Recently, the Government of India passed the three farm bills in Lok Sabha in order to completely transform the agricultural sector for the benefit of farmers. These bills are Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, the Essential Commodities (Amendment) Act, the Farmers (Empowerment and Protection) Agreement on Price Assurance, and Farm Services Act., designed in a way to ensure complete transformation of the agriculture sector and lives of crores of farmers in India.
Its objective is to empower farmers with a broader vision of integrating farming communities with entrepreneurs, wholesalers, and large exporters, etc. for a smooth, transparent, and open market for agricultural produce. However, farmer unions misguided by opposition political parties are vehemently agitating over these new farm laws. This farmers agitation become one global issue when the ill-informed Canada Prime Minister Justin Trudeau said, “Canada will always be there to defend the right of peaceful protest.” In order to understand the farmer’s agitation, we need to go through the dynamics of the agricultural sector in India, which is less known to the rest of the world.
Evolution of Agricultural Market with Need for Farm Bill in India
Looking at the historical trend, farmers have always been price takers in the market before the green revolution, which was launched in 1965 with the leadership of Lal Bahadur Shastri. The small landholdings of the farmers led by small produce reduce their bargaining power and as a result, the middlemen cartel exploited them. It is the reason why farmers never get the right price and that’s why the government decided to step in and introduced APMC (Agricultural Produce Market Committee) also known as Mandis.
APMC acts as a mediator between buyers and farmers, its main function is to prevent monopoly like the middlemen cartel. APMC has three important attributes i.e.-
- Every buyer in APMC needs to have a license from the government to buy produce from the farmers.
- Farmers are not allowed to sell their produce to the manufacturer or any other dealer apart from APMC.
- The government issues the base price which is the minimum price at which the buyer is supposed to buy the produce from the farmers and this base is known as MSP (Minimum support price).
MSP is the lower limit below which a buyer is not supposed to buy the produce from the farmers and it was introduced to provide stability to the agricultural system, encourage production, and to support farmers from distress sales at severe low prices and to procure food grains for public distribution.
It looks good but it’s far from reality, according to the Shantanu Kumar Committee less than 6% of farmers have been able to sell their produce at MSP. So, the question is how is it possible that 94% of farmers have not been able to sell their produce at MSP? As it turns out that MSP is devoid of any legal backing i.e. govt. declares MSP but there is no law mandating their implementation and because there is no legal mandate the government has no control over the prices that buyer offers to the farmers and as a result of which cartel formation happens within the APMC. Since they are the only buyer of farmer’s produce they refuse to buy the produce at a higher price or MSP, APMC members regulate price and the farmer is just a price taker and not a price maker.
This system is even worse because it’s legal exploitation i.e., it is happening within the legal framework. APMC is itself has become a centre of cartel formation. There are 7000 Mandis in India, according to the national committee of farmers Mandi system will succeed only if there would be a Mandi at every 5km distance but for example, the state of Meghalaya has only one Mandi covering 11,215 sq. km and as a result, only 40% or less than that goes to Mandis. Small farmers cannot afford the transport cost to Mandis, these farmers sell their produce to unlicensed traders and as result, 76% of farmers want to give up farming.
This is where the first bill comes to play i.e., Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act 2020 and this legislation states that “ subject to the provision of this act any farmer or trader or electronic trading platform trading and transaction platform shall have the freedom to carry on the inter-state or intra-state trade and commerce in farmer produce in a trade area. On the top of that government make sure that no tax will be levied on a transaction that is going to happen between the buyer and the farmer outside the APMC instead they can sell anywhere they get better prices.
According to the Reserve bank of India, India has reached a stage in which surplus food grain management has become a major challenge (i.e., food surplus crisis). Food Corporation of India (FCI) has more than double the buffer stock in godowns and much of it is going waste. For instance, around 61824 tonnes of foodgrains was damaged in the godowns during 2011-12 to 2016-17.
There are certain limits to store the essential commodities in warehouses after crossing that limit a person will be prosecuted. Now the question is why a private company would like to invest in cold storage and warehouses when storing many products is illegal, and as a result, there is a lack of infrastructure in the country, and there are no incentives to create storage capacity.
And here comes the role of the second bill i.e. the “essential commodities act ( amendments)”, according to this act the stocking limit on cereal, pulses, oilseeds, edible oils, onions, potatoes has been removed, but if prices for horticulture items goes up by 100% and food prices up by 50% then the stock limits come back on traders. So there is the freedom to store produce until farmers consider it to be suitable enough to bring it to market.
Now the question is are we going back to square one, are we giving the power of exploitation back, but no because there have been certain regulation that has been imposed on farmers by which artificial regulation of prices can be prevented up to a large extent. So this bill is supposed to bring a balance to the market in such a way that neither the farmer nor the middlemen can artificially regulate prices, the cost of which was earlier borne by the common man.
The third bill “The Farmers (Empowerment and protection) Agreement of Price Assurance and Farm Services Bill “provides price assurance to farmers even before sowing of crops. In case of higher market price, farmers will be given a price over and above the minimum price. Due to prior price determination, farmers will be protected from price fluctuations. The bill also deals with terms and conditions of contract farming. Is the main doubt related to the condition regarding contract farming? Whether can farmers determine fair prices considering all the pressure? The provided clarification in the Bill regarding this is that the farmer will have full power in the contract to fix the price of his choice and will receive a payment within a maximum of 3 days. Under the new bill, even the small farmers can practice contract farming and fair remuneration for them will be ensured.
So, who are the real beneficiaries of this new farm bill 2020?
The new Farm Bills are set to benefit farmers, startups, private and organized players involved in the food trade. Farmers will benefit from direct market linkages and better supply chains that will impact their incomes positively.
Booming of Agriculturally based start-ups
Many Startups have been working on digitizing farmers by crop advisory based on data study and linking farmers with the market. Start-ups aim at removing intermediaries for a better price of crops. Technological improvising in the sector aimed at start-ups to reduce wastage. The farmer has started to see the benefits of working with organized companies. They are looking for long-term arrangements for demand rigidity and organized processing. Farm Bills make this more regulatory and effective.
Agro-based start-ups will no longer be restricted by state bureaucracies and the local APMCs. Earlier, setting up a farmer-driven model requires an application for direct purchase licenses in every district of every state, this came with a cess and a licensing bottleneck. With the new laws, the period around scalability is much shorter because the inefficient process is eliminated. New laws will also lead to the escalating of new start-ups that will draw legal frameworks and contracts between farmers and businesses.
Opening up of agricultural trade will likely induce corporatization, privatization, and participation of organized players. Which will lead to increased investments and tech-led innovations, especially in sourcing and collection centres, storage, and supply chain infrastructure.
Boost for Agro-based storage and private players
The laws will also boost storage infrastructure even in smaller locations. Warehousing has always been tilted towards larger markets. Lack of market linkages, finance, and other support has led many storage facilities to lie vacant in smaller locations which can now become vibrant storage hubs. Local entrepreneurs can procure directly from farmers and set up mini-mills in their district to cater to local demand.
Why are farmers protesting?
First, let’s talk about fear among the farmers as highlighted under the “what will not happen” theme in Figure 1. Under the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm services act 2020, this act regulates contract farming. Companies are allowed directly to deal with farmers but the problem here is that big corporate due to their large requirements will not deal with small farmers which makes them already inferior. Also, farmers fear the power of big companies that they can legally exploit the farmers as Mandis will be no more involved where they need to get the license for the same.
Another major concern is the Minimum Support Price (MSP) in which the government has declared the MSP items for 23 crops, though the government buys only a few of these items. Majorly farmers of Punjab and Haryana are benefited from MSP who mostly feared that if the trade started outside mandis then the government will remove MSP.
Many farmers have been misguided and instigated by middlemen or they get influenced by the political party campaigning. Political parties like Congress, TRS, DK, and AAP joined the protest extending their support in the movement. They are also in the race to degrade the ruling party. Farmers have already considered it as Black Acts, but they are not realizing the benefit which it will provide to most of the farmers in long run.
Farmers have been already suffering for decades due to the lack of laws on MSP, they want the government to guarantee an MSP when they will be dealing with private players. But the demand for guaranteed MSPs is only useful if there is corresponding procurement. Still, the MSP demand continues since it is the only support available to farmers at a time when farm gate prices for most crops are declining.
All these concerns are like loopholes that need to be addressed. For example, NECC (national egg co-ordination) is a co-operative that gives indicative prices for eggs which is sufficient for farmers to sustain their business and which isn’t too expensive for the consumer to afford. Similarly, Farmers Producer Organizations (FPOs) are there in India which helps farmers to get the right price for their produce but FPOs need funding and educational support from centre and states if the government truly want the situation of farmers to change.
The bitter truth is that farmers are misguided due to the political interest of opposition and other regional political parties. However, they were exploited because of the earlier loopholes of the system, which the present government wanted to abolish through agricultural reforms. All the political parties should not play politics using farmers and at the same time, ill-informed persons of the rest part of the world should not give any foolish statement which may impact the farmer’s welfare negatively.
About the authors:
- Narendra N. Dalei (PhD) is working as Assistant Professor (SG) at Department of Economics and International Business and Head of the Centre for Energy, Environment and Sustainability Studies (CEESS), School of Business, University of Petroleum and Energy Studies, Dehradun (India)-248007. Email: [email protected]
- Abhay Kaushik, Aditi Dikshit, Bhavya Gupta, Maria Elizabeth Thomas, Mudit Garg, and Nupur Chavan are currently pursuing their MA Economics (Semester-I) programme at Department of Economics and International Business, School of Business, University of Petroleum and Energy Studies, Dehradun (India)-24800