Yours truly was invited to chair a session on Linking Farmers to Markets at the Economic Times Round Table on Combating Food Inflation at New Delhi on Friday, the 18th February. The sub – theme was whether the eastern Region could make a difference to the overall production strategy, especially as the Agriculture Ministry had allotted special funds under the RKVY head to provide special incentives and inputs. Nitish Kumar’s presence at the seminar gave it the ‘stature’ for indeed Bihar is among the three states (the other two being Gujarat and AP) which have done better than the national average with regard to agricultural growth and production. Bihar’s strategy of improving irrigation efficiency, supply of quality planning material, assured fertilizer and access to agricultural credit along with the bold decision to scrap the APMC Act, deregulate the sector and attract corporate sector participation in the agriculture sector has indeed been effective, and even states like Punjab and Haryana could look up to Bihar for replicating some of their best practices. Incidentally, the CM of Bihar is a member of the Task Force of Chief Minsters appointed by the PM to draw up the broad strategy for enhancing agricultural production in the country.
Food Inflation
Food inflation had not only affected the budget of the average households , but also the politics of the country, with Central and state governments blaming each other, and Ministries of Agriculture, Consumer Affairs and Commerce shifting responsibility for the price hike on weather gods, hoarders and exporters respectively. Several PSUs and apex co-operatives – from the PEC and STC to Nafed and NCCF and state civil supply corporations had been pressed into service to control the inflation monster – and even though it had been arrested within a few weeks, it had the entire nation on tenter- hooks with the price of onions receiving prime time attention, and editorial commentaries from business and general papers alike. Unlike the food inflation on account of cereals, sugar, pulses and oilseeds – which rises and reduces gradually – food inflation on account of fruits and vegetables shows much higher volatility. The main reason for this is not weather or gods, but the imperfections of the market, which are clearly understood, but given the political economy of agriculture trade, have not been adequately addressed.
Because of your columnists’ association with the National Horticulture Mission and Nafed, the organizers had requested him to focus on the ‘perishables sector’, i.e. on horticultural crops, viz fruits and flowers, onion and potatoes. The price volatility of onions – and the recent peaks and dips – from a modal price of Rs 3800 per quintal on 20th December to Rs 800 per quintal on 19th February at the Lasalgaon and Pimpalgoan markets (India’s leading production centres for onions) was the main focus of discussion in this session. When prices shot up, the farmers did not get the benefits- as they had already transferred the ownership rights – but when the prices dipped, there were no takers for their produce.
Taking the Bull by the Horns
During the presentations several speakers made the point that state governments may find it easier to exempt the perishables from the purview of the APMC Act as they accounted for less than 5% of the revenues of the APMC. However, this was not the main issue. Even though revenues from APMC institutions were substantial for states like Punjab and Haryana, the resistance to reform was not from the Finance Department, but from the traders who would lose their monopoly rights over trade. Take the case of Azadpur as an example. This APMC officially collects Rs 79 cores per annum, which are peanuts by the standards of Delhi’s overall budget . The real reason is not even the high commission (6 to 11%) which the traders charge – but the fact that they hold a virtual monopoly over the transactions that take place in the market. Not only are the arrivals under- reported, the traders hold producers to ransom by ‘fixing’ process arbitrarily. The fifteen hundred odd traders have made their own little sub- cartels – for onions, potatoes, apples, bananas, mango, seasonal fruits, region specific produce – and entry into these cartels is ‘dynastic’. AgriMatters had argued about the possibility of monetising these membership rights, but the ‘rent- seekers’ have no wish, desire or incentive to change. The argument about absence of physical space in the market to handle the produce does not cut ice – because auctions need not be held in the ‘auction areas’ attached to each shop, but on electronic auction platforms with multiple terminals located both within and outside the auction areas. All the produce need not be physically transported to the APMC!
This is not going to be easy. The traders lobby is well organised. They can orchestrate protests and disrupt the supply chain for a few weeks, but not longer. In the first place, let the APMCs open their membership to whosoever is willing to pay the requisite fee, and furnish appropriate bank guarantees to ensure that he does not renege on payment commitments made to the producer. In other words, let anyone who wants to establish a retail chain in vegetables have the legal sanction and support to do so. This is based on the premise of not letting the ‘best be an enemy of the good’. In the next phase, states must encourage farmers ‘ markets where the producers can get their produce directly to the APMC without any intermediary, or even when the intermediary takes on the role of an aggregator, the transactions are transparent and clear. AgriMatters hopes that state government will realise that in the long run ensuring price stability through transparent transactions makes greater political sense than letting the reform process remain in a limbo on account of the vested interests of the rent- seekers .