Published: The Economic Times, New Delhi, July 22, 2006

By Pradeep S Mehta

In a recent meeting on electricity regulation, Bhupinder Singh Mann, the chief of the formidable Bharatiya Kisan Union, said that any subsidies or free power to farmers are actually a subsidy to the consumer, because the prices which farmers get does not cover the whole production cost.

Alas, Mann and majority of farmers in India do not realise the fact that not only the subsidies, but also the bulk of the surplus, are captured by intermediate trade and are not passed on to the consumer. They also seem to be ignorant of the central government’s proposals to State governments to amend the Agriculture Produce and Marketing Act, which if implemented, can lead to better price recoveries by farmers.

The Act needs to be amended and adopted by the States because agriculture is a state subject, it is up to the states to implement it. The proposed amendments will enable farmers to short-circuit the intermediate trade and sell directly to consumers.

The proposed amendments also allows contract farming and this has raised the hackles of activists like Mann and they are more involved in debating contract-farming than in helping farmers get better prices for their produce.

According to an independent study by IIM-Bangalore, the price obtained by a farmer for his produce varies from 24% to 58% of the actual price paid by consumer. For every Rs 10 the consumer spends on buying one kg of tomatoes, on an average only Rs 3 goes to the farmer. It gets worse in the case of specialty farm goods, such as gnocchi mushrooms.

Under another study, Towards a Functional Competition Policy for India, made by CUTS, a comparative analysis was done for price received by farmers for cotton from sale to various agencies.

Price realised from sale to the village merchant, trader or commission agent ranged between Rs 700-710 per quintal, and the realisation was much higher, between Rs 785-795, when sold to the Cotton Corporation of India or to millers.

Thus, the situation can be improved by providing alternative marketing avenues through cooperative marketing agencies and public agencies that reduce structural concentration of traders.

Certain innovative marketing mechanisms have been developed in some states to enhance competition at the retail level and to benefit both producers and consumers. These include Apni Mandi in Punjab and Haryana, Rythu Bazar in Andhra Pradesh, and Uzavaar Sandies in Tamil Nadu.

Under these arrangements, farmers are allowed to sell directly to consumers on selected days and time. Alas, their scale is small and mainly farmers from nearby areas to the cities can take advantage of this marketing channel.

Apart from intermediate trade, truckers’ cartel too prevent farmers from realising a better price for their produce. All over our country, truckers form unions, which then dictate what the freight charges will be for carrying the cargo from a factory or a mandi.

Most of them operate under a politician-criminal nexus, and regulating them can be an arduous task. For factory owners, it is easier and better to buy peace by accepting their prices, but for farmers it can be a matter of death or life.

Truckers’ cartels are an ubiquitous phenomenon around the country. They sap the economy hugely. But this problem will pale in comparison to the exploitation of farmers by patent-holding seed companies.

Monsanto-Mahyco, for instance, was charging nearly 50% of the sale price of Bt cotton seeds as trait (royalty) fee, i.e., Rs 900 per 450 gm packet against a sale price of Rs 1,850. The MRTP Commission has held that to be monopolistic and exploitative pricing and directed the company to reduce its trait fee.

The Andhra Pradesh government alleged that since 2002, Monsanto has sold seeds worth Rs 130 crore in India of which Rs 78 crore was held back as trait value. The final word on this is yet to be heard as the company has appealed against the MRTPC ruling in the Supreme Court.

Reverting to the larger issue, all our economic managers are speaking about 4% growth in agriculture to be able to achieve 10% overall economic growth. The focus presently is on giving a boost to the agriculture sector by focusing on the provision of necessary infrastructure (irrigation, supply chain, etc.).

Unfortunately, no concrete measures are being taken to ensure farmers themselves retain a significant part of the income generated in the farm sector. This would provide them much needed surplus income to make necessary investment in their own fields and also save them from the scourge of money-lenders.

Instead, presently, it is the intermediaries who corner much of the value generated by the farm sector, either by supplying inputs, or by marketing the produce. It is, therefore, imperative for the country to undertake comprehensive competition reforms.

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