Reining in food inflation

Structural flaws in agricultural marketing persist, hindering fair prices for farmers and consumers alike

During the fiscal year 2023–24, the Union government launched a scheme to sell food at subsidised rates under the Bharat brand. Bharat Chana was introduced in July 2023, Bharat Atta in November 2023, and Bharat Rice in February 2024.

Under this scheme, the Food Corporation of India (FCI) buys cereals from farmers and sells them to the National Agricultural Cooperative Marketing Federation of India (Nafed) and the National Co-operative Consumers’ Federation of India (NCCF). The Nafed and NCCF then directly sell Bharat brand products to the general public through retail stores, mobile vans, and e-commerce platforms such as Amazon and BigBasket. These products are priced lower than the market price. For example, Bharat Atta is sold at Rs 27.5 per kg, compared to the market price of Rs 40–50 per kg. 

While the Centre already provides free food to a vast section of the poor and vulnerable population under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), the Bharat brand aims to provide relief to those who are not considered poor, particularly in the middle-income class. However,since the quantities sold by these agencies are only a fraction of total market sales, the impact is marginal. This raises the question: Why are  market prices high?

This question becomes more pertinent when considering that the price received by farmers is substantially lower than the price paid by consumers. For instance, the Minimum Support Price (MSP) of wheat set by the Centre is Rs 22.7 per kg (the price received by farmers in many places, especially where the agencies don’t buy it, is much less) against a much higher market price. This situation arises from structural flaws in agri-produce marketing. 

Agriculture marketing is governed by state laws, such as the APMC Act, which have varying provisions. This hampers the free movement of products across states and within a state, as each APMC Mandi has its own market regulations, resulting in fragmented markets. 

At the mandi, a cartel of licensed traders and commission agents often ensure that the farmer gets a low price, besides facing other unfavourable conditions such as rejections, under-weighing, and delayed payment.

Furthermore, the capacity of the APMC mandis is limited, with only about 6% of farmers, mostly those with larger land holdings, being able to sell their crop at the mandis. These mandis have literally nothing to offer to the majority of small and marginal farmers who are forced to come to private local markets, where sales are legally barred. 

At these local markets, they are forced to sell their produce at throw-away prices to the same traders who dominate the APMC mandis. 

This institutionalized ‘strangulation’ of the farmers is at the root of farmers not getting a fair price. At the same time, acting as cartels, these traders charge exorbitant prices from consumers; these are unrelated to what they pay to farmers, nor can they be justified by the cost of handling, processing, and transportation.

What has been done to address this flaw? In April 2016, the government launched e-NAM (electronic National Agriculture Market) with the aim of creating a unified market via online trading platforms at the state and national levels. e-NAM will work if only the States want it. This is because to sell on the platform, the farmer will need the approval of the APMC mandi to which she is tied. Besides, a trader intending to make a purchase needs to have a single trading license that is valid for the entire state or pan-India. 

However, its effectiveness is limited, as less than one-fifth of the 6,946 regulated wholesale APMC mandis are integrated into the e-NAM platform. Only 12.5% of the total 140 million farmers are registered on the e-NAM portal. Moreover, just 12.3% of the total value of annual trade in agri-commodities (excluding dairy and meat products) of Rs 600,000 crore is transacted on the portal.

In 2017, the Modi government passed a Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Law. Besides giving more options to farmers for selling, it provided for giving traders a ‘single pan-state licence’ for buying from anywhere in the state. But the majority of the states showed no interest. 

In September 2020, the Centre enacted three central farm laws that allowed it to regulate inter-state and intra-state trade and enable the purchase of specified farm commodities directly from farmers anywhere in the country. The laws legitimised sales to private traders, processors, aggregators, exporters, and so on. But these had to be withdrawn following farmers’ protests.

As long as agri-trade remains shackled by state laws, there can’t be sustainable relief from food inflation.

(The writer is a policy analyst)