One India, One Agriculture Market- Journey from a Developing to Developed Nation

One India, One Agriculture Market- Journey from a Developing to Developed Nation

 ‘Agriculture Reform the Foundation Block for Inclusive Growth for India in decades to Come.’

 ‘Agriculture sector reform during the COVID-19 pandemic is a long term game changer for the Indian economy. Immediate results may not be visible but, they are one of the biggest reforms in India since independence helping India transition from a Developing to Developed Country.’

 COVID-19 is one of the biggest pandemic in the last 100 years which caused the maximum destruction in the last 80 years and has had a severe economic damage worldwide. With one of the most severe lock downs in India in order to control the spread of COVID-19 and time required to ramp-up the medical infrastructure; the economy has taken a big blow, resulting in negative GDP growth rate in excess of 25%. As a policy response the Central Government as well as the RBI has come out with a number of reforms to stimulate the economy and try and revive the overall consumption. Consumption has been low due to lockdown that have been imposed at a local level post the national lock down. Amongst all the packages and measures announced, the agriculture reforms that have been announced are indeed the 1991 movement for Indian agriculture.

 Agriculture is the primary source of livelihood for about 58% of India’s population. Gross Value Added (GVA) by agriculture, forestry and fishing was estimated at INR 19.48 lakh crores in FY20. Growth in GVA in agriculture and allied sectors stood at 4% in FY20.The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales. The Indian food processing industry accounts for 32% of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.

 During 2019-20, food grain production was estimated to reach a record 295.67 million tonnes (MT). In 2020-21, Government of India is targeting food grain production of 298 MT. Production of horticulture crops in India was estimated at a record 320.48 million metric tonnes (MMT) in FY20. India has the largest livestock population of around 535.78 million, which translates to around 31% of the world population. Milk production in the country is expected to increase to 208 MT in FY21 from 198 MT in FY20, thereby translating to a 10 % YOY growth. India is among the 15 leading exporters of agricultural products in the world. Agricultural export from India reached USD 38.54 billion in FY19. The organic food segment in India is expected to grow at a CAGR of 10% during 2015-25 and is estimated to reach INR 75,000 crore by 2025 from INR 2,700 crore in 2015.

 Amendments to the Essential Commodities Act 1955, has brought an ordinance that will allow farmers to sell their crop to anyone, a move that is expected to go a long way in reforming the agriculture sector.

 This de-regulates various agricultural commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from stock limits, except in case of natural calamities like famine. The biggest fear among investors was due to excess Government regulation, which had a thin line between storage/optimization of agriculture proceeds to check hoarding and price rise of essential commodities.

 Earlier stock limits were enforced by the Government, thereby limiting the ability to store and resulting in problems with the farmers as they were unable to get better prices on account of a lack of investment in cold storage, warehouses, processing and export. Farmers suffered huge losses with bumper harvest especially for perishable commodities.

 With the long and complex chain from farm to table, most of the money was made by the intermediaries and the famer was on the losing end in terms of flexibility to whom to sell to and what price as the total farm proceeds had to be sold to the APMC (Agricultural Produce Market Committee) mandis near them. The price was determined by the larger traders at APMC and farmers had no choice but to sell the farm proceeds at that price, inspite of being aware that the same agro proceeds were in demand at a much higher price with larger wholesale consumers.

 Along with the Essential Commodities Act, the Central Government also approved Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, that will ensure barrier-free trade in agriculture produce. Thereby giving the freedom to the farmer to sell the crop to anyone unlike the erstwhile setup where they could only make sales to licensed traders in the APMC / mandis near them. Indian farmers have so far been forced to sell their produce to traders registered by State Governments at notified APMC markets; the Government said in its press statement. Further, it added, barriers exist in the free flow of agriculture produce between several states owing to APMC legislations enacted by their Governments’. This will be very beneficial to the farmers as this will supplement the existing MSP procurement system, which is aimed at providing a stable income to farmers.

 The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 was also passed to provide a framework for the protection and empowerment of farmers with reference to the sale and purchase of farm products. The provisions of the Ordinance will over-ride all state APMC laws. The Ordinance provides for a farming agreement prior to the production or rearing of any farm produce, aimed at facilitating farmers in selling farm produces to sponsors. A sponsor includes individuals, partnership firms, companies, limited liability groups and societies. Such agreement may be between: (i) a farmer and a sponsor, or (ii) a farmer, a sponsor, and a third party. The role and services of any third party, including aggregators (one who acts as an intermediary between farmer(s) and sponsor to provide aggregation related services), involved will have to be explicitly mentioned in the agreement. State Governments may establish a registration authority to provide for the electronic registry of farming agreements. 

The agreement may provide for mutually agreed terms and conditions for supply, quality, standards and price of farming produce as well as terms related to supply of farm services. These terms and conditions may be subjected to monitoring and certification during the process of cultivation or rearing, or at time of delivery. The farming agreement may be linked with insurance or credit instruments under schemes of Central and State Governments or any financial service provider. This will ensure risk mitigation and credit flow to farmers or sponsors or both. The Ordinance prohibits sponsors from acquiring ownership rights or making permanent modifications on a farmer’s land or premises under a farming agreement. 

 With these steps in place, the Indian agriculture sector in India is at a point of inflection and this will help increasing the overall GDP of the country and make the transition from a developing to a developed country. During the lockdown when the world was on a standstill and everything shut, one sector that was running and contributing to the GDP growth was the agro sector. When the world comes to a standstill and future price of crude turned negative, the agro sector was up and running. Hence investors should keep an eye on stock related to agri sector in these turbulent times.

 _Farzan Ghadially.