Thread by @finshots

THREAD

If you've still not read our simplified stories on agri reforms let us explain why this is such a huge deal. Like absolutely massive!!!!

Read on...

1. Until now farmers in most states were mandated to sell their produce in designated market areas or mandis. They couldn't sell it outside.

At the mandi the farmers could auction their produce and sell to the highest bidder. It was supposed to be a fair & transparent process.

2. But it's not. Traders often collude, conspire and act together to bid low. So effectively farmers are limited to selling in mandis where they get one quote from a group of traders who are acting in unison. Imagine being a farmer and having access to only one buyer. Its bonkers

3. However if they had the choice to sell to any party, competition would automatically defang the trader cartels at the mandis. And since farmers finally get access to multiple buyers, the likelihood of getting a fair price (for their produce) increases disproportionately

4. So the government is now planning to introduce a central law that could provide farmers more choice. The exact semantics of how they'll do this is not out yet.

But you can find more details here bit.ly/2LIfaIE

5. The second half of agri reforms have to do with storage. So right now, state govts have the power to arbitrarily announce stocking limits on certain essential commodities. Meaning if a wholesale/ retail trader is holding more than the govt. mandated limit, he can be prosecuted

6. The govts rationale here is that stocking limits help them control prices. So if onion prices rise tomorrow, they can force traders to part with their onion supplies any instant. The increased supply should then help moderate prices and alleviate the burden on urban consumers.

7. Unfortunately this doesnt work as evidenced in the Economic Survey. After the govt imposed stocking limits to control onion prices in 2019, prices started fluctuating wildly and govt intervention further aggravated the crisis.

8. More importantly arbitrarily imposing stocking limits disincentives private institutions from building storage and warehousing facilities. After all, if you could be asked to part with your supplies on an adhoc basis why would you invest in the first place

9. And if we don't have the requisite storage infra, it becomes increasingly hard to match demand with supply during non harvest season. Meaning more price variations.

So the govt has finally decided to do away with stocking provisions. Details here bit.ly/36dbhVm

10.Finally there is contract farming. So right now the govt offers farmers income stability by promising them a minimum support price (MSP). So if you're looking to cultivate wheat, you wont have to worry about selling it at dirt cheap prices becuz the govt will buy it off of you

11. The plan here is to transfer risk (from the farmers to the govt). However the govt often sets the MSP at sub optimal levels because its feedback loop is broken. The minimum prices cant be decided inside the chambers of Krishi Bhawan. In fact prices can never be fixed.

12. Prices are discovered when commodities are bought and sold in the open market. But if you have to fix prices nonetheless, let the private sector do it. They have a better feedback mechanism from direct consumers. Let them take the risk

13. So if the government can provide a legal framework for private players to engage in contract farming. They could offer farmers a fixed price for the harvest and farmers could get a semblance of income certainty in return.

14. All in all, if the govt actually pushes through the reforms, this could be a watershed moment. As the agricultural economist Ashok Gulati pointed out - "This could be a 1991 moment for agriculture"