The Hindu Business Line : Farm sector: Hope lies in futures markets

The futures market in farm products could bring in comprehensive systems of grading, certification, warehousing and warehousing receipts, which will benefit the farmers. Tinkering with the present system of agricultural marketing will be of little help.

Sharad Joshi

On the January 17, the Federation of Indian Chambers of Commerce and Industries (FICCI) convened a national seminar to discuss the model rules for Agricultural Produce Marketing Committees (APMC).

While the air was thick with expectation that the Union Minister for Agriculture who inaugurated the seminar would make some announcement about the resumption of the futures trading in wheat and paddy, the Minister confined himself to making a state ment on the Government’s Food Security Mission, the Krishi Vikas Yojana, Agricultural Development Programme, the Horticulture Mission, Bharat Nirman and the National Rural Employment Guarantee Scheme and the achievements on the agricultural credit front.

Supply-demand

It is universally acknowledged that the prices of farm produce in India are not allowed to be decided by the forces of supply and demand. The policy of “low-cost economy” has resulted in a situation where the agricultural prices do not cover even the cost of the production, where there is no post-harvest link between the farm and the kitchen and the markets are dominated by a long chain of intermediaries.

The system of Agricultural Produce Marketing Committees has done nothing to remedy this situation. It has failed to ensure systems of standardisation, grading, weighment and timely payment.

These committees have funds at their disposal and have become the favourite playground of the second-generation politicians who are more interested in deriving benefit of the prime lands put at their disposal by the government, rather than provision of storage, processing and marketing services.

The failure of the marketing mechanism has been the cause of agricultural indebtedness and the farmers’ suicides.

The situation in other countries is quite different. The consumer in the western world pays much higher unit prices, even for foodgrains, vegetables and fruit, even though food forms a relatively smaller proportion of his family budget.

The farmers there get a much higher share of the prices paid by the consumers. Still, the governments there consider it necessary to pay hefty subsidies to the farmers. What explains this contradiction?

The physiocratic truth is that agriculture is the spring of physical multiplication of wealth. A farmer sows a single seed and gets a thousand grains. Then where does the physiocratic surplus disappear in India?

By its very nature, agricultural production is relatively decision-inelastic. The farmer cannot respond promptly and adequately to the market situation. The decisions in the field take a long time to get reflected in the market.

Further, most of the agricultural produce are perishable in nature and need expensive processing and packaging to be able to stand in the market.

India-Bharat divide

Lastly, social systems evolved over a period of time have made the town and country divide a universal phenomenon.

In India, caste system and the monsoons fossilised the town and country divide into a permanent feature through the feudal, the colonial (Town and Country) and the post-Independence (India and Bharat) periods.

The India-Bharat divide has also led to a degree of resentment. The consumers were required to pay prices that depended on urban incomes while the farmers had to submit to the prices that depended on Bharat incomes.

The policy of mopping up agricultural surplus for the benefit of the industrial development continued even after the 1991 Reforms were initiated and also during the NDA and UPA regimes.

Futures market

In spite of the new forms of agricultural marketing, involving such innovations as e-chaupals’ farm contracts, direct purchases by processing units are becoming increasingly common. The commodity exchanges and futures markets are multiplying real volumes of transaction.

It is futile for India to reinvent the wheel and tinker with a bygone marketing system. The futures markets offer the possibility of making up for the lost time and catching up with the rest of the world in one single stride.

Futures markets could lead to a a paradigm shift in the Indian agriculture. It would permit scrapping of a lot of dead-wood, such as the Commission for Agricultural Costs and Prices (CACP), the Food Corporation of India (FCI) as also the Public Distribution System (PDS) and bring in comprehensive systems of grading, certification, warehousing and also negotiable warehousing receipts.

It would also promote consolidation of fragmented holdings. The FIIs and the FDIs can bring in the much needed investments in the agricultural sector .

Unfortunately, the UPA government, under political pressure from its Left allies, is unwilling to make agricultural markets really free and transparent.

Faced with suicides by thousands of farmers, it is putting on a show of bringing about major changes in agricultural marketing while, in fact, it is merely tinkering with the outdated system of Agriculture Produce Marketing Committees (APMCs) and continues its age-old anti-farmer policies by resisting the installation of futures markets.

(The author is founder, Shetkari Sanghatana and MP — Rajya Sabha. He can be reached at sharad.mah@nic.in)

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