‘The Contract farming ordinance is no gamechanger… it will drive adoption to 5%, at best’

This May, when finance minister Nirmala Sitharaman announced reforms in agricultural marketing, headlines announced it as the “1991” moment of agriculture. The current government may or may not have appreciated this compliment, which measured its achievement against one of Congress government’s crowning moments. But what does the targeted population of farmers think about these reforms and the hype around them? Chairman of Bharat Krishak Samaj and citrus farmer, Ajay Jakhar talks to Outlook Business editor N Mahalakshmi on the Virtual Expert series of talks, hosted by Asian Markets. Jakhar is unsparing in his criticism, but gives credit where it is due.

Ajay, can you give us an overview of the Indian agriculture sector today? 
Before anything else, I need to clear certain misconceptions that people have about the agriculture sector. First, people should not be under the illusion that farmers can be made self-reliant. They will need to be supported by the government in perpetuity. Second, this is not a food surplus country. We are under this impression because our buffer stocks are overflowing and because we have had good crop for the past two to three years. But, we have one of the lowest per capita consumption of fruit, vegetables and protein in the world, because people do not have purchasing capacity. We do not eat as a prosperous state. Therefore, farmers do not make enough income. Most of them, maybe 85%, have small holdings and they cannot rely only on their produce. Similarly, most of our farming is dependent on rainfall. Therefore, the government has started building these huge buffer stocks, like the Chinese have done. As a country, we have never procured so many pulses as this government has so nicely done. Then there is the Atmanirbhar Bharat Abhiyan, which is encouraging production in India, which I think is a good approach. 

There is a lot of optimism around the ordinances on the Essential Commodities and APMC acts, and on contract farming. Do you think these will be transformative? 
This is not the 1991 movement of agriculture, like the headlines said. Why has the government issued ordinances, why didn’t they come out with bills? There was no urgency. The bills would have been placed in the public domain, to be discussed in the Parliament. Now, the ordinance on the APMC Act allows trade to happen outside the mandi, and therefore, the states will have no jurisdiction over this trade. It cannot collect taxes on sales nor can it regulate the trade. However, these taxes are what keep many APMCs running, these are what the state governments use to build the infrastructure around the markets. By taking these away, I don’t think states will invest more in the upkeep of these markets. Also, there is the problem of a huge volume of unregulated trade. It looks like 1.5 million farmers are going to be trading their produce and it’s going to be the largest private sector activity in the country. If you say no regulation is needed for this, then it is like saying no to a stock exchange or a registrar. You can appreciate the mayhem this can create. 

Coming to the ordinance on the Essential Commodities Act, the operational Act allows the bureaucracy to control the markets according to their whim and fancy, such as letting officials impose stockholding limits at random. Obviously, no trader will want to invest in such a business. Though amendment to this Act has been announced, we are still waiting for the rules to be formulated. Once that is done, we will be able to say if the amendment is beneficial or not. Let me also point out that, even without the Essential Commodities Act, the government indulges in arbitrary decision-making through import-export policies. This also puts private investors off. 

The third is regarding the Contract Farming Act. It is greatly disliked by many farmer unions but the industry likes it. It is not a gamechanger, because to be a gamechanger it has to change the way 20-40% of farming is done in India. At best, contract farming will form 5% of the total. In the end, companies will find it cheaper not to sign any contract and still get farmers to grow for them. Also, contracts between farmers and companies work on the trust they place in each other, and not because of a law. Even with a law, there are enough ways to mess things up… The farmer may not sell, a company may not buy, or there may be some fine print on fungus or on the date of delivery or some such thing. In all, the amendment in APMC Act could change things for far worse or a little better, the one in Essential Commodities Act is ambiguous and we need to see the fine print before deciding on that; and the one on contract farming does not move the needle. 

Could you elaborate on why you think contract farming ordinance won’t work? 
First of all, it was announced that the states have been consulted and they have given approval for these ordinances. But, not a single consultation was done. What we need to understand is that agriculture is not a business where you sign a paper and pick something up. Companies have to commit to farmers for the long-term. Even when the prices go up or down, they have to keep the farmers’ trust. There is another issue I have with the contracting act, in the provision that frees the purchaser company of any liability in case of dispute. Under the Act, the company does not contract farmers but has an aggregator contracting for them. If a dispute arises, the litigation will be between the aggregator and the farmer. The company will be out of the picture. I find this mischievous to some extent. 

The government has proposed an investment of Rs.1 trillion to be extended as loans to agricultural infrastructure, like cold chains and in post-harvest management. How do you see this panning out? 
It is a very well-intentioned, but not a very well thought out initiative. The question is who is going to be taking this loan. I don’t foresee this being dispersed in years. The chief economic advisor sees a V-shape recovery in the economy, but I don’t see a V-shape or a U-shape recovery in the next few years. 

What will be the impact of COVID-19 in the farmer community? Will there be a behavioural shift?
I don’t see any behavioural shift happening among farmers, to tell you the truth. Many people have gone back to their villages and, in Bihar, Madhya Pradesh, Odisha and Jharkhand, they are living off of their savings and we don’t know how long that will last. That is the impact on rural life. What is interesting is the change in consumption I have noticed in the urban areas. Consumption of fruits and vegetables seems to have gone down. Over the past few months, the supply of these in the city markets across India has decreased by around 30%. This should have increased the prices of the produce, but it hasn’t. So, the only explanation is that people in urban areas are consuming less of these. In that sense, COVID-19 will definitely impact farmgate prices. If urban consumption falls, it will affect rural consumption. To reverse this and encourage buying, I think the corporate tax cuts totalling Rs.1 trillion should be withdrawn and we should give money into the hands of the people. 

What are your views about the various government programmes, such as the PM Kisan and the PM Fasal Bima Yojana?
I think the Fasal Bima Yojana has been criticised a lot, even by me. But, the government has been open to the feedback and has been improving the scheme. So, in time, it will shape up. Perhaps the scheme was designed by the bureaucracy, when they should have got farmers, the tehsildars and the patwaris, who go field to field to record crop loss, on board. PM Kisan is a good scheme, because all the government does is give money and nothing else. Therefore, there is no governance failure. That said, in PM Kisan, the money is given only to the landed farmer. Farm workers are not getting any money. For better targeting, the government should have used the MGNREGA database instead of the PM Kisan database, because the MGNREGA workers are the really, really poor ones. That would have made the industry happy, too. At the end of the day, the billions of farmers are not going to stash it away. They will spend on clothes, shoes, soap and toothbrush.

What will be the impact of the direct benefit transfer (DBT) scheme on the fertiliser sector, through which the subsidy for buying fertiliser will be given directly to the farmer?
There are two kinds of subsidies, one is a production subsidy and the other is a sustenance subsidy. The first is like the fertiliser subsidy to help increase farm production and the other is like the PM Kisan subsidy to help a farmer sustain themselves economically. There is no perfect way of delivering these subsidies. Even the government is not sure what it is doing with the DBT scheme. But, the government is trying and, as a farmer, I can only say that what is happening is not bad. One of the reservations I have about the scheme is that the burden, of ensuring the subsidies are delivered correctly, has been passed on to the farmers. The farmer should not be forced to buy fertiliser at full price (which is how the scheme is designed now) and then wait for the subsidy amount to come into their accounts, like it is being done with gas cylinders. We have to remember that 85% of the farmers are small and marginal who cannot afford to pay upfront and then claim a refund. Then, there is the larger question of how you design a scheme for the next 30 years. Should the scheme be designed to encourage environment-friendly solutions, for growing trees, for rainwater-harvesting structures, for leaving their land fallow for a period of time, or for improving the quality of their soil? Or should the scheme be designed to encourage use of fertilisers? I think the government is still trying to help the industry, with this DBT scheme, but I am not sure if it will work out the way the industry wants it to.

Coming to a more general aspect — why do we have low farm productivity as compared to the other countries?
There are many causes but it all comes down to the role of the government. Right now the government keeps talking about its Rs.1 trillion investment, but it is in agriculture infrastructure. If you want to increase productivity, you need to invest in human resources. It is what Bharat Krishak Samaj has been advocating over the past many years. By human resources, we mean people in extension service office who tell farmers how to grow better, how to use better practices, how much seed to use and how much fertiliser to use. There is a 50% shortfall in extension service officers across India. In fact, there is a 50% shortfall at every post and at every level. There are practically no extension services for livestock. You have veterinary doctors, but they are approached only when an animal falls ill (never as a preventive measure). If the government does not invest in human resources, all the infrastructure will not help. Usually, state politicians prefer to invest in physical infrastructure, brick and mortar, because they get commissions and bribes. It is also something to show to their electorate, to inaugurate in front of them. 

Despite discussions in various forums, why is India using so much cultivable land for water-guzzling crops such as paddy and sugarcane? Is there a roadmap to diversify into other crops?
To address this, first we need to make a nutritional plan for the country. Then, we incentivise people to grow what we want them to grow and where we want them to grow it. Therefore, there will be no growing sugarcane in drought-hit regions such as Vidarbha. We have to design a production plan for the country and incentivise only particular crops from certain areas through MSPs. This needs a longer-term vision, which the government does not have. It is always firefighting, keeping the next two to three years in view. 

How is the liquidity with farmers post-COVID? There is a fear that farmers will conserve cash and spend less? 
One sector you can invest in is agri-inputs because their sales, on anticipation of a good monsoon, have been massive. Their sales have not been hit by the pandemic. In fact, they are at a record high. I heard that private companies are showing a higher cost of imports, saying that supply was constrained, and they are making a killing. 

Do you think the government’s resolve of doubling farm income in 2022 is feasible?
I do not even want to answer that. It’s not even right (to frame the goal that way). There are two kinds of farmers, those in Punjab with irrigated land and those in Chhattisgarh, Jharkhand or corners of Madhya Pradesh, who till rain-fed lands and do not have water to feed crops. So, the average income maybe high but there is great disparity. The government should have said that it will double incomes of rain-fed farmers and design programmes for them. That is possible. Instead, the government saying that it will multiply the income of all farmers is just a political slogan. To double the average income of all farmers will not be possible even in the next 10 years. 

What will improve yields? Will GM seeds help India?
Like I said, 50% of agricultural research staff is not available. So, where is the research? We are not spending even a fourth of what we should be spending on research and, till we do, we are not going to get these yield gains. The government has come up with a few good paddy varieties and a good sugarcane variety over the past few years, so you will have gains in one or two crops for one or two regions. The government is also contemplating something on GM crops, and it will come out in the next two to three months. It could be in soya bean because the government is looking for oil seeds, as an alternative to imported palm oil. Either it will sound like good news or bad, whichever way you like to think about it. Whatever your outlook, let us not be under any illusion that GM crops are going to increase yield substantially. 

What is your view on the food processing sector? Are government initiatives helping here?
The food processing sector is only constrained by the food processing policy, which focuses on food parks that are a complete failure. In Chandigarh, where I am based, I had a private investor showing interest in setting up a food processing unit. But, he does not want to place it inside the park and the subsidy is not available outside it. We should acknowledge that the food parks have failed and do away with them. 

Will the focus on irrigation projects help manage rain deficit?
All drip irrigation companies are running on losses because the government is not releasing their subsidies. The states and the central governments do not have the money to invest in irrigation as they had promised. Most state governments are struggling to give salaries today. How do you expect them to build canals?

If you were to make three recommendations for the doubling of farm income, what would they be?
One, human resources. Map what is required in every state, and the central government should not wash its hands off this, by saying it is the state government’s responsibility. The central government has the money. The states were supposed to get 42% of central taxes. But, the central government adds a cess, and so, practically the states are getting around 38%. My second recommendation would be that the government needs to invest in the standardisation of data bank and market intelligence system.  Like you have the US department of agriculture, which gives out weekly updates to everyone on what is happening in the country and the rest of the world. Here, we don’t have a market intelligence system. The government never knows how much is being sown or how much is being produced. Data with departments, ministries, states and the central government is now incompatible with each other. Therefore, the data points are not inter-operable. The third recommendation, we will have to let that pass, because the government has no money to do it right now.