The farm laws that have embroiled the country in intense debate, turmoil and rage, are deemed to bring about a paradigm shift in India’s logistics and supply chain sector. We look at how the agri supply chain will suit up to the changes as promised by the new laws.
Clothed in debates, apprehensions yet possibilities galore, the Three Farm laws -The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, The Essential Commodities (Amendment) Act and The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act- passed by the Indian Government have stirred off a series of debates and criticism as it sets to bring about a herculean transformation to the country’s agri logistics and supply chain. However, unravelling the premise of the laws and what it seeks to bring for the logistics sector has led us into understanding that there is more to the farm laws than what looks like on the surface and that the country’s agri supply chain will have to suit up to accommodate the changes proposed by the Laws.
Making way for the new: Ramping up for a better agri supply chain
How will the Agri logistics and supply chain sector of the country ramp up its existing facilities to accommodate the changes brought about by the new farm laws?
While offering his views on what lies ahead, Pawan Agarwal, Special Secretary (Logistics), Government of India, offers his views on how it will spur more public and private investments in the industry.
“These changes would mean more public investment in the logistics sector, in the movement of agricultural produce, but in addition to that, it will also encourage more public investments to come in. These changes when brought about through law will take years”.
~Pawan Agarwal, Special Secretary (Logistics), Government of India
The impact of the laws and the fear of corporatisation
How will the new farm laws impact the agri-logistics and warehousing as a whole? Will corporate have an upper hand in fixing prices and resolving disputes in court?
The new laws expand the scope of trade areas of farmers produce from select areas (APMC mandi) to “any place of production, collection, and aggregation.” It allows electronic trading and e-commerce of scheduled farmers’ produce. It also prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for a trade of farmers’ produce conducted in an ‘outside trade area’.
“This means warehouses can also be treated as market place where farmer can legally transact like a mandi. This will bring investors confidence to add new infrastructure. The infrastructure improvements will bring markets closer to the farmer. The farm-gate pricing in the future can become reality”, shares Mihir Mohanta, General Manager (SCM) with Mother Dairy.
Amidst mounting fears that the laws will tend to lean towards corporate organisations, Mr Mohanta says, “Everyone is equal before the law. The same principle will continue to remain even in this case. I do not see corporate will have any exclusive advantage on their favour for dispute resolution.”
“Prices are fixed on consent of both buyers and sellers. The laws are enablers to create multiple selling options for farmers. Therefore, farmers will have more choice rather to be coerced by the corporate. The farmer can choose the most efficient from among the lot of the market players.”
~Mihir Mohanta, General Manager (SCM) with Mother Dairy
Anand Chandra, Executive Director, Arya Collateral Warehousing Services Private Limited (a part of the J M Baxi Group) believes that the impact of the farm laws on agri logistics and supply chain will turn out to be very positive.
He shares, “The impact of the new farms laws will have a very positive impact on agri logistics and warehouses. The inter and intra trade of commodities can happen more freely now. Further the warehouse could become a private mandi. Imagine a scenario where instead of mandi, the farmer takes the produce to the warehouse, gets their produce digitised (something which we do), uses this digital balance to avail finance in case prices are not remunerative and finally uses the balance and trade in case an appropriate price is offered”.
He also talks about how consolidation will play a paramount role in the entire scenario.
“The land holdings are already fragmented and it needs consolidation – one of the objectives of these reforms has been to improve private investment in agriculture. We believe that with these reforms, participation by private players – including startups – in agriculture would improve. The laws when looked in conjunction with the initiatives of FPO promotion and Agri-Infra Fund (AIF) would lead to more formalisation of agriculture both on the supply and the demand sides. FPOs could provide the necessary succour for the fragmented nature of smallholder agriculture. Participation of more players on the demand side would increase the vibrancy of the sector. However, in our view, given the size and spread of Indian agriculture, creation of corporate monopolies or oligopolies may be slightly far-fetched.”
~Anand Chandra, Executive Director, Arya Collateral Warehousing Services Private Limited (a part of the J M Baxi Group)
The mandi system: The heart of Punjab’s agriculture
The mandi forms the crux of Punjab’s agriculture world.Its importance to agricultural life cannot be overstated.
Under the mandi system, farmers bring paddy and wheat to the shop of the commission agent (arhtia) in regulated Agricultural Produce Marketing Committee (APMC), or mandi, yards for sale. Any amount of these crops within certain quality standards is bought by the government, through the Food Corporation of India and other state-level procurement agencies, at the Minimum Support Price (MSP) (also known as ‘open procurement’).
What will be the impact of the laws on the Mandi system?
“Once the new farm laws are successfully implemented, it will create a parallel mandi system and will open up more options to sell for the producer”, shares Mr Chandra.
He also believes that with the coming of the farm laws, the significance of the Mandi system will be tested.
The row over MSP: Minimum Support Price
A raging concern that has been echoed throughout the course of protests has been the point of MSP (Minimum Support Price), whereby farmers fear that the new laws will do away with MSP altogether.
However, Mr Mohanta states that it will not have any impact.
“MSP does not figure out in these laws. Hence, the previous provisions would continue to remain as such. These are future apprehensions assumed by some.”
Mr Chandra however believes that efforts need to be stepped up to ensure the welfare of farmers, but in terms of long-term scenario, he shares that there is a need to step away from MSP.
“The farming worldwide is not remunerative as a producer but it is a necessity. So the government support to the farmers has to be there for sustenance. Efforts have to be made consciously to ensure welfare of the farmers. MSP is a very tricky and debatable topic, though new laws have not stated explicitly the removal of MSP but in the long run, the government needs to move away from MSP”, he states.
He shares a few objectives of MSP:
1. To ensure minimum price for the produce to the farmers.
2. The procured commodities are given to the poor through the PDS
3. Food security for the country.
“To make the markets more vibrant and competitive, it is imperative that the government does not interfere in the prices of the commodities, which is what the MSP does. Instead the focus should shift on Direct Benefit Transfer as a tool for welfare of the farmers”, shares Mr Chandra.
He goes on to explain it with an example.
“For example, if the market price of wheat is Rs.16 per kg and the calculated MSP is Rs.21 then Rs.5 per kg multiplied with the average production may be given into the account of the farmer. This amount may further be linked to the farm size of the farmer. This would not just result in the even distribution of the MSP funds but it would ensure that markets are not disrupted.”
“Similarly, in the case of PDS too, if the Govt wants to give 5 kg rice to an individual at INR 2 per kg and market price is INR 25 per kg, then the Govt should provide for a DBT of INR (25-2)X5= INR 115 to the individual. This would save the government all administrative costs required to manage FCI procurement and then the PDS system. It will further make the system more efficient and would save a lot of losses and / or misappropriation. The system of procurement at market prices need to continue only for the requirements for Food security”, he shares.
