The writer is Professor of Economics at Columbia University.
To appreciate the value of the recent reform of agricultural marketing, it is important to first understand how the system has functioned for many decades. Under the Agricultural Produce Marketing Committee (APMC) Act, each state divides its entire area into several market areas with each area managed by an APMC.
The state government appoints the APMC and commission agents (“arhtiyas”) and wholesalers responsible for selling and buying the produce. The APMC manages market yards and sub-yards (mandis) where wholesale trade in the produce of the entire market area takes place. It thus has a monopoly over wholesale trade in the entire area.
Commission agents typically send village commission agents to collect produce from farmers in villages and bring it to the market yard. In the yard, commission agents sell the produce to wholesalers. The wholesalers sell it to sub-wholesalers who sell it to retailers. Retailers finally sell the produce to the consumer.
The price at which market commission agents sell the produce to wholesalers is supposed to be determined by auction, but in practice the process is opaque. Storage infrastructure at APMC yards being poor, a significant part of the produce regularly rots.
A variety of taxes and commission agents’ fees get added to the final price. The presence of multiple intermediaries; the nexus among APMC members, commission agents and wholesalers; poor storage facilities at the yard; taxes by the state government; and fees of commission agents result in the consumer paying a high price and the farmer receiving a low price.
The purpose of the two recent APMC laws enacted by the central government is to free up the farmer from this stranglehold of the APMC and be able to sell his produce directly to the highest bidder.
One can understand that the commission agents who have guaranteed income from APMC transactions and the state government, which collects taxes on the sales in the yard, especially procurement of grains paid for by the central government and hence the Indian taxpayer, would be upset by the reform. But for the farmer, there is no downside and the upside is significant.
Therefore, it is not an accident that the reform has had near unanimous support of not just economists and policy analysts but also all central governments since Prime Minister Atal Bihari Vajpayee. The latter’s government first introduced the reform via the Model APMC Act of 2003. During its ten years, the UPA government actively lobbied state chief ministers to adopt the model act.
While the present government has finally implemented the reform using its powers under the concurrent list of the Constitution, the 2019 Congress manifesto also supported it unequivocally stating, “Congress will repeal the APMC Act and make trade in agricultural produce – including exports and inter-state trade – free from all restrictions.”
In view of this diagnosis, how do we explain the current farmer protests? To be sure, some commission agents who double up as farmers can be expected to oppose it.
One may further speculate that fearing the loss of tax revenue collected on large volumes of procurement of grain and paid by taxpayers in the rest of India, governments in states such as Punjab and Haryana might also covertly or overtly encourage their farmers to join the protests. But these explanations are insufficient to reconcile the massive scale of the protests with the benefits that the vast majority of farmers would reap from the reform.
A more plausible explanation is that richer farmers, especially from Punjab, see an opportunity in the protests to extract a legal guarantee for a lucrative minimum support price (MSP) on all sales whether to the government or private agents.
Quite likely, it is this intent that has led them to allege that the real intent of the government behind the reform is to eventually withdraw procurement at MSP when in fact no such link has ever existed.
How should the government respond to the protests? Ideally, it should not respond at all. Any rollback of the reform is bound to encourage vested interests to rise up against other reforms. Guaranteeing the MSP on all purchases must be especially resisted.
Given that at MSP, the supply of grain would exceed demand, the price guarantee would leave many farmers holding their sacks of grain in hand with no one to buy them. And it would surely not be fair to expect the taxpayer to foot the bill by letting the government pick up all the excess supply.
As a last resort, if the government must offer an olive branch, it should do so only after ensuring that protesting farmers genuinely represent the view of the majority of the farmers of their respective states. In that case, it may allow the states to amend the new central laws as per local sentiment by passing amendments in the legislatures and seeking the Centre’s permission for them.
If Punjab chooses to live with laws that hurt its own farmers, so be it. Let the wiser states benefit from the reform and, like Bihar, which had done away with its APMC Act in 2006, see their agricultural sectors flourish while that of Punjab languishes.