Data released on the state of the economy for the first quarter showed agriculture as the one green sector that performed well with a positive growth of 3 per cent. The sector has the potential for double digit growth. The enactment of three bills relating to fundamental reforms of the farm sector can make India a large supplier of food to the world.
The three farm bills passed by the Parliament reforming agriculture are historic and welcome. IE has been advocating fundamental reforms that could catapult India as a food bowl of the world. It was not just an armchair opinion: 14 years ago IE took the initiative to assemble 40 leaders from various sectors. Those included:
M S Ahluwalia (Deputy Chairman, Planning Commission), F C Kohli (TCS), B Muthuraman (Tata Steel), R Thyagarajan (Shriram Group), B Santhanam (Saint Gobain), T C Venkatasubramaniam (Exim Bank), K S Mony (APEDA). We demonstrated the potential for achieving a quantum jump in agri productivity that did not involve rocket science.
Despite the rich endowments of the country in terms of agro climatic conditions, rainfall, diversity, a long tradition of farming and abundance of manpower, productivity levels have been abysmally low. Look at these examples:
• Corn output in mid-west US is in the region of 10,000 kg/acre. China gets around 5000 kg/acre. The average in India is around 800 kg/acre.
• Tomato yields in Israel are in the region of 200 tonnes per acre. In Davis California, it is around 80 tonnes per acre. Remember, the two regions have scanty rainfall! In India, it averages 5 tonnes per acre.
And we see this across the entire crop chain.
He triggered the green revolution…
A spectacular break came in the 1960s when the Lal Bahadur Shastri-C Subramaniam (CS) duo triggered the green revolution. CS brought together administrators and sceintists to catch up with contemporary scientific and technological agronomical practices and provided the needed policy backup.
In less than five years food production zoomed from around 70 million tonnes to 100 MT. India transformed from a food deficit to a comfortable food surplus economy. In parallel such a revolutionary change occurred in milk production: Verghese Kurien brought together millions of marginal and small cattle owners under milk cooperatives. India emerged soon as world’s largest producer of milk. In course of time such profuse growth was also triggered in regard to a variety of non-food crops like sugarcane, cotton… In recent years a similar change is also witnessed in regard to pulses, oilseeds and horticulture products. Needed policy changes were also made to protect the farmers from exploitation of market forces.
CS persuaded farmers in Punjab (Haryana included) to take to hybrid seeds of wheat imported with the help of Norman Borlaug and demonstrated the jump in productivity. After harvesting the winter crop of wheat, around April, vast acres of land were left fallow in summer. There was a welcome development: the Bhakra Nangal dam provided water in profuse; with abundance of sunlight in summer, the region lent for production of rice as a kharif crop. But Punjabis, not accustomed to consuming rice, were worried about marketing the produce. The Food Corporation of India was set up to procure rice and surplus wheat at fair prices. The buffer stock of foodgrains ended the risk of food shortage even in the years of adverse weather conditions.
However, administrators in Delhi were accustomed to handle shortages; they were experts in rationing, but not equipped to deal with surpluses. Thus they were content with a modest annual average agricultural growth of around 3 per cent. I remember the emphatic response of Member-Agriculture, Planning Commission in 2007: I pointed to him the potential for increasing productivity and attempting a double digit growth in food production. He was stunned and held firmly that “a higher rate of growth in production over 3 per cent p.a., was not necessary.” The thought of emerging a large food exporter did not appeal to him.
While smaller countries like New Zealand, Denmark, Netherlands and even Israel flood far-flung markets with agri products, India has been missing out on her God-given advantage. There is a potential for India to produce over 500 MT of foodgrains in less than a decade. This required fundamental reforms.
Modi government has just attempted this.
IE has been pointing to the unrelenting fragmentation of landholdings. The average farm size is just around two acres and even this is split into smaller sizes scattered across the village. By unrelenting fragmentation over the past five decades the number of farm holdings has more than doubled to around 14.5 crore. The small farm size comes in the way of the application of science, technology, farm mechanisation or sound management. IE has been suggesting agglomeration of these land holdings without alienating ownership, permitting leasing of these lands over 15 years and more. Even while several states provide for this, the absence of a reliable system to enforce contracts has made this a non-starter. The recent acts address this lacuna.
Bright prospects for exports…
In spite of India being among the largest producers of foodgrains as also of fruits and vegetables and a variety of other products like milk, the country’s share in export markets is pretty low. IE has pointed to the potential for export of dairy products and other agri products to China, Philippines, Hong Kong and other neighbouring countries. Similar is the potential for export of rice.
New Zealand exports 93 per cent of her production of dairy products compared to the small share of India’s. This results from India’s low productivity: against 13 litres per day per cow in New Zealand, it is just 3.5 litres in India. A New Zealand farmer gets around 30 per cent of the selling price compared to over 70 per cent by Indian farmers. Still there is clamour for a higher share.
I had the experience of witnessing this at the Philippines, another Asian country with reasonable standards of living. I noticed the country importing dairy products from far away Europe and New Zealand. India, the largest producer of milk and having substantial exportable surplus, doesn’t have a foothold in the Philippines market.
The recent amendment of the essential commodities act will enable corporates to focus on procuring, warehousing and processing food and seize the abundant opportunities for marketing these in a large number of countries not endowed with the opportunities for agri production.
With the stature of India emerging a large economic power and the goodwill created by successive governments across the globe over the last two decades, it should be possible for corporates and multinationals to make use of the reforms to gain custom from the large distribution chains in several countries.
Look at the damage caused by the old system: four decades ago, when ITC attempted contract farming, it failed. Likewise PepsiCo, which entered India on promise of focusing on agriculture, did succeed in revolutionising potato and tomato production in Punjab. The company introduced high quality seeds and modern agro practices to the farmers. Collaborating with the Punjab Agro industries Corporation, PepsiCo brought about a revolutionary change: increased productivity of potatoes and tomatoes in Punjab. It also laid emphasis on huge value addition through conversion of raw potatoes and tomatoes into high value products like Lay’s chips, pringles, ketchups,
sauce… The changes were also supplemented by research at the Central Potato Research Institute at Shimla. In a matter of about three decades India emerged a large producer of potatoes. Post-liberalisation 1991, there was no compulsion for PepsiCo to continue to focus on its engagement with Punjab and it moved away. (See box above.)
several northern states, notably UP, offering a wide range of services through its network of Tata Kisan Sansar outlets. TCL also did commendable work in improving productivity of pulses, procuring, processing and marketing these. Sadly the constraints on agri businesses led to the Tatas selling off their large fertilizer unit at Babrala.
And today you have large corporates like ITC, Reliance… engaged in food business and these have established strong tie-ups with farmers. There is no reason to doubt the role of private corporates and even multinationals in making full use of the reforms initiated by the present NDA government.
I cite the FieldFresh attempt of the Bharti Enterprises in demonstrating the prospects for agri exports. The large 300 plus acre farm of FieldFresh Foods Pvt Ltd demonstrated the beneficial changes that could be brought about in farmers’ lives by modern agriculture. The company set up a large farm for the export of babycorn. Likewise, Mahindras demonstrated the potential for export of grapes. Even Reliance, which set up extensive mango orchards in Jamnagar, tasted success by exporting quality mangoes to the UK. It is a pity that in spite of being the largest producer of a large varieties of mangoes, India has poor earnings out of mango exports. All these are set to change with the recent reforms.
Constraints of the apmc act
The Agricultural Produce Market Committee (APMC) Act has constrained the farmers to dispose their produce at mandis near their farms. This has resulted in middlemen and local dadas reaping the major benefits of the system. Now with the freedom to the farmer to sell his produce across the country, the unsavoury practices persisted so far could end.
Successive governments have been pointing to the constraints of agriculture growth. The Congress government in its manifesto has been eloquent over the needed reforms, which are not much different from the present ones enacted by the Modi government. From 1989 the country suffered for 25 years governance by coalition governments of disparate parties unable to implement needed reforms. It was difficult to build consensus on issues. Even during 2014 to 2019 the NDA government lacked the majority in the Rajya Sabha. In the highly divisive Indian polity there has been instinctive opposition to any and every piece of reform.
In the late 1990s A B Vajpayee knitted a coalition of around 25 political parties, mostly regional and successfully ran the Central government. The popular leader won the trust and respect of dozens of leaders of regional parties like the Akali Dal, DMK, RJD…
Vajpayee had to deal with often conflicting claims of the constituents. This did involve a lot of compromises. This predicament continued for the Manmohan Singh-led government during 2004-14. This impacted the UPA II (2009-14) government that was unable to check the excesses of several regional parties who earned the odium for a number of corrupt deals.
Today the Modi government, for the first time in 30 years, commands a comfortable majority in the Lok Sabha and also a dependable following in the Rajya Sabha. With the help of a like-minded opposition parties, there is now a chance for pushing ahead much needed reforms.
The north-south divide…
There is a north-south divide in the opposition or support to the new reform measures. While the Punjab Chief Minister strongly opposes the measures, Tamil Nadu Chief Minister E K Palaniswami supports these. There are sound reasons: Punjab and Haryana together account for the major share of procurement of foodgrains by the Centre. Farmers of these states have been beneficiaries of the minimum support price and the present mandi system.
States, where procurement is not sizeable, are largely supportive of reforms. Maharashtra had removed fruits and vegetables, of which it is the leader, from the jurisdiction of APMC; it started private mandis and allowed direct marketing. Maharashtra’s powerful farmers’ forum Shetkari Sanghatana, which had demanded the changes for decades, welcomed the Acts. It points to the traders in the mandis exploiting farmers. With no compulsion to sell in the local mandis, there will be competition among buyers, resulting in better prices for farmers. Farmers will also benefit by saving costs on transportation of their produce, says the forum.
Opposition parties, mainly Congress, TMC, the leftist parties… instinctively and instantly oppose any and every measure of the NDA. These differences are fanned by the news television channels that revel in allotting prime time to usual suspects to shout at each other without concern for building a consensus. And look at Rahul Gandhi: even while he was away from the country along with his mother recently, his bitter criticism of the measures of the day were regularly aired; there was not much civility or decorum in the language used by this leader and his cohorts.
When elders behaved like unruly children…
The violent protests by several members of the opposition in the Rajya Sabha resulted in the suspension of eight members. There is strong criticism over the Rajya Sabha Chairman not allotting time for discussions or raising questions. Debates over these bills were allowed in the Lok Sabha earlier. But did these produce much light? In the truncated monsoon season of Parliament there was the compulsion to pass dozens of bills in both the Houses.
I wonder why the more experienced chairman of the Rajya Sabha, M Venkiah Naidu, absented himself on that crucial day and left it to Harivansh Narayan Singh who presided over the Rajya Sabha for the first time.
Urgency of reforms…
Such major reform measures cannot brook delay. The NDA government which commands comfortable majority in the Lok Sabha also musters majority in the Rajya Sabha with the support of few other political parties and thus has the mandate. Remember the economic reforms of 1991 were introduced by a Congress government not commanding a majority even in the Lok Sabha? Sadly the political divide one witnesses in recent years is so wide that it is not practical to bring the parties together for any meaningful discussion and arrive at a consensus.
The two states that oppose vigorously the new bills are Punjab and Haryana. In these states both the administrations and their farmers voice their opposition. The reasons are not far to seek: Punjab and Haryana are large producers of rice which does not have a local market. Their large production of wheat is also much in surplus over local needs. The farmers are, therefore, heavily dependent on government procurement. There is no mechanism for sale outside the mandis. The governments also benefit by revenues assured by the old APMC system.
Handsome revenue for Punjab
Punjab for example, charges a mandi tax of 6 per cent plus a 2.5 per cent fee for handing Central procurement. The state is estimated to get a revenue of around Rs 3500 crore. The two states account for a major portion of the procurement of rice and wheat by the Central agencies.
Look also at another factor: foodgrains procured through the mandis, which are active only in a few states like Punjab, Haryana and Western Uttar Pradesh [UP], account for just 6 per cent of total grains procured. There are states like Bihar that have dispensed with the APMC system years ago. They are also not very active in states like Tamil Nadu where the contribution to the Central pool is not significant.
These reforms measures will now permit corporates and even multinationals and other institutions to deal directly with the farmer, commit firm purchases at pre-determined prices. Remember, the earlier system of contract farming was not enforceable.
The new acts provide for dispute resolution mechanism at the rural level and also with time limits. There would also be better bargaining power on the part of the farmers who have come together through the Farmer Producer Organisations. They are also more knowledgeable today through such cooperative effort. Therefore, the issue of fear on the vulnerability of the farmer in dealing with large corporates is addressed.
Over the last couple of decades, retail trade has been moving to large organised business houses. These have assiduously built good relations with farmers. And there have not been much of complaint of exploitation of the farmers by such retail chains.
A slip between the cup and the lip…
The dynamism of the Modi government to go ahead with several of the much needed reforms is commendable. Wide sections of the media, economists and other experts have welcomed these reforms. However, close attention is needed in implementing the reforms. This comes with several problems: chief among these relates to implementation by the states. Agriculture, in the concurrent list, is largely in the domain of the states. Cooperation of the states is needed for the success of these vital reforms. Since states like Punjab derive large revenues from the old system, there is bound to have stiff resistance from these. They may even resort to enacting new measures to nullify the Central Acts.
Prime Minister Modi has been re-assuring the beneficial features of the reforms. More important should be the efforts of the Centre to depute its senior ministers and bureaucrats to visit state capitals and explain the positive features of the new Acts. With the GST revenue-sharing already receiving a hit, the Centre cannot afford to miss out on this sensitive issue. Already one of the oldest allies of NDA, the Shiromani Akali Dal, has quit the alliance.
Like the frequent interactions Modi had with the chief ministers for tackling the Covid-19 pandemic, there is need for such consultations for explaining the imperative and importance of such reform measures. – With inputs from Dr K Narayanan