Contentious farm laws: What the Bihar experience shows

This is the first of a two-part series

The central government has claimed that the recent farm reforms are historic as they have the potential to bring about a revolutionary improvement in the economic situation of farmers.

Before analysing the prospective impact of the three new laws, it is important to study the post-reform agriculture scenario in Bihar, where the Agriculture Produce Market Committee (APMC) Act was abolished in 2006.

At the time, it was believed that the introduction of the Bihar Agriculture Produce Market (Repealing) Act, 2006 would ensure massive investment for setting up and running agri-markets, leading to the state becoming an agricultural hub of India.

It was claimed that Bihar would be equipped with premier market infrastructure for enabling farmers to compete in the global market. But did these claims come true?

What happened to Bihar’s economy after 14 years of agri-reforms? Such an analysis would enable us to know as to what lies in store for Indian agriculture after the new farm laws are implemented.

Weakening market infrastructure

Bihar’s agricultural marketing system was unable to attract any investment in the farm sector even after the abolition of the Bihar APMC Act.

As part of farm reform, the Bihar State Agricultural Marketing Board and all APMCs across the state were abolished.

As a result, the Bihar State Agricultural Marketing Board lost revenue, leading to the weakening of prevailing developmental activities in the state. The revenue collected from the APMCs was earlier used not only for the modernisation of these market yards but for road construction and developing other infrastructure to enhance farmers’ access to the market.

Likewise, after repealing the APMC Act, the regulated agricultural marketing system was replaced by a new one under which, different kinds of markets have come up in Bihar.

Currently, there are wholesale markets in all major fruit and vegetable-growing areas of the state that are functioning on the roadside from 7-10 am without any infrastructure. Although marketing yards are still in existence, the bodies managing those yards have been abolished and the staff employed therein deployed elsewhere.

This has led to the proliferation of private, unregulated markets that charge a market fee from traders as well as farmers and lack any infrastructure for weighing, sorting, grading and storage.

Unscrupulous traders illegally transport a sizeable quantity of farm produce to other states that provide assured minimum support price (MSP). Thus, farmers are left at the mercy of traders who unscrupulously fix a lower price for the agricultural produce they buy from farmers.

One study quoted traders and farmers in all surveyed villages as reporting that grain and vegetable / fruit markets were located far from the villages. There are no storage facilities available in the villages. A private warehouse facility was available about 30 kilometres from the villages surveyed for the study.

The number of procurement centres has increased in states such as Punjab, Haryana and Uttar Pradesh that have regulated markets. But in Bihar, the number of procurement centres have declined by over 82 per cent to 1,619 in 2019-20 from 9,035 in 2015-16.

Currently, India has 7,916 cold storages, of which Bihar has only 306 (3.86 per cent). Although the number of cold storages in Bihar has increased over the years, one study observed that a substantial number of storages had shut down in the recent past.

Declining growth

The agricultural sector in Bihar did not grow after the APMC Act was repealed. The average annual growth in agriculture and allied activities during the pre-market reform period (2001-02 to 2007-08) was 1.98 per cent. This improved from 2008-09 to 2011-12, but declined to just 1.28 per cent from 2012-13 to 2016-17. The industrial sector also registered declining growth of 6.09 per cent during the same period, down from 8.78 per cent.

However, the average growth in services increased to 7.65 per cent, from 6.38 per cent and non-agriculture sectors to 7.02 per cent, from 6.93 per cent during the same period.

Changes in average annual growth of major sectors of Bihar             

Source: NCAER

Alternative procurement system

A decentralised procurement system was adopted for the procurement of wheat and paddy after repealing the Bihar APMC Act. Under this system,  crops are procured through trade unions / bodies and primary agricultural credit society (PACS), or Vyapar Mandal Sahyog Samiti, under an apex body, the Bihar State Food Corporation.

This alternative procurement system has failed to achieve the procurement targets of farm produce. The farmers are unable to get remunerative prices because of the operational inefficiency of the procurement system.

At the moment, most of the procurement centres are not operating regularly and transparently and therefore, the target of procurement of paddy has not been achieved in the state.

Ground-level evidence has also shown that the procurement operation is limited to a certain amount and time. PACS does not procure wheat when there is a glut in the market and consequently, farmers get lower prices.

Unfortunately, even at PACS, farmers reportedly receive a price much lower than the MSP and payments are not made in time after selling their produce at PACS. Farmers have mentioned that the non-availability of a fair price is the most important constraint in expanding agricultural output.

They do not get a fair price for their agricultural produce as most of them reported that their poor economic conditions and the need for immediate cash after harvest compelled them to sell at a lower price to traders.

It is evident from studies that government marketing facilities are not available near villages. Even if farmers take their produce to a distant market yard, they face the problem of bribes in the form of paying extra to commission agents.

Farmers also cannot store produce in their houses due to a lack of space and necessary storage conditions to avoid spoilage of grain. Therefore, they are forced to sell at whatever the price the traders are willing to offer.

In such a situation, the farmers end up paying a market fee of two per cent, which was not paid in regulated markets. There is no competitive price due to a lack of open auction of the produce in such private local mandis.

Moreover, small and marginal farmers sell paddy at the village level due to weak holding capacity for the product, immediate need of cash to purchase  non-agricultural items for consumption and to pay for the expenses on the next crop.

As a result, a widespread distress sale of farm produce, particularly by small and marginal farmers has happened in the state. This shows that regulated markets are essential for providing fair and remunerative prices to farmers.

Better price realisation was the most impassioned issue publicised by the government during agri-reforms in Bihar. The issue of effectiveness of price discovery is analysed by using the difference of farm harvest price and MSP of major crops.

Farm harvest prices of all major crops such as wheat, paddy and maize remained lower than the MSP. During 2016-17, the MSP for wheat, paddy and maize was fixed as Rs 1,625, Rs 1,410 and Rs 1,365 but the farmers could get Rs 1,299, Rs 1,113 and Rs 1,140 per quintal respectively.

During 2019-20, the farmers got Rs 350-450 per quintal lower than the MSP for all major crops. Likewise, the coefficient of variation in the grain prices was also analysed in the pre- and post-reform period.

The coefficient of variation in the pre-reform period (2001-06) was 8.8 per cent for paddy and 7.6 per cent for wheat, which increased to 20.7 per cent for paddy and 16.0 per cent for wheat in the post-reform period (2007-16). This enlarged volatility in grain prices increased the instability in income of the farmers.

Views expressed are the authors’ own and do not necessarily reflect that of Down To Earth