the arthiyas, the traditional commission agents of Punjab and Haryana, who levy charges up to 12.5%. Following is a break-up of the charges levied by various state APMCs.
The Shanta Kumar Committee, which presided over the proposal for restructuring of FCI, took stock of this situation. It recommended a uniform nation-wide levy of 3%, proposing for compensation of states for the loss of revenue.
APMC – Sustain or Suffer?
For long, APMCs acted as the go-to place for farmers and buyers alike, with all infrastructure facilities – warehouses, loading and unloading, and with the presence of shelter for farmers. However, previous model Acts for reforming APMCs, through deregulating contract farming, whereby produce to be sold under contract farming agreements need not come to the local APMC.
Nonetheless, APMCs, as identified by the Economic Survey of 2014-2015, attracted dismay from several quarters under allegations of political capture and the irregularities surrounding “market committee” and the state-wide “market board”. APMCs were also fragmented, serving fewer farmers than their remit permits. For instance, the Economic Survey calculated that one APMC approximately serves 485 sq.km.
By now, it can be observed that APMCs, while providing infrastructure and spaces for ensured MSP support, have nevertheless become ‘long arms’ of the State governments.
Here and Now
The current Bill tries to do away with the de jure monopolies imposed by APMCs across the states. In all, the Bill tries to legitimise through legislative fiat what the Government has been trying to cajole the states to enact since 2003. Multiple critics have pointed out the various shortcomings with these amendments.
The most prominent naysayers seek to compare this Bill with the abolition of the APMC system in Bihar in 2006. The Act in Bihar bid goodbye to the APMC system and threw the floodgates open to private wholesale trade. Private wholesale traders charge the farmers a 2% market fee, and contract farmers too can engage with the farmers. Albeit the current Farm Bill stops short of abolishing the APMC system altogether, experts argue that this Bill begins the slow death of APMC system: earlier too, the Shanta Kumar Committee recommended a staggered dial-down of the APMC system, by first retracting fruit and vegetable sale in APMC, then others.
One must not, however, read too much into this. Abolishing the APMCs and divesting their monopoly are two distinct things. For long APMCs have held steadfast to their turf, and have largely refused to provide for the development of markets external to them.
All Honey and Sugar?
This is not to suggest that the Bill emerges clean and good. Uncertainties underscore it, and omissions of MSP support have irked many. Considerably, one must notice the presence of the Essential Commodities Act, 1955, which, despite its market-friendly amendments recently, continues to grant the Government the authority to ban exports, contingent to the doubling of prices. Onions have been the recent centre of tussle, with many worrying over the fate of farmers if the government replaces one intervention with a harder intervention.
Also asked are questions alleging the role of the Centre in effectuating State Subjects. Surprisingly, however, the APMC chapter on Economic Survey 2014-2015 precisely addresses this question by tracing the presence of “Interstate Trade and Commerce” in the Concurrent List. It added that the approach might be considered “heavy-handed” and “contrary to the spirit of cooperative federalism”.
Rebranding the FCI
The Food Corporation of India, lauded for its management of food grains in the first decade of its establishment, is equally lampooned for its inability. Starvation in the villages and surplus in the warehouses do not square well with each other. The Shanta Kumar Committee recommended the “unbundling” of the FCI and transforming it into a Food Management System, capable of procuring from the northern belt of Bihar, Uttar Pradesh and Haryana, and rebranding the procurement in the southern states.
For long, the APMCs have also been the stage for the FCI to procure food. Few yards such as Guntur Chilli yard and Lasalgaon onion yard are internationally famous for their goods.
Having said that, the amendments fall short of a legislative guarantee to the states on the loss of revenue. With the Centre-State relations already precarious with GST Compensation issue, allowing the monopoly of APMCs to be done away with deprives the States of a revenue source. Whether the farmers will be guaranteed of the MSP outside the APMC, or whether the states come forward in good faith, only time will tell.
REVISITING THE RELEVANCE OF MSP
Much of the debate surrounding the Farm Bills has come to a sorry pass. Propaganda is intoxicated by the minute, leading to the celebration of ignorance. The first part of this long-article dealt with the APMCs. We now move to discuss a component that, despite finding no mention in the Farm Bills themselves, surcharged the protestors crying foul of the bills being anti-farmer. This untamed colossus needs a new lease of life now, and farmers and the government alike pounce at grabbing brownie points in nurturing the Minimum Support Price.
The discussants of the MSP often gloss over its history. It is either far off course to the form the MSP obtained over the decades, or it is politically convenient to kick the can of reform down the alley, to save the seats at the cost of the hapless farmer. It is, hence, imperative than instructive to begin our journey from its birth.
Diversity in Unity
With the shadow of the Cold War and food shortages breathing on our neck, the Government in the mid-1960s undertook multiple measures to rationalize farm prices. This involved paving a road to setting up a Food Corporation of India, which would manage procurement on the one hand and guarantee the farmers a minimum price for procurement, which, in turn, would go in as investment for the subsequent farming season.
Thus was established the Foodgrain Prices Committee or L.K.Jha Committee in 1964, with a dual mandate: to fix procurement prices for wheat and paddy – expanded to cover coarse grains later – and to recommend for a permanent body charged with the determination of prices of agricultural commodities annually. The Committee recommended for an Agriculture Prices Commission, charged with preparing prices of agricultural commodities. The recommendation was further revised, and the prospective body came into being as the extant Commission for Agricultural Costs and Prices(CACP).
The CACP is charged with recommending prices for 23 select agricultural commodities, including cereals, pulses, oilseeds, and cash crops. The CACP recommends these prices via the Price Policy Reports, following which these are tabled before the Cabinet Committee on Economic Affairs. It is this cabinet committee that approves and releases the prices for agricultural commodities, well before the sowing season.
There also exists a dispute on the indicators using which the CACP calculates the MSP. Three prominent methods exist A2, C2, and the widely – used A2+FL. A2 method involves setting the MSP 50% above the total cost of agricultural inputs(seeds, fertilisers, etc.). C2, on the other hand, involves placing the MSP over 50% of an expanded range of farm inputs(including farm labour contribution, rent, and opportunity cost). A2+FL, which is now widely used, is a mid-way between the two, fixing the MSP at A2 levels, but including the farm labour costs.
It is not hard to understand the flurry of issues that grip the MSP regime. The presence of several MSP formulae, and their differential applications for goods, bedevil the scope for reform.
Base Floor or Glass Ceiling?
The intuition behind announcing the MSP is to offer the farmers a cushion to fall back, in case of either a bad harvest or a bleak procurement. In this respect, the National Commission on Farmers, in 2005, recommended the C2 price most effective. The proposition of the highest price for the cultivator, guaranteed by the sovereign seems wonderful at first, but it comes with a can of worms, chief among them being skyrocketing inflation: many commentators, from independent researchers to the Reserve Bank of India, have acknowledged the shadow the MSP casts on inflation. Superstar numbers on tables may bring farmers the best income(at least theoretically), but they spike the WPI inflation, eventually, but surely, also notching up the consumer prices. The morally upright goal of better remunerative prices for farmers turns into a contest where the farmer and the consumer are pitted against each other – with both of them losing.
A mention needs to be made here of an ambitious scheme by the Madhya Pradesh Government, called Bhavantar Bhugtan Yojana, which is touted to bring innovation in serving the MSP to the farmers. Simply put, this Yojana assured farmers that it shall pay the farmers the difference between the MSP and the cost at which the farmer sold the produce to the commission agents. Brilliant at its first blush, the scheme turned out to be disastrous: private traders proved smarter by artificially lowering the prices of buying the produce, puncturing a hole into the government’s fisc.
Crafty traders and stingy government apart, higher MSPs raise the export prices of commodities, dampening the current account deficit. Club this with the repressive Essential Commodities Act- despite in its amended form – banning exports, and you have a perfect recipe to damage Agri – exports.
Minimum Support Price or Price for Supplicating a Minority?
The 70th Round of NSSO on the Key Indicators of the Situation of Agricultural Households, providing data from 2012-2013 agricultural indices holds key to some telling prospects on the MSP. Of the 90.2 million farming households in India, the number of households having sold paddy or wheat to any procurement agency comes down to a simple 5.21 million. Albeit this figure excludes farmers cultivating crops other than wheat and paddy, the very fact that procurement agencies champion wheat and paddy should dwindle this exception insignificant.
Not that these numbers are out of the question. Several commentators, including Brinda Karat, have doubted the veracity of these numbers. Despite the questions, it is common knowledge that farmers benefiting from procurement agencies via the MSP form only a minority. Its magnitude may be arguable, but its existence stands unquestionable.
Now, juxtapose this fact with another revealing statistic. 90% of wheat and rice procurement in India is done by the state agencies. These facts inched closer to each other like an optometrist adjusting lenses to check your eyesight, offering the reader the uncomfortable truth: the MSP, in the Shanta Kumar Committee’s words, “goes to a minuscule of agricultural households in the country.”
To Write it in Law: A Glaring Flaw?
The economics aside, ethics now seem to be the bone of contention between the restive farmers and the Government. Unsure of the latter to stand by the spirit of MSP, the former are demanding that the MSP be inscribed into the law – a legislative guarantee that the MSP regime shall not be done away with.
Beyond the politics of it, one needs to observe the evolution of MSP. The LK Jha Committee’s report is not immune to the challenges that faced the farmers and the Republic. The committee went to the extent of rationing cities like Calcutta and Bombay, to prevent hoarding of foodgrains. MSP evolved from an environment doubtful of the future of Indian agriculture.
There exists another bottleneck in writing down MSP in legislation. MSP remained an administrative measure. Parliamentary debates mention MSP, no doubt, but it is the CACP, followed by the CCEA, that seal the prices. In this, the CACP exists as an “attached office of the Ministry of Agriculture and Farmers’ Welfare”. It raises questions of whether an administrative decision made by an administrative body can be incorporated into legislation. Before anything, statutory backing to the CACP would give statutory recognition to the agency that designs MSP.
Tomorrow Never Comes
As noted, the MSP has never been ingrained into the debate over the farm bills. It surely is politically unsustainable for any government to expressly withdraw MSP. Having said that, to assume the MSP is close to perfect, is being even closer to disaster. To offer a base price for farmers to sell their produce for remunerative returns is a fully-well constructed policy. However, the MSP embodies an unsettling paradox of catering to the larger farmers, when a mass of farmers loses its existence in tiny landholdings. Even if the Farm Bills do not alter MSP, it is an opportune moment to turn back and take a relook at it.
By S. Aditya email@example.com
This article is the first part of a two part series. The featured image first appeared in Mint on 22 May 2013.