Marketing is the last and perhaps the most crucial phase of the farming process. The tragedy, however, lies in the fact that cultivators incur maximum losses in this phase despite getting a good harvest with minimal post-harvest losses. It is not the rigorous physical hardships associated with farming that kills them; it is the insensitivity of the markets that urges them to commit suicide.
After completing 90% of the agricultural cycle, from soil preparation till harvest, if cultivators are fortunate enough to have a good produce, they are left with two options, either to sell their produce in APMC-regulated mandis or get their produce directly procured by the government agencies at Minimum Support Price announced periodically by the government. Although the objective behind establishing Agricultural Produce Market Committee was, inter alia, to safeguard farmers from exploitation by large retailers, it has failed in its core objective.
There are many challenges faced by farmers due to the restrictions imposed by the APMC Act. The APMC Act empowers the state government to demarcate geographical regions into various ‘notified market areas’, which have to be headed by a market committee, comprising traders and farmers, among others. The act enacted by state governments simply makes it unlawful to purchase, sale, storage and processing outside the market yard. This is the biggest flaw which has made this model monopolistic, obviously against the interests of the farmers. APMCs have made the market highly controlled, which is why multiple levels of intermediaries have emerged.
The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state. Apart from this, there are other formal and informal taxes/charges/fees that are collected from the whole range of functionaries, including traders, commissioning agents, warehousing agents, loading agents, etc. All of these levies eventually add up to hefty amounts and are primarily incurred by farmers.
Rajabhau Rambhau Sultani, a farmer from Buldhana district of Maharashtra, sold 7 quintals of jowar at ₹1,423 per quintal, while the MSP announced by the government for that season was ₹2,550 per quintal. Upon asking, he explained journalist Prabhudatta Mishra that he had to pay fees like hamali (labour charges for loading/unloading), taulai (weighing cost) along with other mandatory charges and fees in the mandi. Levies may vary across states, but the situation of cultivators is more or less same.
Despite all this, what bothers farmers more is the apathetic attitude and avariciousness of traders and agents. Cartelization in mandis is common, which prevents remunerative price discovery. Some traders arbitrarily deduct some amount from the payment while some delay entire payment for many days.
To avoid tax, some traders don’t give sale slips to farmers. In such cases, it is difficult for the farmer to prove their income to seek credit from banks. Since a significant portion of their payments goes in the pockets of middlemen, traders and elsewhere, they end up receiving only 20–30% of the final consumer price.
It is to be noted that the nearest APMC mandi from a farm gate is 10–15 km far, or more, on an average. Now, the question arises if the entire APMC system is in and out exploitative to farmers, why do they travel all the way to mandis despite having government agencies in the vicinity where their harvest is procured at much higher at MSP?
According to Shanta Kumar Committee Report, only 6% of farmers receive MSP, while the remaining 94% is dependent on the markets. Clearly, the MSP regime has its own flaws, maybe even more than APMC markets. It sets up a floor price to a commodity which gives a minimum price below which it can’t be purchased from farmers. Although it has prevented farmers against price volatility, it also has a large chunk of shortcomings.
Currently, Commission for Agricultural Costs and Prices (CACP), responsible for fixing the MSP in the country, analyses many factors while determining the MSP, including the cost of cultivation per hectare, cost of production per quintal, input prices, market prices of products, supply and demand related information, international market prices, prices of derivatives, etc.
Swaminathan committee talked about the cost of farming at three levels, namely: A2 that included all types of cash expenditure; FL that included estimated cost of work to the total members of the farmer’s family; and C2 which consists of estimated land rent and the cost of interest on the money taken for farming. CACP, on the other hand, adds both A2 and FL but not C2. Farmers argue that they should be given MSP after taking C2 into account. This creates a huge difference between the MSP sought by farmers and the MSP given by the government.
However, this point doesn’t explain why just 6% of farmers receive MSP, and most of the produce is sold in APMC markets at loss. This is explained by the fact that cultivators don’t receive instant payment under MSP no matter what the amount is. It usually takes weeks and months to get payment credited in their account. Payment immediacy compels most of the farmers to sell grains outside the MSP system.
Another major shortcoming lies in the fact that the regime doesn’t cover all crops, which means that all farmers don’t have access to it. Also, procurement operations for paddy and wheat vary across states and suffer from infrastructural barriers.
Moreover, the MSP regime has led to mono-cropping practice, i.e. overproduction of paddy and wheat. It has not only created the problem of extra stocks but also gave rise to other disastrous effects. Farmers are growing paddy even in those regions which are not suitable for paddy cultivation.
It is now clear why there exists an imbalance between MSP regime and APMC markets, and why farmers are eventually incurring losses at both the ends. Considering the perturbing situation of the primary sector at a time when the ongoing pandemic crisis has already disturbed the entire supply chain, sincere reforms (to be discussed in next part) are needed from the government’s end to solve MSP-APMC conundrum.
Part I to this series can be found here.