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India shows the way in Agricultural reform

FINANCIAL STANDARD
By Macharia Kamau | March 16th 2021
Farmers plant saplings in a rice field on the outskirts of Ahmedabad, India, July 5, 2019. [REUTERS/Amit Dave]

India has over the recent months witnessed one of the largest protests in world history, with farmers resisting plans by the government to overhaul the country’s agriculture sector.

Towards the end of last year the Indian Parliament debated and passed three sets of laws aimed at radically changing the agriculture sector, particularly liberalising the industry that is still largely government-controlled.

The three legislations signed into law by India’s Prime Minister Narendra Modi are set to give farmers a free hand to sell their produce to buyers of their choice, away from the current system where they have to sell to government-run wholesale markets.

The reforms seem to be getting support from reputable economists, including those from the International Monetary Fund (IMF), who noted that it would reduce the number of middlemen created by the current system.

The current scenario means farmers get minimal returns for their produce, while consumers end up paying higher prices than they should, to accommodate margins paid to middlemen.

Middlemen, as in the case with agricultural value chains in Kenya, are largely blamed for eroding farmers’ earnings.

“The recent international outcry on three agricultural Bills is based on half-truths and lack of understanding about the urgencies of the Indian agriculture sector, which is facing a plethora of problems due to lack of reforms,” explained India’s Agriculture ministry.

“The increased role of intermediaries in the present marketing system is neither beneficial for farmers nor consumers. The commission agents pay a very low price to farmers and charge a higher price for the product while selling it to wholesale markets.”

The developments in India should be of interest to Kenya’s Agriculture ministry that has recently embarked on reforming the key sector.

One of the issues that the ministry has to grapple with is that of middlemen, with Cabinet Secretary Peter Munya repeatedly terming the industry a “cartel-infested sector.”

Just like in the case of India, Kenyan farmers and consumers have been grappling with the role played by middlemen who have the effect of driving up the cost of farm produce for consumers. Besides, returns to farmers have remained bare minimal.

Among the key reforms that the ministry has embarked on in the recent past is the drafting of several Bills that are expected to increase focus on different value chains.

This is expected to be done through disbanding the Agriculture and Food Authority (AFA), which has been an industry “super-regulator,” and instead opt for sector-specific regulators.

This will see the reemergence of such entities as the Tea Board of Kenya, the Coffee Board, and Sugar Directorate, which will have powers to oversee their specific sectors.

Others that specific regulators will oversee include fibre crops, food crops, horticulture and another one for industrial crops, where pyrethrum and miraa (khat) will fall under.

AFA was formed in 2014 through the AFA Act 2013 and was part of operationalising the Crops Act 2013.

The process entailed merging eight different directorates that had previously been charged with the development of different crops. It has, however, been unable to fulfil its mandate owing to the wide scope.

“Arising from the wide scope of the mandate of the scheduled crops under its purview, AFA has become institutionally unfocused and unable to improve either the performance of the coffee sub-sector or those of the specific value chains,” said President Uhuru Kenyatta on Friday when he issued an executive order for the Coffee Act 2021 to be taken to Parliament.

The Bill proposes the creation of a Coffee Board of Kenya to oversee operations in the sector.

The Agriculture Ministry has in the recent past been in a push and pull with the tea industry over the implementation of the Tea Act 2020.

The Act was signed into law towards the end of last year, and the ministry started publishing regulations that would help operationalise it.

These, however, faced opposition as different industry players went to court to suspend the implementation of many segments of the new law seen as damaging to the sector.

But the President on Friday ordered some sections of the new law to be implemented, including elections of directors of tea factories while at the same time directing investigations into certain undertakings of some of the sector players.

Back in India, Chief IMF Economist Gita Gopinath said the new laws would help widen the market for farmers to sell to multiple outlets without having to pay tax. “This has the potential to raise farmers’ incomes,” she said.

Farmers, however, do not share these sentiments. Instead, they feel private sector firms playing a larger role in the sector might be more detrimental to them than the middlemen.

The new laws have provisions that allow the private sector to play a larger role in growing the industry, for instance in the building of infrastructure, including storage and warehousing, which the farmers feel could end up hurting them.

Another cause for the protest by the Indian tea farmer is that the laws do not guarantee a minimum support price for farmers’ produce as is the case currently.

The farmers further argue that the corporate sector would offer lower prices and they would have little options but to sell their produce at rates dictated by sector players.

Large private sector players, as seen in other parts of the world, also tend to sign supply contracts with large-scale producers, bringing down the per-unit cost and also guaranteeing them products regularly.

The agricultural laws, according to the Indian government, have the smallholder farmers at heart and are aimed at increasing their earnings by removing market barriers and intermediaries.

A combination of factors, including the increasing players along the value chains, have made farming undesirable, with a recent study indicating that 40 per cent of Indian farmers would consider leaving the occupation.

The government noted that reforms instituted earlier, which led to India’s Green Revolution and making the country food sufficient, has run its full course and plateaued and needed rethinking.

“The new Bills aim at taking Indian agriculture to the next round and next level of commercialisation through market reforms to ensure broadening of the market, the participation of the corporate sector and removal of restrictions in procurement and stocking of the farm produce,” said the ministry.

It added that the increased private sector participation would tap vast unexploited potential in the processing of food. At the moment only about 10 per cent of India’s food is processed in the country.

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