CII: Wishing 2018 a year of action

Though the government has taken certain progressive initiatives in 2017 such as excluding the primary agricultural produce from taxing under GST regime, introduction of Model Agri Produce & Livestock Marketing Act, yet the year will be remembered more for its low  prices of farm produce, recounts Mr S Sivakumar, Chairman, CII National Council on Agriculture and Group Head- Agri and IT Businesses, ITC Limited in a chat with SMART AGRIPOST.

Q. How was the year 2017 for agriculture industry?

Ans: After two years of deficient rainfall, we saw good rains in 2017 leading to a larger agricultural production. However, 2017 will be remembered more for its low prices of farm produce! Barring exceptions like sugar cane, and onions briefly, farm gate prices of most commodities – especially the pulses & oilseeds and cotton fell substantially. Even the prices of food grains were lower to an extent. While the benign prices meant lower costs for the consuming industry, the farmer profitability was hit badly for these crops.

Lower prices didn’t even translate into higher exports, primarily because the Indian Rupee strengthened substantially against US Dollar, impacting the global competitiveness of Indian commodities.

Towards the end of the year, prices of some commodities marginally increased after the import duties were raised e.g. wheat, vegetable oils, some pulses.

Supported by the high commodity prices in the prior years, farmers did invest in farm mechanisation to insulate themselves from the shortage of labour, as evident from the growth in sale of tractors. Spends on other farm inputs fell once the low prices for the current crop were a certainty.

Bunching up of rainfall during the monsoon and otherwise also erratic rainfall in some micro regions impacted the quality of some crops, especially cotton in the north, paddy in the east, and pulses in the west. This resulted in low prices for the farmers and operational challenges for the processors.

Q. What is your view on the government policies?

Ans: Excluding the primary agricultural produce from taxing under the GST regime is a great step. The variation in VAT rates across states was exploited by the unscrupulous elements distorting the trade flows. Such distortion would be a thing of the past now, and the organised agribusiness players will have a level playing field.

2017 also saw two new model acts in the sector. The Model Agri Produce & Livestock Marketing Act is quite progressive. Segregating the role of the Regulator from Mandi Board who’s is also an Operator in the market will make the operations more transparent.That the Model Act explicitly states that the Essential Commodities Act won’t be invoked on the legitimate market players is reassuring too.

The Model Contract Farming Act, just released for consultation, needs to undergo certain changes to achieve the goals it has set out. Off-loading the price risk onto the wider market through derivative markets would eliminate the typical zero-sum game played between the contracting parties. Then there would be no reason for either party to renege on the contract. For any residual issues, a swifter dispute resolution mechanism would be the only other institutional intervention required. Anything more, like setting up of quality standards, compulsory registration etc. will make the compliance burdensome and can be counterproductive.

Permitting Options in the Commodity Markets was a crucial first step in managing the inherent price risks both for the farmer and the processing industry.

Allowing MGNREGA funds for specific agricultural operations like digging farm ponds did a lot of good in creating the critical farm level infrastructure.

Expanding the short-term credit for agriculture, loan waivers in a few agriculturally intensive states, and disbursement of funds for rural housing kept the money flowing into rural areas in a low-price year. This was extremely positive.

Q. What should the government do to address the concerns of agriculture industry? What are the priorities for 2018?

Ans: Taking the policy measures of 2017 to action would be an important agenda for 2018.

States need to adopt the new Model APML Act. Until multiple alternative marketing models compete with each other to create value for the farmer, higher farm productivity and agricultural production will only mean a repeat of 2017, in terms of unremunerative prices for the farmers.

Commodity Options need to be rolled out by the Exchanges, and the derivative markets need to be integrated with the spot markets. In other words, buyers in the spot market and contract farming sponsors should be able to use the derivative markets and offer the farmers a minimum assured price at the time of planting or contracting.

The GST Council did well by reducing the rates on food processing after representations by the industry. To reduce wastage of perishable farm produce and and adding further value, consumption of processed food needs to be popularised. Bringing the GST on processed food to zero for a few years, and by exception limiting to 5% on certain products will do the trick. This will have a huge beneficial impact on farmers’ income and will also help scale the food processing industry which can create many jobs.

Solutions to doubling farmer incomes are different for different value chains, geographic contexts, and farmer profiles. Multiple stakeholders (farmers, industry, and government) need to align their activities to make a significant impact. It’s not possible for anyone by themselves to make a substantial difference. Government of Andhra Pradesh made a creative use of the PPPIAD Scheme of Govt of India, by seeking ‘geography and product specific’ proposals from the Farmers Groups, Industry (e.g. Food Processors, Retailers, Agri Businesses etc), new start-ups, NGOs etc. These proposals were to outline the proposed interventions that would raise farmer incomes, as also enable commercially relevant backward integration for the industry. The proposals to spell out the outcomes for the farmers, investments committed by them (farmers and industry) as well as the support expected from the Government (e.g. reforms, enabling investments in building public infrastructure, community assets, farmer capacity building etc). An empowered committee set up by the state government evaluates the proposals and approves (duly modified, if required), and much like a Venture Capitalist, commits disbursement of funds as per the project implementation milestones. All other states could emulate this approach.