Farmers’ bill, now enacted into a law, is being celebrated by Ecommerce honchos as Indian Agriculture’s watershed moment not without reasons. The opportunity promised in the three bills means big business for them where the physical inefficient marketplace can be replaced by an efficient e-marketplace powered by eCommerce engines.
The presence of inefficiency in the physical marketplace is, in fact, loud and clear. The recent flash protests to put down the bill before it is enacted into a law, by a section of agitators speaks volumes that some interests would definitely be hurt. The immediate sufferer would be the commission agents and even political parties who benefit through the inefficiency of the age old Agriculture Produce Marketing Committee (APMC) Act.
Under the existing APMC Acts, all agri produce was to be procured through mandis, the physical marketplace, to which farmers transported their produce. Initially meant to protect farmers, these mandis transformed into local monopolies. Transparent price discovery through auctions was replaced by collusion and price fixing. The political parties also earned sizable amounts through mandi revenue. Therefore, the mechanisms designed to protect farmers ended up severely harming them, building inefficiency in transaction. Rent seeking behaviour was common, as commission agents, known as arathiyas, and middlemen commanded substantial influence, through being both buyers of produce and providers of informal credit.
Powered by the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, farmers would now be free to sell their produce anywhere in India. They would not be restricted to sell only to mandis. Aided by the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, farmers can sign sale contracts with processors, aggregators, wholesalers, large retailers and exporters at mutually agreed crop price. This serves as a minimum price guarantee before sowing. So, buyer bears risk of planting and growing the produce. This is expected to end the vicious trap of money lenders to whom farmers often surrenders and give up their life in case of crop failure. Also farmers would now be able to plan ahead and invest in better implements, seeds and other inputs due to this bill. More importantly, the bill has a provision that the buyer pays market rate if it is higher than contracted rate. The third, Essential Commodities (Amendment) Bill, takes cereals, pulses, oilseeds, edible oils, onion and potatoes out of the list of essential commodities. This is important for the eCommerce ventures such as cold chains and warehouses would now be invested upon without fears of excessive regulatory interference. Current practices of relating shortage to hoarding were discouraging investments in storage functions by eCommerce firms.
In fact, the third bill was apt to address the perils of food wastage. According to Amitabh Kant, CEO, Niti Aayog, there was a loss of approximately Rs 90,000 crore annually due to wastage of produce, owing to a fragmented cold chain. Such fragmentation was obvious as there was little incentive for investment across the cold chain till a perishable reaches a food processing industry or the retail chain, as the age old APMC Act actively discouraged aggregation of produce and bargaining power of farmers, he said.
Investments in cold chain which would come up on account of the Essential Commodities Bill would not only increase the supply the perishable items but would also increase the farmers return. A case in point is tomatoes which have a life of five to seven days in India after it is harvested. The country’s daily consumption of tomatoes is 40,000 tonnes and post-harvest losses are anywhere between 20 – 40% every year due to poor handling, storage and transportation methods. In developed countries, tomatoes shelf life is extended to 20 days for effective use of cold storage which increases supply of this seasonal item, according to experts. Less wastage also means more profit to farmers.
Thus aided by the Essential Commodity Bill, an eCommerce service provider may offer to the consumer industry more volume of produce at a reasonable cost without being affected by the seasonality factors. It can contract in advance with a farming cluster of a produce at fixed price and have a back to back sell arrangement with buyers as well to liquidate his stocks instantly. Further, the intermediate storage options would help him serve the customer with a seasonal and perishable item for extended time in a year at fixed prices.
This would obviously be a boon for the farmer as his price is protected and the reduction of wastage allows him to earn higher returns. Even working with minimum support price (MSP), being already contracted with buyer, the eCommerce service provider can still make his gains. The buyer also gains getting the seasonal product, outside the season, at the same rate.
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