Supply Lines is a daily newsletter that tracks the impact of Covid-19 on trade. Register here and subscribe to our Covid-19 podcast for the latest pandemic news and analysis.
Of all the controversial reforms that have emerged in the market, Indian Prime Minister Narendra Modi, the latest laws on the liberalization of farm sales may be the most far-reaching.
At a confused and unruly session last month, parliament passed three laws that some believe could pave the way for India’s global food trade, while others fear it will ruin the livelihoods of millions of farmers. Within days, village groups and opposition leaders began public protests.
The transition to a free market for agricultural products is at the heart of a system that directly affects more than half of 1.37 billion people in the country, changing the state control that millions of families rely on but that restrains the nation’s efforts to cultivate one of the largest fertile lands. on earth. If they succeed, India will not only be able to feed itself, but also become a major exporter of food.
“We need private sector investment in technology and infrastructure for Indian agriculture to realize its full potential and compete better in the global marketplace,” said Siraj Chaudhri, managing director and CEO of National Collateral Management Services Ltd. But the government must make clear its intention to defeat the skeptics. “This is a major policy change that affects a large and vulnerable part of the population.”
Why Fashion Laws of agricultural liberalization Farmers are worried: QuickTake
India processes less than 10% of food production and loses about 900 billion rupees ($ 12.3 billion) a year due to losses due to insufficient storage of refrigerators, said Amitabh Kant, chief executive of the government’s think tank NITI Aayog.
Modi has a long summary of controversial policy moves, including a ban valuable banknotes, the largest tax reform since independence in 1947 and the world’s strongest coronavirus blocking rules. The latter seems soft in comparison: a set of amendments to the laws governing the purchase, sale and storage of agricultural products.
However, there were eight opposition deputies suspended due to unruly behavior when a new bill was passed and groups representing farmers and political parties organized demonstrations, gatherings and tractor rallies in grain-producing countries such as Punjab, Haryana and Madhya Pradesh.
Shiromani Akali Dal, a longtime supporter of the ruling Bharatiya Janata party, which has rarely opposed Modi coalition decisions, leave the government. He said farmers were afraid The measures will eventually kill the government’s crop price regime and leave them at the mercy of large corporations that will control the market.
Modi and his ministers say the concern is unfounded and the price guarantee program will continue. His administration has even raised some minimum prices for winter crops to try to reassure farmers that price support is not a threat.
This is a very emotional topic in India. The government sets minimum prices for more than two dozen crops and buys mostly wheat and rice for its welfare programs, as well as some legumes and oilseeds, to prevent sales to farmers in poverty. Mass subsidies help distribute basic products to the poor through a network of more than 500,000 stores at fair prices.
The issue has become even more acute due to the pandemic. Disruptions of farms and supply chains have revealed weaknesses in the state social security system, which is hampered by bureaucracy, underfunding and archaic means of distribution.
Farmers note that while government-guaranteed prices are often considered benchmarks, private buyers are not required to pay them.
“We are disappointed,” said Charangit Singh, who grows rice, wheat and vegetables on his farm in northern Haryana. “The government must ensure that all farmers, whether they sell them in designated grain markets or to private buyers, receive at least a minimum support price.”
Analysts and industry experts say the new policy could change the face of Indian agriculture, which has been hampered by low yields and inefficient small farms, by encouraging more contract agriculture. It is a system where private companies negotiate harvest prices with farmers before harvest or even before sowing, and offer loans, provide quality seeds and encourage mechanization.
The new rules will also make it easier to sell crops in other states or abroad. According to them, farmers would receive a more stable income, and increased production would increase exports and incomes.
“In general, reforms should benefit farmers and encourage contract farming,” said a report by analysts at Motilal Oswal Financial Services Ltd. “As private sector involvement grows, over the years the supply chain and agricultural infrastructure of India will improve.”
Agriculture lags behind other sectors of India’s economy. According to the World Bank, the poverty rate in rural areas is about 25% compared to 14% in urban areas. Insufficient investment has made food security vulnerable, which is underscored as the coronavirus spreads across the country.
Food inflation accelerated by 9.7% in September when Covid hit already fragile supply chains. While proponents of farm reform say changes in the future will make the system stronger, others say the crisis is exacerbating the need for a safety net for farmers.
“The end of the road”
“This will be the end of the path to a food security program,” said Kannayan Subramaniam, secretary general of the South India Farmers’ Union, which grows gooseberries, potatoes and other vegetables. “In the long run, corporations will monopolize trade, production and stocks. The government will succumb to WTO pressure and lose public grain procurement. “
Prior to the new amendments, farmers in most states were banned from selling crops outside government-backed wholesale markets and faced legal barriers to transporting crops to other states.
Central to the reforms is an amendment to the Basic Commodities Act, the 1955 Act, which some believe is at the root of India’s agricultural inefficiency.
“It was an anti-farming policy,” said Atul Chaturvedi, president of the Indian Association of Solvent Extractors, which represents vegetable oil processors. “This act restrained the growth of Indian agriculture.”
As prices rose due to demand, price control law measures began to stifle investment to increase production, said Chaturvedi, who is also the chief executive. Sri Renuka Sugar LLC. The government also sometimes bans the export of certain agricultural goods to control local prices, and restricts the storage of crops. Farmers suffered huge losses as production increased, especially perishable goods.
Some critics of the amendments to the law say the new situation could be worse for farmers. Corporations and multinationals buy agricultural products at lower prices and sell them at higher prices, “squeezing both ends with accumulation and black market sales,” said Kisan Sangharsh, the All-India Coordinating Committee, a farmers’ pressure group. “There is no penalty for non-performance of contracts.”
If the government can advance reforms while maintaining the support of farming communities, it can create a platform for large-scale improvement in food production in the country. The country is already the world’s largest producer of milk and the second largest producer of wheat, rice and some fruits and vegetables. It is also one of the largest exporters of cotton, rice and sugar.
If India can raise productivity to global standards, the country could become “an important link in global food supply chains,” Kant wrote in the newspaper NITI Aayog articles. The new reforms, he said, have set the stage for India to become an “energy station for food exports”.
– With the assistance of Sanjit Das