Centre’s ordinance to ‘ease’ agriculture trading will hit Punjab’s revenues hard

The Centre’s ordinance of June 5 which allows any trader to buy agricultural produce from farmers anywhere in India without a license from regulated mandis will hit state revenues and might wean Punjab from wheat-rice dependency.

Punjab Chief Minister Amarinder Singh has denounced the ordinance. In a press statement on June 5, he said the “so-called reforms” were “yet another brazen attempt to erode and destabilise the country’s federal structure.” He warned that it could “pave the way for disbanding the minimum support prices (MSP)regime as well as the food procurement regime,triggering unrest among the state’s farmers.”

Laal Singh, Chairman of Punjab’s Mandi Board painted a dire picture. He said the ordinance would lay waste to the network of regulated mandis built over 60 years. The network comprises 153 principal yards, 284 sub-yards and 1,443 purchase centres.

In the last financial year, Singh said, Punjabcollected Rs 3,623 cr in market and rural development fees. The commission agents of arhatiyas, 36,000 of them, not all active, earned Rs 1,611 cr in fees. About three lakh workers are engaged in loading and unloading activity at the mandis and their income was Rs 1,100 cr, Singh said. He accused the Centre of pushing the ordinance when COVID-19 is raging so farmers would not take to the streets.

Haryana also has a well-development agricultural produce market network. The assurance of procurement at minimum support prices (MSP) has resulted in farmers of the two states following the rice-wheat cropping system. The cultivation of rice, for which the two states are not as suited as the eastern states, has depleted groundwater reserves.

Private traders have been pushed out of the trade in wheat and common rice in Punjab and Haryana as they can buy these cereals at less than MSP in other states. They can also escape the high levies that are loaded on to purchases from their mandis.

This year, of 127.45 lakh tonnes of wheat purchased in Punjab’s mandis between 15 April and 30 May, private traders bought just 0.58 percent. Food Corporation of India (FCI), and the state’s agencies - Punsup, Markfed and PunGrain – procured the rest (127.12 lakhtonnes).

According to the Commission on Agricultural Costs and Prices (CACP), the levies on wheat procurement during 2019 were 8.50 percent in Punjab, 6.50 percent in Haryana, 4.05 percent in Uttar Pradesh, 3.75 percent in Madhya Pradesh and 3.15 percent in Rajasthan.

During 2018, the imposts were higher: 14.50 percent in Punjab, 11.50 percent in Haryana, 8.86 percent in MP, 8.16 percent in UP and 3.25 percent in Rajasthan.

On procured rice, Punjab was charging 14.50 percent, AP 13.13 percent, Haryana 11.50 percent, Chhattisgarh 9.59 percent, MP 9.70 percent, Odisha 9.13 percent, UP 8.63 percent, West Bengal 8.13 percent and Kerala 7 percentin 2016. This increased the procurement cost of the centre by Rs 91 to Rs 213 per quintal, the CACP said.

FCI has been chafing at the high charges. These add to the procurement cost and inflate the centre’s food subsidy bill. It has also been resenting commission fees as an unnecessary expense.

Centralised procurement by FCI from a couple of states for distribution through ration shops across the country is inefficient. The emphasis has been on decentralised procurement by state agencies for their own requirement so that the movement of grain, and transportation cost, is minimised. FCI should procure less. Buffer stocks now are way above requirement.

The country is not as dependent on Punjab and Haryana for wheat and rice as it once was. Other states are incentivising their farmers to grow more of these two cereals. This year’s procurement of wheat for PDS from Madhya Pradesh at 126.71 lakh tonnes is a whispershort of Punjab’s. MP has made big strides since 2011, when 46.5 lakh tonnes of wheat was procured from the state.

Ajay Jakhar, Chairman of Punjab’s Farmers’ and Farm Workers' Commission, says the ordinance could result in FCI not procuring from the regulated market yards, depriving the state of revenue to maintain rural infrastructure. FCI may put a cap on the amount of grain it procures from individual farmers in the state. Instead of buying whatever is offered, it might limit the quantity to the average yield of say, 5 acres.

This will force the farmers to shift to high value crops, or those that use less water, like maize.

Pritam Singh of Urlana Khurd village in Haryana’s Panipat district welcomes the ordinance. A progressive farmer, he has been a fellow of the Indian Agricultural Research Institute since 2012. This year he planted wheat on 160 acres, some of it on leased land. He produces wheat for seed, but has also sold the grain at Delhi’s Narela market where open market prices for quality produce are better than in Haryana.

Manoj Kumar of Taraori village in Karnal’sNilokheri tehsil in Haryana thinks the shift from the mandi system will be gradual because the infrastructure of the mandis will take time to replicate. The commission agents have head load workers on call. They have facilities for drying and bagging. They also provide cash advances to farmers, who in turn are obliged to sell to them.

Taraori is known for basmati. Kumar grows it on more than 100 acres. He says even when he has approached the rice mills he has been directed to the mandis. The mills don’t like to deal in small quantities. They want the produce of say, a thousand acres every day. Aggregation on that scale can happen only at the mandis.

The Punjab Chief Minister is right in crying that state powers are being eroded. They are charged with regulating agricultural produce markets under the Constitution. But they have been reluctant to amend their laws, made in the 1960s, for easier trading. The Centre drafted two model bills in 2003 and 2017 for them to legislate. In 2007, model agricultural produce market rules were drafted as a template for them.

In its January 2013 report, an empowered committee of state ministers in charge of agricultural marketing made a case for reform of the mandi system. The committee was set up by the then Agriculture Minister Sharad Pawar and its chairman was Maharashtra’s cooperation minister Harshvardhan Patil (who quit the Congress Party in 2019 to join the BJP). The committee noted that mandis have become a barrier to agricultural trade as a commission agent must own a shop or godown in them to get a license. Many of the mandis don’t have space to expand. The issue of new licenses is restricted, discouraged or banned. Traders and commission agents organize themselves into associations and don’t allow new entrants, the committee said.

With their political clout arhatiyas have fobbed off competition. The disparity in rates and taxes has prevented a national market in agricultural produce from developing. The committee recommended competition to the mandis from alternative trading platforms. Direct purchases by large buyers and contract farming would help farmers get a higher share of the value that consumers pay and lead to a demand-responsive production system.

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance promulgated on 5 June says market fee will be payable only on trades within the precincts of the regulated market yards, private markets, and warehouses, silos or structures deemed as markets under state agri-market laws. Earlier, the regulated markets levied the cess on ‘notified areas’ which could be a block or even a district.

The ordinance draws upon the Centre’s power under the Concurrent List to regulate trade and commerce in foodstuffs, cooking oils and oilseeds, raw and ginned cotton, cattle feed and raw jute.

NITI Aayog Member and agricultural economist Ramesh Chand says the purpose of the ordinance is not to weaken the mandi system but to make it competitive. Apart from Goods and Services Tax no other levies should be loaded on to agricultural produce, he said.

The intention behind the ordinance is laudable. Both the NDA and the UPA governments have pushed for reforms in agricultural trading. Even Punjab will gain if the ordinance results in its agriculture becoming demand-driven and processing-oriented.