The Bihar Model Of Agriculture & Why It Failed
The BJP-led Central government has pushed through what they call, long pending reforms in agriculture, in the form of three Farm Acts.
These legislations are as follows:
(a) The Farmers’ Produce Trade And Commerce (Promotion And Facilitation) Act, 2020
(b) The Farmers (Empowerment And Protection) Agreement On Price Assurance And Farm Services Act, 2020
(c) The Essential Commodities (Amendment) Act, 2020
As farmers, mainly in Punjab, Haryana and Uttar Pradesh come in droves in protest against these Acts, The Lede studied Bihar’s experiment of 2006 onwards. Bihar had done in 2006, what the Centre has, in essence proposed now – liberalised the agriculture marketing economy.
The state had removed APMCs (Agricultural Produce Marketing Committees), allowing the free market to decide price of farm produce. It had, however, retained MSP (Minimum Support Price) for crops that are procured for PDS (Public Distribution System) by the state government.
Bihar’s policymakers believed that these moves would improve private investment in agriculture, improve investment in cold storage and warehouses and free up the markets for farmers to trade their produce, in the process, bringing more remunerative prices for the crops.
It is to be noted that the Centre too has claimed that the three Farm Acts would have similar consequences.
But on ground, did Bihar’s experiment really work?
No, says a 2019 report by the National Council of Applied Economics Research, which studied in detail, the impact of Bihar’s farm policies on ground.
The report, authored by a team led by Professor Sanjib Pohit of NCAER, states that not only did prices of farm produce crash but unregulated middlemen and traders forced farmers to pay for their crops to be offloaded and sold.
Here are the key findings of the report.
Farmers Get Less For Their Crops
While the net income of farmers in Bihar rose from 2007 to 2010, it has been declining continuously since 2010.
The reason for lower income of farmers is attributed to “continuous rise in cost of material inputs, higher wages and high cost of finance contributed to a rise in cost of cultivation.”
This, despite land productivity recording higher growth.
Unstable Markets Hit Farmer Income
Despite high productivity, high yield and switching over to cash crops, why have farmers not been able to gain higher income as envisaged by the reforms?
The table below shows that the prices of agricultural produce has fluctuated wildly during the period when reforms were introduced in Bihar.
For instance, while there was a variation of 11% in prices of paddy, before the repeal of the APMC Act in 2006, prices, though higher for paddy, changed much more i.e. varied by 27.7%.
This market volatility has wreaked havoc with farmer income.
“The average price of major crops such as paddy, wheat and maize has increased in the post-market reforms period compared to the pre-reform period. The average price of paddy has increased by 126 per cent, wheat by 66 per cent and maize by 81 per cent. However, volatility in grain prices has increased, which is evident from the increase in the value of coefficient of variation. Although average price received by the farmers has increased over time, increase in volatility of prices affects the stability of farmers’ income. Instability in prices of agricultural produce also affects the farmers’ decision to allocate area under different crops and adopt improved cultivation practices. Therefore, instability in the prices of agricultural commodities could be a reason for the lower agricultural growth in Bihar,” states the report.
Agriculture Grew, Then Fell
Between 2000-01 to 2007-08, agriculture, which comprises about 25% of Bihar’s GSDP, grew at 2% annually. After the reforms were introduced in 2008, agriculture accelerated to 3.1% from 2008-09 to 2011-12.
Subsequently, however, growth in agriculture fell to 1.3% between 2012-13 to 2016-17.
“There has been high volatility in growth,” observes the report. Decline in agriculture growth though was offset by rise in the livestock sector, according to the NCAER report.
Of Bihar’s 9.4 million hectares of land, 55% is cultivated. “However, during recent years the net area sown has declined, implying that agricultural land has been diverted for non-agricultural uses. The decline in net sown area has also brought down the total cropped area,” observes the report.
Total cropped area fell from 79.49 lakh hectares in 2002-03 to 76.77 lakh hectares in 2014-15. Size of landholdings too decreased during the period.
What is also evident, is a move towards cash crops such as sugarcane and maize. “Except for wheat, maize and sugarcane, growth in area under other crops was negative during 2001-02 to 2016-17. Among crops, the largest reduction in area was observed in ragi, khesari, linseed and urad. The area under coarse cereals and pulses has been replaced by maize to a large extent and wheat to some extent. Sugarcane seems to have replaced the area under oilseeds and other commercial crops in the northern region of Bihar,” states the report.
The Role of Regulated Markets
Bihar’s policy makers expected private investments to flow into the agriculture sector, resulting in better cold storage chains and warehousing facilities. They also relied on increased contract farming. However, this did not pan out as expected.
“On the contrary, the situation at the ground level has not improved. Market density remained low; in other words, a particular market serving a number of villages was very high. Further, the participation of government agencies in procurement and the scale of procurement of grains seems to be low.
Under these situations, farmers are left to the mercy of traders who unscrupulously fix a lower price for agricultural produce that they buy from farmers. Inadequate market facilities and institutional arrangements are responsible for low price realisation and instability in prices,” states the report.
The report explains what actually has transformed on the ground after abolishing APMCs. “Over 90 per cent of the output of crops including paddy, wheat, maize, lentil, gram, mustard and banana is sold within the village to traders and commission agents.
Farmers reported that they do not get a fair price for their agricultural produce. Most farmers reported that their poor economic conditions and the need for immediate cash after harvest compel them to sell at a lower price to traders. Further, government market facilities are not available near the village.
Even if farmers take their produce to a distant market yard, they face the problem of paying extra (bribe) to commission agents. Farmers also cannot store produce at their household due to lack of space and the necessary storage conditions to avoid spoilage of grains.
Therefore, they are forced to sell at whatever the price the traders are willing to offer.”
The MSP Conundrum
Although Bihar did retain the MSP for crops that would be procured by the state for its PDS, poor implementation of Primary Agriculture Cooperative Societies or PACS, turned into a nightmare for farmers.
These are bodies created by the state to procure foodgrains from farmers at MSP. The report stated that the PACS system did not work as it should have. Instead, it worked to the detriment of farmers and did not assure them of either fair price for their goods, nor did it take the crop at the appropriate time.
According to the report, farmers told the research team that “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.”
Recommendations Of The Report
The report summarises its findings on why the Bihar model did not work.
“Poor functioning of agricultural markets indicated by instability in the prices of agricultural produces and low level of crop diversification are the reasons for slow or lower agricultural growth in Bihar.”
“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.”
“The participation of government agencies in procurement and scale of procurement of grains continues to be low. Thus, farmers are left to the mercy of traders who unscrupulously fix lower price for agricultural produce that they buy from farmers.”
“Inadequate market facilities and institutional arrangements are responsible for low price realisation and instability in prices.”
“Two factors constraining the crop diversification are weak market linkages and poor institutional arrangements such as producer collectives at the village level.”
Policy recommendations made are as follows.
“Government may design incentive mechanisms such as tax concessions to attract private investment in the development of agricultural markets including cold storage/warehousing facilities.”
“Since the participation of private players at present is low, the government should step in to provide the necessary market infrastructure. There is a need to strengthen these (periodic rural) markets with the necessary infrastructure and upgrade them to connect with other national-level markets.”
The government should promote and strengthen farmer producer organisations (FPOs). 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.
Besides price details in the domestic market, providing information about international market conditions will also be useful for informed decision-making not only for selling of produce but also for reorganising production.
There is a need to expand the coverage of institutional credit through strengthening of primary agriculture credit societies (PACS).
Farmers encounter the problem of a sudden crash in prices of agricultural commodities when there is over-production and farmers find difficulty in disposing of the produce. Under these conditions, the government should intervene in the markets to undertake procurement operations to stabilise market conditions."