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Farm bills and Indian farmers

Admin October 23, 2020

The major players of Indian democracy the Indian political parties and their committed intellectuals begin by opposing any reforms and end up by using Indian farmers and labourers for most of their politics. — Anil Javalekar

Indian democracy is full of politics. The major players in this politics are Indian political parties and their committed intellectuals. They use Indian farmers and Indian labourers for most of their politics. Their politics starts with the opposing of any reforms that are carried out by present government, particularly reforms that affect Indian farmers and Indian labourers. Many times, in the process, they oppose reforms that they themselves once demanded and cried for government’s inaction. One such recent reform that is being politically opposed is that of Indian agriculture marketing. Indian parliament passed Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill amid protests by opposition parties. The bills were supposed to give freedom of choice to the farmer or trader to conduct trade and commerce anywhere and allow farmers to get a share of post-contract price surge under contract farming with private players. While these bills have no link with that of MSP (Minimum Support Price) and related procurement systems that are currently operational, entire opposition stood up to oppose it. The idea of opposing the bills, therefore, is more political than protecting farmer’s interests. 

Bills intend to help farmers

The three bills that were recently passed by Indian parliament are ‘The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020’, ‘The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020’ and ‘The Essential Commodities (Amendment) Bill, 2020’. First, out of three, two bills (The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020’ and ‘The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020’) are not to override (a) the Minimum Support Price (MSP) mechanism and (b) adequate protection of land ownership - that is currently in place to protect farmer interests. That means, the MSP system and procurement of crops by Government agencies will continue and farmer’s land ownership will not be touched by any of the contracts entered by farmers. All contracts will be related to the crops only. Second, these bills are intended to help small farmers who cannot invest in technology/better practices to improve the productivity of farms. These bills will accelerate this progress through private sector investment in building infrastructure and supply chains for farm produce in national and global markets. Third, these bills allow farmers to sell their produce to buyers at places other than ‘mandis’ (market) regulated by Agricultural Produce Market Committee (APMC). That means, farmers can sell to private buyers too. It will also add the option of selling outside the state of the farmer. This way, the small farmers will also have better bargaining power for their produce. Fourth, these bills allow agreement between farmers and buyers before the production so to fix a price before the production for the produce to be sold. Fifth, these bills prohibit state governments from imposing market fee on “farmers, traders, and electronic trading platforms” for trading outside the ‘trade area’ or with a buyer other than the mandi so to reduce the financial burden on farmers. The third bill, ‘The Essential Commodities (Amendment) Bill, 2020’ removes cereals, pulses, onion, potatoes, etc from the “list of essential commodities” as also removes restrictions on storing essential items and affect no way to farmers. This will mainly help traders and wholesalers.

Concerns and apprehensions of opposition 

The opposition to these bills is primarily from politicians, market intermediaries such as brokers, wholesalers, traders, warehouse owners and transporters and farmers hailing from select rich areas. Their first concern is that, with these bills, the system of MSP and government procurement will get dismantled and farmers will be exposed totally to market driven forces. Their second concern is that the APMC and other regulated markets will no longer remain functional and farmers will have to struggle and search buyers helplessly for their produce.  Their third concern is that the contract system will be biased and will favour the buyers and the farmer will be a weak partner, particularly small farmers. Their fourth concern is that the private sector will prefer direct purchase from farmers and will not take interest in establishing private markets that may help farmers get options of negotiations for better price. APMC currently collects fees etc and provides various facilities like auction halls, weigh bridges, godowns, shops for retailers, canteens, roads, lights, drinking water, police station, post-office, bore-wells, warehouse, farmers’ amenity center, tanks, Water Treatment plant, soil-testing Laboratory, toilet blocks, etc. – it is expected that private buyers/markets may not provide these holistic support services. Their fifth concern or apprehension is that the private sector will not give any representation to farmers on their governing bodies and will not have system to address the grievances as in the regulated markets. 

True, all concerns are not false. Government has to take cautionary measures so that reforms help farmers to benefit.  Presently, neither APMC nor MSP is getting dismantled and therefore, the concerns on facilities, farmer price exposure should not arise. The focus should, however, be on the right intent of these bills and maximization of the benefits to the farmer while mitigating possible concerns.

Benefits of market reforms

The reforms mainly intend to open the agriculture marketing that was earlier confined to APMC and such regulated markets. First, with these reforms, farmers get multiple options while selling farm produce. Farmers can sell farm produce at the farm itself or to traders or wholesalers or the malls or even to housing societies at their place or at any other place at directly negotiated price. They also continue to have the option to go to their nearest mandi as well as other mandis/regulated markets. Second, farmers and buyers can have contract at the beginning of the season for the sale/purchase of the produce.  This contract can be in the spirit of partnership right from sowing to harvesting to marketing. This way the farmer will have assurance of procurement and price, can get access to innovations from the buyer, bring in high-quality standards, possibly get pre-procurement financing as well. This apart, such contracting can help fast-track technology adaptation. The fact is that the corporate/private buyers want backward integration for their own plants/ markets and hence will usher in innovation and efficiencies in planning, cost management for their own sustainability. Third, with these reforms, farmers and buyers will get opportunities of better price discovery for farm produce across various markets as produce can be sold across markets and over time. Fourth, as is known, the prices paid by end consumers do not reflect the value accurately as the margin made by traders and wholesalers is based on an artificial price. This margin cornered by the chain is now completely exposed to free market dynamics and only the leanest, most efficient value chains will survive. These market reforms will help backward integration of retail and processing companies, tech and financial markets with agriculture and will result in saving costs that will benefit farmer and consumer alike. Fifth, the reforms will give rise to different kinds of service providers like smart logistics, internet enabled farm practices, food preservation and shelf-enhancement technologies. In the bargain, losses at farm will be curtailed (15% fruits and veg lost at farm) and markets will have less price volatility at both from farmer’s and consumer’s ends.

These reforms were long overdue

True, it is oversimplification to say that the market reforms will bring everything in order and help farmers prosper. As is known, there are two principal issues in agricultural systems: (1) Agricultural production – what is produced is determined by the pricing, profitability, variability of govt. policies, innovation (or lack of it) and the availability of credit and (2) Agricultural  distribution – how farm produce is moved from farm to markets, cost of the value chain and availability of credit. In basic economics, the farmers, the basic producer at least is expected to be reasonably compensated. However, Indian agriculture is a tragic example where everyone other than the principal producer (farmer) is making disproportionate earning with no value addition whatsoever. Such a contrast could only have prevailed due to the regulatory construct that governed agriculture in India and these agricultural reforms are correcting these gaps so that farmer is able to maximize his income. Therefore, it is to be understood that the reforms were overdue. The importance of opening the path of buyer to the farm cannot be overemphasized – structurally this is the single most important step the government has taken and will take agriculture on different trajectory, if evolved properly.

Need cautious approach towards reforms

It is good that government initiated the reforms and enacted the Acts. However, reforms of all kind are continuous in nature and need review to suit the changing socio-economic scenario. Indian agriculture, by and large, will remain with small farmers and this is the weakest link in agriculture reforms. Thus, the fate of these small and marginal farmers cannot be left to market forces controlled by unbridled profit motive. Government’s role will remain important to protect the interest of farmers. More importantly, the small and marginal farmers i.e. those with small plots of land may need more to make them viable.  Again, making small plots viable with best of technologies and ensuring better price for their farm produce alone may not be sufficient.  Government may have to do more to assure income to farmers in some or other form as it is not always possible for market to give farmers a fair price or government to procure farm produce at MSP from every farmer. One alternative is to pay the difference between the price realized by farmer and the MSP. The difference can be paid by way of cash transfer. Government procurement should only be for market stabilisation and not for ensuring MSP to farmers. The assured income will help farmers more than the procurement at MSP.   

Anil Javalekar: NABARD retiree, Co-Editor of books: ‘India’s Perspective Policy on Agriculture’ and ‘Droughts and way Forward’. Regular contributor to Swadeshi Patrika (English and Hindi).

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