Centre’s Proposed Laws Could Go The Bihar Way
Farm in Bihar

Centre’s Proposed Laws Could Go The Bihar Way

Professor of economics with NCAER, Sanjib Pohit, draws parallels between the Centre’s Farm Bills & Bihar’s failed experiment

As farmer protests across the country intensify, The Lede reached out to the author of a definitive study on Bihar’s agricultural sector liberalisation policy.

Professor Sanjib Pohit led the team that conducted research into Bihar’s agro-economics.

It was published in November 2019 by the National Council for Applied Economics Research (NCAER).

Professor Sanjib Pohit
Professor Sanjib PohitPhoto credit: NCAER

The report called “Study on Agricultural Diagnostic for Bihar State of India” gave a keen insight into how the removal of APMCs and liberalisation of the agriculture sector, in fact, hurt the income of Bihar’s farmers and how MSP and state procurement did not help them.

The report’s findings strongly show that the government’s role in agro-economics is far more important than popularly believed.

The APMCs, MSP and procurement by government are all inter-linked and a necessary safety mechanism as displayed by the findings of the report, which was explained by The Lede.

Farm in Bihar
The Bihar Model Of Agriculture & Why It Failed

In an email interview to Jeff Joseph, Professor Sanjib Pohit, points out the parallels between Bihar’s policies and the Centre’s proposed reforms.

1. The Centre has stated that these Acts together will create an ecosystem where farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers' produce; Facilitate remunerative prices through competitive alternative trading channels to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers' produce outside the physical premises of markets or deemed markets - This is done by removal of APMCs/regulated markets and the fees charged there.

How important are APMCs and/or regulated markets as per your research on Bihar? Can we do away with them?

Professor: The available evidence does not indicate that this is enough to ensure remunerative price of agricultural produce. Agricultural output and credit markets are highly interlinked. Weak credit markets result in the inefficient performance of agricultural markets.

There is a need to expand the coverage of institutional credit through strengthening of primary agriculture credit societies (PACS).

A strong network of PACS with adequate capital base will also improve their procurement operations of rice, wheat and other food grains.

2. The Centre has stated that these Acts together will encourage investment in cold storage, warehouses, processing and export.

In your research, since 2006, has Bihar seen an increase in cold storage, warehouses, processing or export? Kindly share any available data.

Professor: APMC Act was abolished in Bihar 2006. But it did not lead to increase in private cold storage or ware house. In the study area, there were both government-owned and private-owned warehouses.

The government-owned warehouses were used by government agencies to store food grain while private warehouses were mostly used by farmers and traders to store potatoes and onions. The warehouses issue receipts against the total value of the commodity stored by farmers. Farmers can use this receipt as a pledge to take a bank loan to the extent of 50-70 per cent of the value of the product stored.

But this does not seem to be working well on the ground. Among the factors responsible for this, farmers take money in advance from traders against their harvests and therefore they are forced to sell their produce as early as possible to settle the money borrowed.

It was reported that markets are not available near the cold storage and hence farmers have to incur huge transportation costs to transport the commodity to the market.

Further, to avail of a private storage facility, farmers have to pay rental charges, which most farmers, particularly the small landholders, cannot afford. Erratic power supply is a major constraint in running warehouses.

To overcome the problem of abrupt cuts in power supply, diesel generators are used, which are very expensive.

To meet this additional cost, warehouse operators fix higher rental charges.

3. The Centre has stated that these Acts together will bring in more investment in the agricultural marketing and infrastructure sector.

Does your research show that this has taken place in Bihar? Why or why not?

Professor: With the introduction of the Bihar Agriculture Produce Market (Repealing) Act, 2006, government intervention in setting up agricultural markets and managing them was done away with.

It was expected that this would enable private players to set up and run the markets. Unfortunately, this did not happen.

Therefore, the government may design incentive mechanisms such as tax concessions to attract private investment in the development of agricultural markets including cold storage/warehousing facilities.

4. The Centre has stated that these Acts together will boost immediate investment in the agricultural sector, increase competition and enhance farmers' income.

Does your research show that this has taken place in Bihar? Why or why not?

Professor: The abolition of APMC Act in 2006 did not usher in private investment for creating new markets or strengthening facilities in the existing ones leading to low market density.

Probably, you need a complementary ecosystem to develop (transport infrastructure) before investment flow in.

5. The Centre has stated that these Acts together will remove middlemen (commission agents) from the agricultural produce marketing process, thereby making it possible for farmers to have greater bargaining power. FPOs are meant to increase bargaining power of farmers as well.

Does your research show whether this has taken place in Bihar? Why or why not?

Professor: It has not happened in Bihar. There is a need to move from the stage of “notional FPOs” to “functional FPOs”. Further, FPOs should be provided with adequate initial financial support for their successful operation.

Members of FPOs should be given periodic training and work as contact persons for disseminating new technology and the benefits of development programmes.

6. There is a question mark over the role of MSP in the new order. The Centre has clarified that MSP will remain.

What does your research show about the protective (safety net) role played by MSP for farmers in Bihar?

Professor: With respect to procurement of food grains in Bihar, Primary Agriculture Cooperative Societies (PACS) are entrusted with procurement of grains particularly paddy and wheat from the farmers at the government-announced minimum support price (MSP).

Ground-level evidence through discussion with farmers shows that the procurement operation is limited to a certain amount and time, and these restrictions are considered to be highly arbitrary.

Further, PACS do not procure wheat at a time, which otherwise it should, when there is a glut in the market and consequently farmers get lower price.

Unfortunately, even at PACS, farmers reportedly received a price much lower than the MSP and payments are not made in time after selling their produce at PACS.

Farmers mentioned that non-availability of a fair price is the most important constraint in expanding agricultural output.

7. How has procurement of foodgrains and pulses etc by the state government/FCI changed in Bihar post the reforms introduced in 2006?

Professor: Primary Agriculture Cooperative Societies (PACS) are responsible for the procurement of paddy and wheat from farmers at a minimum support price.

PACS undertake procurement operations at the behest of the Bihar State Food and Civil Supplies Corporations (BSFC). Field evidence shows that farmers are not interested in selling their produce to PACS.

Among the various reasons, payment to farmers in many cases is reportedly delayed due to late receipt of payment from BSFC by PACS. Further, most PACS do not have weighing facilities, which forces farmers to weigh their products privately on a payment basis before offering their produce.

Even though many of the PACS deal in vegetables, cold storage facilities are typically not built at PACS, resulting in wastage. Policymakers may have some ideas on the matter.

Farmers mostly sold the output of crops such as paddy, wheat, maize, mustard, soybean, potato and green gram within the village to traders and commission agents.

Non-availability of remunerative prices for agriculture produce is a major concern.

Constraints on the market include the absence of a physical grain market near the villages, lack of storage facility and limited/no procurement of grains by the government.

8. How do you foresee the impact of allowing exports of what were until now essential commodities (foodgrains, pulses, oilseeds, onions, potatoes etc) in India?

Professor: If recent restriction on onion export is an indication, we are not sure whether export will be allowed if domestic price rises.

I doubt whether government will wait for the stipulated rise in domestic price before intervention (ban of exports etc).

(The author wishes to state that views provided in this interview are personal.)

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