Why it is important to learn from Bihar’s APMC abolition in 2006

Before the Central government looks at implementing the three farm laws passed last year, it should study the lessons learnt by Bihar — both its first mover advantage and the disadvantages it faced.

Saheli Das
| Updated: June 30th, 2021

At a time when India is going through the second wave of the COVID-19 pandemic, agricultural reforms have led to further turmoil. 

The Supreme Court has put on hold implementation of the three farm laws passed last year. However, before taking any decision on their implementation, the government should take a look at what happened in Bihar and analyse the effect on the state’s  agrarian economy.

In 2006, Bihar dismantled its APMC mandis, and experienced the effects of the new farm laws a decade-and-a-half ago. The state has experienced both the first mover advantage and the disadvantages.

Just after the Indian Parliament passed the three new farm bills in September last year, Indian farmers began a protest, demanding the laws be repealed.  

What the laws seek to do

The three agricultural laws seek to dismantle the Agricultural Produce Market Committee (APMC) mandis, set a legal framework for contract farming, and revise the Essential Commodities Act.

Why dismantle APMC mandis?

The basic idea behind dismantling the APMC mandis is to liberalise agricultural markets to create alternative trading channels. In particular, this introduces private players into agricultural markets, promotes private investment in the agri-business, removes inter-state trade barriers, and promotes e-trading. 

If the country does not learn from the Bihar example, it will suffer significant agricultural loss, and the country’s economy will collapse gradually.

Also Read:  Every second respondent farmer in the west zone supports the new agri-laws: Gaon Connection Survey

The Bihar example

However, 15 years after the abolition of the APMC Act in Bihar, the state’s agricultural marketing system is still unable to attract private investment. Abolition of APMCs and lack of investment in a new agricultural marketing system have triggered a revenue loss that the state agricultural marketing body absorbs. 

This has led to a shift in the agricultural market system from a government-regulated one to one that is private and unregulated. There is a lack of infrastructure for weighing, sorting, storage and procurement of produce. 

The effect of APMC’s abolition is also noticed in the state’s annual growth rate of its agriculture and allied sectors — it has declined from 14.9 per cent in 2004-2005 (at 1999-2000 constant prices) to 0.6 per cent in 2018-19 (at 2011-12 constant prices).

Also Read: Their wheat crop is ready, but with no govt procurement in sight, Bihar farmers are at the mercy of middlemen

Although an alternative decentralised procurement system through trade unions — such as the Primary Agricultural Credit Society (PACS) —  was adopted in Bihar after repealing the APMC Act for the procurement of two staple crops — rice and wheat — questions have been raised over its implementation and success.

Just after the Indian Parliament passed the three new farm bills in September last year, Indian farmers began a protest, demanding the laws be repealed.

Alternative procurement system: Pros and cons

The Primary Agricultural Credit Society  has failed to achieve procurement targets because of its operational inefficiency and lack of transparency. Moreover, PACS does not procure wheat at the time of harvest. Not all farmers possess  storage capacity and they are in need of money since almost all farmers (97 per cent) in Bihar are marginal (owning less than a hectare) and small farmers (owning less than two hectares). This results in huge pressure on farmers to sell at a lower price either in the market or to the middlemen. 

Evidence indicates that although rice has been procured through PACS, farmers show unwillingness to sell their produce, since the PACS offers a lower price than the Minimum Support Price (MSP) and there is a delay in receiving payments after selling  produce. 

Also Read: What forces landed farmers from Bihar to work as migrant labourers elsewhere?

This unwillingness of farmers to sell their grains in PACS was also evident from a survey in the districts of Gaya and Purnia, in which this author took part. But the reason behind unwillingness varies. 

What does the evidence suggest?

The survey demonstrated  that  an overwhelming proportion of respondents in Gaya — 85.7 per cent — sell wheat in the market, and half the surveyed population — 50 per cent in Purnia — sell wheat to middlemen. 

A very small percentage of farmers sell it in PACS in both districts (Fig: 1). Furthermore, the market price of wheat is higher than all other available options (Fig: 2). Despite this, a  significant proportion of farmers sell their wheat to middlemen, incurring a huge loss.   

In the case of rice, a major proportion of farmers — 72.2 per cent — in Gaya sell their produce in the market while 52.1 per cent in Purnia sell it to middlemen. Only 22 per cent of respondents sold rice in PACS (Fig: 3).

The survey analysis showed that the market price of rice is much lower than that of PACS in both districts (Fig: 4). But this PACS price (as per farmers’ responses in our survey) is much higher than the MSP price (which is around Rs 18.68 to Rs 18.88 a kilogramme), which contradicts the earlier fact of lower rice prices in PACS. Thus, low rice prices in PACS cannot be a reason behind unwillingness to sell rice in PACS. 

Also Read: Rice racket: From the paddy fields of Bihar to the mandis of Punjab

In addition, a study by Gaon Connection showed that middlemen bought rice from farmers at a lower price and sold it at a higher MSP price in APMC mandis of other states. 

Our survey analysis illustrated that the primary reason behind the unwillingness of farmers to sell rice in PACS was  the operational inefficiency with regard to immediate payment, and not the lower PACS price than MSP. A majority of farmers incur huge losses by selling rice produce either in the market or to middlemen instead of PACS.

Farmers’ income has reduced in Bihar due to dismantling of APMC mandis, although crop yields have increased for both staple crops, rice (from 0.79 MT/hectare in 2004-05 to 1.95 MT/hectare in 2018-19) and wheat (from 1.61 MT/hectare in 2004-05 to 3 MT/hectare in 2018-19).

This indicates the failure of government procurement systems such as PACS, unavailability of marketing facilities at the village-level and operational inefficiency with regard to  paying farmers immediately.

The intervention of unregularised private entities in the agricultural market makes Bihar’s  marginal and small farmers’ income more market-driven. They become more vulnerable to open market fluctuations and risks. 

On top of it, farmers incur loss as they sell their produce to middleman or in competitive markets, even in presence of decentralised government procurement systems. 

If the country does not learn from the Bihar example, it will suffer significant agricultural loss, and the country’s economy will collapse gradually.

Saheli Das is an ICSSR Fellow and PhD Scholar in Centre for International Trade and Development, Jawaharlal Nehru University, India. Her research is mostly focussed on Indian agriculture and climate change adaptation in states along the Indo-Gangetic Plain.

(Views are personal)