The new agriculture bills passed by the central government have the potential to replicate the success of the milk revolution in India claims Dr Ashok Gulati, former chair of the commission of agricultural costs and prices.
With intermediation costs cut, there will be more capital available for investment in food storage facilities reducing the wastage of food in India.
In the ongoing parliamentary session, two agriculture bills — the Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill 2020, and the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill 2020, were passed.
Speaking to BOOM, Dr Gulati, said, "A part of that savings can go to the farmer in terms of better price. a part can be shared with the consumer in terms of a lower price which will incentivize a lot of investment in storage activities which will save on the wastages in the country.
"These laws have to be read along with two-three other initiatives that the Prime Minister has announced. One is formation of 10,000 farmer producer organizations and other is the agriculture infrastructure fund of one lakh crores. They will facilitate better aggregation at the farmer level through farmer producer organization. This is like unleashing the milk revolution where the milk cooperatives were created."
Calling the recent protests against the bill by farmers a result of a massive misinformation campaign by a few political parties, Dr Gulati said, "Nowhere is it written in bill (that the MSP regime will be done away with). The Prime Minister and the agriculture minister are assuring that they are going to stay as they were."
The interview can be watched here.
Edited excerpts of the interview can be read below.
Govindraj Ethiraj: The Rajya Sabha has passed two key farm bills. The farmers produce trade and commerce promotion and facilitation Bill 2020, and the farmers empowerment and protection agreement of rice assurance and farm services Bill 2020. These bills have already been passed by the lower house of parliament in India. That's the Lok Sabha. These bills are likely and supposed to help small and marginal farmers get a better price for their produce. will that happen? in what form? And why are these moves already triggering protests in some parts of the country. To discuss this, I'm now joined by Dr. Ashok Gulati, well known agricultural economist also the Infosys chair for agriculture at the Indian Council for research on international economic relations, and also on the board of the Reserve Bank of India. And Dr. Gulati is also a former chair of the commission of agricultural costs and prices. Dr Gulati, thank you very much for joining us.
Tell us about what these three bills are supposed to do. What was the intention behind bringing them into law at this point?
Dr Ashok Gulati: Well, the intent was to give farmers a better choice in terms of marketing their produce. At present, the law says that they are supposed to go to the mandis and there is a defined area. And there are commissions and cess and other things that the buyer has to pay. Now that whole system, which evolved over decades, has not served very well to the farmers because many mandis and states have been charging very high commissions, and putting a lot of cess, even on basic commodities like wheat and rice. So, the government during the COVID period, actually suspended the APMC act. They wanted to avoid the rush in the mandis, and they said anybody can go to the farmers and directly buy from them. And that is sort of an emergency pilot turned out to be much better and government took advantage of that and thought why not to bring up the ordinances and change the existing law. So that farmers have a better choice and the supply lines will be competitive. And the system will work in a more efficient manner. That's the actual intent of this. It is not demolishing the existing APMC system. It is not demolishing the MSP system. Whatever it has been with all its pluses and minuses, this is an alternative option, given to the farmers. If they want to avail it, good enough, if they don't, keep on going and doing whatever you have been doing all these years.
Govindraj Ethiraj: You're saying that, in the past, you had only had the option of going to the mandis which is the agricultural produce marketing Committee in various states. Today, you have the option of let's say directly contracting with a large corporate buyer or a large aggregator or a corporate farmer.
Dr Ashok Gulati: Yeah. Basically, if I'm a processor, and I want to directly buy from the farmers bypassing the mandi system. Earlier that was not allowed and now with these changes in law, I will be allowed. So, I will be saving on the intermediation cost. And part of that savings can go to the farmer in terms of better price. A part can be shared with the consumer in terms of a lower price to the consumer. And this will incentivize a lot of investment in storage activities which will save on the wastages in the country. And that will be a net loss, the essential commodities act the changes that will encourage more investments. Now, these laws have to be read along with two-three other initiatives that the Prime Minister has announced. One is formation of 10,000 farmer producer organizations and other is the agriculture infrastructure fund of one lakh crores. They will facilitate better aggregation at the farmer level through farmer producer organization. This is like unleashing the milk revolution where the milk cooperatives were created. And even small players who were actually bringing two litres, three litres, one litre milk as surplus that can be aggregated at one place. And that infrastructure was created at that time through monetization of EC Aid.
But today, Prime Minister has announced an agriculture infrastructure fund for the post-harvest infrastructure to be created in the country. Because I feel over the years, our policy has been more production centric. It has not given sufficient attention to the marketing of the produce. As a result, the laws on marketing had been very, very restrictive, which were the case during 1950s or 60s when India was facing massive shortage of commodities. That's no more the case, India is not living in 1965. So, I think these laws, then the changes, and those were overdue. In fact, Prime Minister Vajpayee started off in 2003, he wanted to change the laws and taking the states along with it. But our democracy in the federal structure did not go all the way on that point.
Govindraj Ethiraj: Let's say from a farmer's point of view, I have produced 100 kilograms of onions, or potatoes. I have the option of going to the APMC and selling it for 3000 rupees, or maybe someone will come to my doorstep and also buy it for the same price, or would they offer me something else? So how is the price discovery happen?
Dr Ashok Gulati: When you have better choices, better price discovery is a natural result of that. You can go to two players, four players and look for who can give you a better choice and better price. Can they come to your farm and procure from you? Ultimately that will have to be tapped, and the infrastructure at the back end, but first, the legal framework has to be changed, that I as a processor or as an exporter, or as an organized retailer, can directly buy from the farmers. Earlier, that was not allowed. So, the farmer will face a number of buyers, and it is up to him or her whom they want to sell.
Govindraj Ethiraj: Most farmers are small and marginal. Will they have the ability to do this kind of negotiation? And if they don't, what price will they get at the government? So, will that be a higher price? Will there be a minimum support price? How could it work? Or how would it work?
Dr Ashok Gulati: You tell me, are the milk farmers very big farmers who have 200 cows each? Milk farmers in the country have two animals, three animals, four animals are the average they're all smallholders. India is a country of smallholders and does milk pass through an APMC mandi their commission and taxes and cess to be paid 8%, 10% on milk. The question that small farmers cannot aggregate cannot sell produce at MSP? Are they selling at present even in APMC mandi beyond the four states of Punjab, Haryana, Andhra? Most of the states, most of the commodities they can go higher than MSP they can go lower than MSP. This is the market that decides. Government announces 23 commodities MSP but are farmers selling it? There is an economic, social socio-economic survey. Only 6% of the farmers of the country have gained so far in the last 50 years from MSP regime. So, the rest of the players are always facing the market. This attempt is to get the markets right.
Govindraj Ethiraj: Why are people protesting then or why are there such strong protests at least in some states?
Dr Ashok Gulati: They are protesting because of one massive misinformation campaign by a few political parties that MSP regime is being thrown away. Government will not procure from you. Nowhere is it written in bill, the Prime Minister is assuring, agriculture minister is assuring that they are going to stay as they were. There is another argument Oh private sector should buy only at MSP plus they should be put in the law. Were they buying at MSP plus in the APMC mandis? Even at the last season, what was the rapeseed price or chickpea price in Rajasthan, other major states, and you will find that the market prices are 20% 30% below the MSP and this is all in APMC mandis. So, this has been happening all these 50 years, 55 years, you know, MSP regime started in 1965. And if the government was so keen, they should have announced they can purchase everything tomatoes, potatoes, chickpeas, everything the government should purchase. Is that the job of the government?
Govindraj Ethiraj: Someone wins in this and someone loses, as you pointed out, obviously, the intermediaries which the government have, which is its itself, one being the state government, or those who work in the mandis are the intermediaries and they stand to lose. So, are they the only parties affected? And are their protests justified?
Dr Ashok Gulati: One it's not going to happen tomorrow that all the business is going to shift away from APMC mandis to private players. It will take 20 years. It's not when you break the monopoly of Indian Airlines. It's not very next day all flyers start going to the other airlines, they keep on going. It forces a competition to APMC markets, reduce your all these taxes, cesses and Commissions and be competitive. If you don't then your market share will gradually start going down and this will go down over the next 10 years, 15 years. Either you become more competitive, and how do you become more competitive by giving better service to the farmer and charging lower intermediation cost. What is that lower intermediation cost? There is a commission to be paid to the commission agent.
In Punjab, the rice is bought by the state. And on top of this 6% more you have to pay to state government. So, in total eight and a half percent that she is to pay from Punjab and Haryana. And this used to be 14 and a half percent before the GST reforms came in. After GST somehow this was brought down to eight and a half percent on wheat and rice which are the basic staples of the country. You can make a deal with Punjab 'Okay, this is the tax revenue or cess revenue that you will lose we can compensate you like under the GST the next three years, five years.' Compel them through competition that bring down all these charges. Why are you putting eight and a half percent on the basic staple in the commodity which has to be sold at two rupees and three rupees.
On one side we want to help the poor by giving 90% 95% subsidy and then we are charging such high taxes and commissions. This is ridiculous to me. Basically, state is taking advantage and fleecing the centre because the centre's public distribution system cannot work without the contribution from Punjab and Haryana of this world. I would say go a step ahead and give an option to the poor beneficiaries of public distribution system, do they want money in their hands directly cash? Or do they want this five kg wheat or rice and keep waiting in the queues? Why don't government send directly direct cash transfer to their accounts? much more efficient system.
Govindraj Ethiraj: Could one compare it to airlines and also the administered price regime for fuel or petrol and diesel which technically we send deregulated it, but it actually took a long time before prices actually started changing at the pump.
Dr Ashok Gulati: Petrol regime is different one because the whole pricing was decided by the government all over the country, and there were massive subsidies, right, this is whatever the system is going on will continue. Only thing is there will be an alternative channel to the farmers to sell if they like. So, it's much milder form. And you know, this would be like the times of sort of Doordarshan. Only one channel will be there and you hear whatever the government wants you to hear and nothing more. But when you open 10 other channels, there is a competition. So, either Doordarshan has to improve, or its market share will reduce. So how many people want to hear that is still there, even after 30 years of you know, media liberalisation. So, consumer is better off or worse off. The Indian Airlines have Doordarshan or the monopoly of MTNL. So, it's a competition that is being created. That's all.
But it can't happen overnight. It will take 10 years. Building these supply lines is not easy, right. Some results will start coming in, but the legal framework has to allow. That is what the reform is. After that, different states will operate in different manner. And some will try to still block so more investments will go in those states where state governments are friendly to these reforms. If not, they will stay away from Punjab and Haryana of this world.