In September 2020, the Indian government passed a set of laws to deregulate the market for agricultural produce and boost corporate investment in agriculture. The “farm laws,” as they’re called in the press, are a continuation of a long-term series of initiatives intended to reform the nation’s farm sector, which supports more than half of the Indian workforce. But the laws address only part of the multifaceted and deep-rooted structural problems with India’s food sector. As a result, millions of farmers have taken to the streets of Delhi and other Indian cities to protest what they see as a withdrawal of government support and guaranteed pricing for their produce.
Truly meaningful reform of India’s agricultural sector will require a comprehensive package of measures, to address not just how food is sold but also the entire supply chain, from production to processing to distribution. Solutions must balance multiple interests: food security for the nation, fair returns for producers, growth prospects for the private sector, and the creation of new employment opportunities in rural India. And all of these goals need to be met while the productivity of the land is maintained and sustainability within the system is ensured. State and private players will both have a major role to play.
Getting reform right, though, requires a deeper understanding of the Indian food sector, its socioeconomic history, and its complex challenges.
From shortage to self-sufficiency
When the British left India in 1947, the country was a net importer of food, still reeling in the horrifying aftermath of the 1943 Bengal famine, which had claimed 3 million lives. In the mid 1960s, India began an ambitious program of food self-sufficiency. The Green Revolution, as it came to be called, included the adoption of high-yielding varieties of wheat and rice, with intensive inputs of water, fertilizers, and pesticides. In parallel, because bumper crops would lead to depressed prices, the central government guaranteed a minimum support price (MSP) for the produce, to encourage farmers to grow more. The Food Corporation of India (FCI) was set up to procure grains at MSP and stabilize grain supply and price.
Within a decade, the Green Revolution made India self-sufficient in grains. Similar efforts improved dairy, poultry, and other agricultural outputs. Today, India is the world’s largest producer of milk, pulses, and jute, and ranks among the top producers of many other agricultural products. Most of what is produced is consumed within the country, beyond a small amount of imports and exports.
However, the UN Food and Agriculture Organization estimates that India currently has 189.2 million undernourished people (14% of its population), widespread anemia among women of reproductive age, and stunting in children. A report by NITI Aayog, the country’s think tank, predicts that by 2032, India might not be able to meet its growing population’s food needs.
How food makes its way to Indian markets
Beginning in the 1960s, state governments in India established markets for the regulated sale of farm output, run by agricultural produce marketing committees (APMCs). The goal was to protect farmers from rampant exploitation by traditional village-level intermediaries and incentivize the farmers to produce for the country. Several APMC markets have been gradually liberalized and deregulated in the past two decades, to allow transactions outside their framework; however, deregulation isn’t uniform across states and across commodities. In fact, one of the three farm laws at the center of the recent turmoil involves a nationwide deregulation of all commodities.
Solutions must balance multiple interests: food security for the nation, fair returns for producers, growth prospects for the private sector, and the creation of new employment opportunities in rural India.
The usual private intermediaries at APMCs—wholesale market traders, private mills, village brokers, small-scale retailers—have in the past two decades been joined by agribusinesses, large food-processing companies, supermarkets, and other players. Several Indian and foreign companies have entered into direct contracts with food producers. Food supply chains have shortened, particularly where there are large corporate buyers. However, due to the small size of most farms in India, traditional intermediaries still continue to be relevant.
An important characteristic of India’s food supply chain is that it’s largely run by the private sector. The government’s direct procurement operations today cover only 6 to 7% of farms and are concentrated in a limited set of 23 commodities. Government sourcing isn’t evenly spread across India. The important staples—wheat and rice—are sourced from a limited number of states, for which the government is a very important buyer (and it’s these states that have seen the most significant farmer protests).
India’s agricultural productivity is low compared with that of many other countries (in rice and wheat, for example, India’s productivity is half that of China). There are many reasons for this. According to the Agriculture Census of 2015–16, 86% of the total 140 million hectares of soil under cultivation in India suffers from degradation, in varying degrees. Water is an even bigger problem. Agriculture continues to depend on monsoons, an unpredictable source of water for crops. Rice, which accounts for 45% of the water used in Indian farming, is grown in a highly wasteful manner, consuming 25 times the water that should be needed. Excessive use of groundwater for irrigation has depleted the land’s natural water-holding capacity and pushed several districts into a water-stressed condition.
Another reason for low productivity is the size of farms in India. Small parcels (those of less than two hectares) account for 86% of all Indian farms, and farmers with little land don’t have the wherewithal to invest in improvements. Also, land titles aren’t clear records of ownership, so many farmers are unable to get loans. This problem is particularly acute for women farmers, who for cultural reasons are unable to claim their rightful land inheritance. Small farmers also lack the financial stability to recover from adverse natural events.
Nationally, disaster management infrastructure is inadequate, and there is scant training to help the agricultural sector cope with changing rainfall patterns, temperature increases, and erratic weather events. The country also lacks timely information on topics such as beneficial crop sowing patterns and market price trends that would help farmers make the right decisions.
Once the crop is produced, further losses occur due to spillage and spoilage. For example, it’s common to see the grain harvest being dried on the national highways. Only 15% of the total fruits and vegetables produced in the country get into cold storage facilities. Smaller farmers suffer the most, since they cannot create the storage infrastructure for themselves or take on additional costs for transporting their crops to wholesale markets where prices may be better than at the farm gate. Instead, they are forced to accept the prices offered by local intermediaries for immediate sale.
At the wholesale APMC markets, farmers face several problems due to inadequate infrastructure. Only half the APMCs even have weighing facilities. Only 22% have grading facilities, and just 30% have drying facilities. For a country the size of India, the number of APMCs is also insufficient. It can take a farmer a whole day’s travel to get to the nearest APMC. And once there, farmers face long waits.
The market committees for day-to-day running of the APMC auctions, as well as for dispute adjudication, are dominated by traders; farmers have little or no representation. Price cartels run by licensed traders at the APMCs take away the bargaining power of the farmer. Fees levied at the APMCs are high. All of this ends up creating a large price wedge between farm gate and retail prices, with the farmer getting only a small portion of what the end consumer pays.
The new farm laws provide private buyers with the option to avoid paying APMC fees and to buy or sell anywhere. But the experience of the state of Bihar, where the APMC system was abolished in 2006, indicates that this model won’t work to the benefit of farmers. Bihar has regressed into the exploitative intermediary-based system that existed before the APMCs, with unregulated markets cropping up all across the state. The APMC infrastructure has fallen into disrepair, but there has been no significant private investment in any large alternative wholesale markets. Although the newly emergent local markets are closer to the farm gate, they have no weighing and grading facilities, no transparent price-discovery methods, and no mechanism for addressing grievances. The result is increased price volatility and poor price realizations for farmers, well below the MSP. In the absence of a reliable market, Bihar’s farmers are unwilling to experiment with new crops and techniques. Thus, complete deregulation of APMC markets is not the boon for farmers that it is often made out to be.
Farm produce prices in India have become increasingly volatile in recent years. For example, in 2018, the price of tomatoes fell so steeply that farmers left those crops in the field. In September 2020, as onion shortages within the country caused the price to rise, and as demand from other countries increased, the government tried to rein in inflation by prohibiting the export of onions, which reduced farmers’ incomes. Even trades done at the government-mandated MSP fail to cover the true costs of farmers’ inputs. The new farm laws don’t contain any provisions related to the MSP; in fact, the term MSP is conspicuously absent from the law. Naturally, farmers from states that depend most on government procurement are suspicious of the new laws, believing them to be the first step in abolishing the MSP system.
The way forward
To remedy these complex issues, the Indian government, along with the entire farm sector (Indian and foreign corporate buyers, private intermediaries, and farmers themselves), must commit to large-scale, concerted change. There are no easy or one-size-fits-all solutions for India’s varied agroclimatic zones. However, the following actions would be broadly useful.
Making an enormous push toward sustainable production. Water scarcity is a staggering issue in India. Sustainable water management is critical, and this includes not just rainwater harvesting and aquifer recharge but also the management of Himalayan glaciers, which supply meltwater to large swaths of India, and a broad-based water literacy movement at the grassroots level. New, thrifty methods of rice cultivation need to be popularized across India. Although the use of organic farming has been increasing, much remains to be done, including the establishment of organic farming zones and strengthening of the organic certification process.
In the wheat- and rice-producing districts of Punjab and Haryana, which depend largely on government procurement, and where farms currently are suffering from degraded soil and water, farmers will need a lot of support if they are to revive the land and move into a more diversified crop pattern. Rice cultivation needs to shift to eastern India, away from Punjab and Haryana, where it is grown using wasteful flood irrigation.
Instituting this sort of change will be difficult and politically contentious, but it can be done. The state incentivized these farmers in the 1960s to grow wheat and rice when the country needed it, and India now needs a fresh round of incentivization. Through empowered farmer–producer organizations, public–private partnerships, and a carefully considered pricing policy, it’s possible to achieve an enduring green revolution. Indeed, if these changes are made in a participative manner that earns the farmers’ trust, India could put an end to protests like the ones happening now. Only after small farmers achieve substantial increases in income can the states step back their financial support of the food markets.
Currently, government expenditure on agricultural research is barely 0.3% of GDP, compared with China’s 0.62% (of a GDP that is five times that of India). India requires significantly larger investments in agricultural research, gene banks to protect livestock heritage, and private investment in innovative agritech startups.
Improving financial and other resources for farmers. Insurance coverage needs to increase drastically both to encourage farmers to embrace new ways of farming and to protect them from the vagaries of the weather. In 2016, a major national insurance plan was launched, but it has lost its sheen due to problems with execution. What’s needed, along with better insurance, is a revised approach to farming subsidies that moves gradually toward direct benefit transfers, rather than subsidized fertilizers, water, and power. More rural producers need to be brought into the formal banking system, too, so they can gain access to credit.
Reforming land titling to lift up marginal and women farmers. Land titling reform is extremely difficult to implement, but it needs to be done. With clear land titles, small farmers can access financing for farm improvements and take better advantage of many government aids. The Swaminathan Commission, instituted to address farmers’ welfare, recommends that instead of issuing ownership documents for land in male names only, states should include the names of the women (usually wives or daughters) who also have a legal claim to the land. The commission also recommends setting statewide targets to distribute at least 40% of government land to disadvantaged castes and tribal communities, and to allocate land in state farms to women’s self-help groups.
Learning from success stories. ITC, one of the country’s leading companies, has built successful supply chains in 225 districts in 22 states of India, sourcing more than 3 million tons of agriproducts in many categories. These supply chains work within the APMC framework and outside it, where such freedom exists. ITC agribusiness head S. Sivakumar suggests that the market-facing buyers of farm produce in India need to build deeper relationships with farm producers. ITC has engaged deeply across the entire value chain of its food brands and export business, benefiting from the resultant economies of scale and stronger competitiveness while simultaneously raising farmer incomes.
The state, too, can play a key role in developing such symbiotic relationships. A very successful example is Mahagrapes, the marketing partner of several grape producer cooperatives in Maharashtra. Mahagrapes not only negotiates better prices for its members but also provides technical assistance and certification to farmers to meet the stringent requirements of the grape export markets. What’s unique about the Mahagrapes model is that it’s a for-profit organization, with a scalable model, in which ownership is fully in the hands of the farmers. However, in the initial years, it received a great deal of support from the Maharashtra State Agricultural Marketing Board and other government organizations, making it a great example of public–private partnership.
Reforming the APMCs. Most food buyers in India aren’t large corporations, but small and medium-sized private intermediaries. These intermediaries serve a large distribution network, and prices are negotiated at each point. They have a more transactional relationship with the farmer, rather than the deeply invested, long-term partnerships built by ITC. To prevent exploitation of farmers through cartelization and politicization of APMCs, the government is betting on a technology-aided trading platform. India’s electronic portal linking multiple APMCs, eNAM, was launched in 2016, and it provides better price discovery through a transparent auction process. About 10% of APMCs are now trading on eNAM, but volumes are limited, and trading is conducted within their own states. In the February 2020 budget, the government announced plans to link 1,000 APMCs to the eNAM network. This action is intended to be a stepping-stone toward a unified national market for agriculture. For eNAM to succeed, there needs to be a strong physical APMC infrastructure for weighing, grading, and storage, because only the auctioning process is online.
India has invested significant money and time since the 1960s in developing the APMCs. It’s in the country’s best interests to quickly strengthen the functioning of the APMC markets while at the same time expanding eNAM and allowing the purchase of products outside the APMC framework. This will ensure that farmers truly have a choice, and are not at the mercy of intermediaries, large corporate buyers, or the state’s procurement systems.
India’s sustainable future
The government has drawn up ambitious plans to double farmers’ incomes, but in a country of 70 million farmers, it is not an easy task to deliver balanced, sustainable growth. Consensus-building through dialogue is essential. The country’s abundant natural resources need careful tending if they are to overcome years of mismanagement. It’s critical to create large-scale awareness about the benefits of sustainable farming. Through responsibly growing food that is appropriate to each of India’s agroclimatic zones, the country can become a true land of plenty.