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Reforming agriculture: The unfinished agenda
Wednesday, 16 December, 2020, 13 : 00 PM [IST]
Arpita Mukherjee
The on-going farmers’ protest against the three farm laws passed by the Parliament on September 27, 2020, has brought to light the complexities of agriculture reforms. The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act, aim to help achieve the targets of doubling farmers’ income by 2022, by providing farmers with multiple marketing channels, removing barriers to inter-state and intra-state trade of farmers' produce and by providing a legal framework for farmers to enter into pre-arranged contracts with the private sector.

It aims to help develop a facilitative framework for electronic trading. Yet it is surprising why farmers, from some richer states, want a minimum support price (MSP) rather than maximum income. This requires a relook at the barriers to agriculture value addition and higher income for farmers.

India is one of the major global producers of several agri-food products. It is the world’s largest producer of milk, pulses, and spices and ranks second in the production of rice, wheat, sugarcane, vegetables, and fruits. It is also one of the leading producers of fish and livestock products.

However, the productivity in this sector is low and the small farm sizes makes it difficult to implement modern agriculture practices. Over the years, there has been limited value addition. The share of food processing sector in India is only around 46.87 per cent in 2017-18. By comparison, the share in developing countries such as Brazil (70 per cent), Malaysia (80 per cent) and Philippines (78 per cent) is much higher. Further, despite several government incentives for encouraging corporate investments in food processing and supply chain development, investments are low and there are huge losses in the supply chain.

According to government estimates around 25 to 30 per cent of fruits and vegetables is wasted due to inadequate logistical facilities, including lack of refrigerated storage, supply chain delays at interstate borders, poor transport and underdeveloped marketing channels. The Food and Agriculture Organisation (FAO) puts this figure at around 1.3 billion tonnes, with fruits and vegetables accounting for 44 pre cent of the wastages, followed by roots and tuber (20 per cent) and cereals (19 per cent). Unless there is value addition to agriculture and food loss is addressed, farmers income will not increase.

Focusing on exports, India’s exports of agriculture food products increased from US$28 billion in 2015 to US$31 billion in 2019. Although India’s exports of high value products like horticulture products have increased overtime, it is still below the potential. India is the second largest producer of fruits and vegetables in the world. It is the topmost producer of banana, mangoes, lime, lemon, papaya and okra.

However, India’s horticulture exports were only around USD 1,277.09 million, accounting for less than 2 per cent of global horticulture exports in 2019-20. Further, due to high use of pesticides and fertilisers, India’s agriculture exports, in general, face food safety and standards related issues in key exports markets. The recent ban imposed by the European Union (EU) on tricyclazole for basmati rice has adversely affected farmers in exporting states of Punjab and Haryana. Exports from India is declining while countries like Cambodia are able to increase their exports of rice.  

Thus, despite good intentions and several schemes/policies of the government targeted towards enhancing agriculture productivity, value addition and farmers income; farmers continue to suffer. They are unable to integrate in global value chains or move up into high-value produce. They rely on the MSP. Prior to the laws, contract farming was allowed in states like Punjab and many farmers had contracts with corporates for production of crops like potato. Hence, they did not face a ‘contract related’ issue. However, the corporates who are directly sourcing from farmers had to pay a mandi fee, the regulations and processes varied widely across states and there was no uniformity. The three laws aimed to address that issue.  

The three laws may not ensure that farmers can choose any marketing channels. For example, while the government has allowed FDI in e-commerce it is only through the marketplace-based model. Thus, foreign e-commerce companies are prevented by law to set up an efficient supply chain and invest in agriculture infrastructure. Due to Covid-19 pandemic and social distancing norms, e-commerce is a fast-growing mode to reach consumers and, in this mode, there are restrictions on foreign investment in creating efficient infrastructure and inventory management.

Further, much of the agriculture produce is unbranded and India has a brand-based retail FDI policy with several conditions on FDI in multi-brand and single-brand food retailing. The FDI policy guideline as of October 2020 states that ‘Government will have the first right to procurement of agricultural products', which counters the Farm Laws, 2020, which focus on a perfect competitive system. Thus, farmers, foreign retailers and e-commerce companies do not have unrestricted access to all marketing channels.  

Unlike ASEAN countries, India has not focused on exports and development of global value chain in high-end products. There are various restrictions to trade. For example, Food Safety and Standards Authority of India (FSSAI) is not allowing imports of raw materials and intermediate good for organic production in India. This makes it difficult to have organic food processing in India as it requires both domestic and imported raw materials and intermediate products. High tariffs or sporadic import bans discourages food processing and value addition in India in general.

Food processing could have reduced wastages and increased income of farmers. It could have led to more sourcing from India, in areas like organic where the global demand is growing, and consumers are willing to pay a higher price.  Further, unlike countries such as the UK the government does not provide subsides for third-party certified organic production. A survey-based study by the author found that it takes 3 to 4 years to make a farm ready for third-party organic production, which can be exported to the developed markets like the US and the EU at a higher price after going through the stringent process of laboratory testing and certification. This entails costs, which is not covered by any government schemes/policies.

There has been limited training and capacity building of farmers, unlike countries such as Cambodia and Vietnam. Incentives and technology should have been given to farmers for better production, storage and crop diversification. Several countries/regions such as the UK and EU have joint capacity building programmes with India. However, these funds have not been used to work with farmers in states like Punjab and Haryana, unlike for products like grapes in Maharashtra, which could have helped farmers to implement better processes and product traceability. This could also help them to move to high value-added crops and exports.

The way forward would be to have the right policy which encourages farmers to move away from rice and wheat production under MSP to high-value produce. The aim of the three Farm Laws 2020 is to get private investment in the supply chain. For this to happen, it is important to ensure a level playing field between domestic and foreign corporates or else foreign investment in manufacturing and sourcing from India will continue to be much lower as compared to that in ASEAN countries, some African and Latin American countries and China. India also need a comprehensive food loss policy and incentives which focus on nutritious food in line with its sustainable development goals.

(The author is a professor at ICRIER)
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