3 Farm Bills; Implications on Farmers' Welfare
By Suyash Agarwal
The parliament, during the delayed monsoon session, passed three farm bills which were earlier brought in the form of ordinances on 5th June 2020. These are the Farmer Produce Trade and Commerce Promotion and Facilitation Bill 2020, The Farmer Empowerment and Protection Agreement on Price Assurance and Farm services Bill 2020, and The Essential Commodities Amendment Bill 2020. These bills are aimed at transforming agriculture in the country and raising farmers’ income. The government hopes that these would help build more efficient value chains in agriculture by reducing marketing costs and enabling better price discovery, thus improving price realization for farmers. Advocates argue that liberalizing the agricultural sector and allowing greater play for market forces will make Indian agriculture more efficient and more remunerative for the farmers.
Clearly, the main goal of these bills appears to raise farmer welfare and make the farm sector robust and more competitive. These legislations should have found widespread support from the farmers as they are touted as the biggest game-changer for them. However, what we have witnessed in the immediate aftermath of the passing of these bills, is a series of protests by farmer groups all across the country. Have farmer groups been misguided by the vested interest groups, as the government claims, or are there indeed some genuine concerns that have brought tens and thousands of farmers on streets at a time when the country is already facing an enormous challenge in form of a deadly pandemic? Indian agriculture consists of a multitude of small and marginal farmers. There are some fundamental questions that deserve critical scrutiny before we draw a parallel to the 1990s LPG reforms.
Is Indian agriculture remunerative?
At the time of independence, about 70 percent of the total workforce was engaged in agriculture and allied activities contributing nearly 54 percent to the national income. Over the past 70 years, the share of the farm sector in GDP growth has declined drastically and as per the 2019-2020 data, it accounts for less than 17 percent in gross value-added terms. However, the proportion of people who are engaged in agriculture has just fallen from 70 percent to near 55 percent in the same time period. Furthermore, the proportion of landless laborers among the people engaged in this sector has surged from 28% in 1951 to 55% in 2011 symbolizing the growing level of impoverishment. While the number of people dependent on agriculture is rising steadily, the average size of land holdings has reduced sharply. According to the official data, almost 86% of the farmers are operating in small landholding and marginal landholdings. As a consequence of these inherent deficiencies, most Indian farmers are heavily indebted. The issue of Minimum Support Price MSP has been at the center stage in the recent debates. The MSP policy has helped India achieve self-sufficiency in food grains as it provides a guaranteed price and an assured market to the farmers. Although the government announces MSP for about 23 crops, the actual procurement takes place for very few crops such as wheat and rice, levels of which vary considerably across states. Consequently, farmers end up selling most of their produce at a price lower than MSP. The aforementioned analysis presents a clear reflection of a deeply fragmented and stress-ridden farm sector of India. It is, in this context, that a critical evaluation of the three farm bills becomes inevitable.
The Farmer Produce Trade and Commerce Promotion and Facilitation Bill 2020
This act allows farmers to sell their harvest outside the notified Agricultural Produce Market Committee (APMC) mandis without paying any state taxes or fees. Of the three enactments, it is this bill that has caused the most outcry among the farmer communities. Their concerns are mostly about sections relating to trade area, dispute resolution, and market fees. APMC mandis were set up with the objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce. They are used to regulate the procurement process by issuing licenses to buyers, commission agents, and private markets and levying charges and fees.
These commission agents would buy the farmers' produce at prices set by auction and in turn sell it to institutional buyers like retailers and big traders. The Standing Committee on Agriculture in 2018-19, observed that state APMC laws are not implemented in their true sense and need to be reformed urgently. They opined that most APMCs have a limited number of traders operating which leads to cartelization and reduces competition thus describing such laws as unnecessarily restrictive. The central government had earlier released the model APMC and contract farming acts to allow restriction-free trade, promote competition through multiple marketing channels, and promote farming under a pre-agreed contract. Ramesh Chand, a member of NITI Aayog, defending the present act, argues that the Centre was persuading states to implement the model APMC act 2002-03, but the states did not fully adopt it thus leaving no option for the Centre but to resort to the ordinance route. However, the provisions of the act have failed to garner the support of the farmers community who apprehends that this act is a precursor to the dismantling of the MSP regime which would undermine the entire system of food-grain procurement. Agricultural experts argue that this bill starts with a flawed assumption that private players don’t exist today and APMC enjoys a monopoly. However, this is not true and private traders look to the APMC mandis for reference prices to carry out their own transactions. In fact, only 6% of the total farmers sell their produce at the MSP in these mandis. Due to several reasons like a long distance to the mandi, lack of confidence that procurement centre will accept the quality offered, an urgent need for money and lack of transportation facilities, farmers had been selling their produce to local traders. Even though a small portion of farmers manage to sell at the notified MSP, it plays an important role in price discovery and signaling. Few experts argue that if the APMC system collapses, then this bill has not envisioned any alternative for a large market that can actually set price signals thus creating a large pool of buyers arbitrarily setting prices.
Section 6 of the Act states that no market fee or cess shall be levied on any farmer, trader, or electronic trading and transaction platform outside the regulated APMC mandis. Critics argue that by removing the fee on the trade, the government is indirectly incentivizing big corporate players who would prefer to trade outside the mandi. Even the APMC traders might prefer to operate outside the mandi to save on the fee charged inside the mandi. Private traders and companies can offer higher prices compared to what is offered inside the APMC to farmers as they won’t have to pay tax. Consequently, farmers would be inclined to sell their produce to them, and over time, with trade outside the mandis growing, the regulated mandis will eventually disappear and this is what concerns all the stakeholders especially the farmers. Another bone of contention for the farmers is the trust deficit between them and the private corporate. So far, they have been dealing with the arhatiyas whose credibility is verified by the provision of the requirement of a license to trade in the APMC mandis. Also, these commission agents extend credits, advances, run a deeper relationship with the farmers, and accept all kinds of qualities of produce. Such kind of a mutual relationship is unlikely to be built between farmers and private players. Furthermore, the mechanism for dispute resolution between a farmer and a private trader is heavily loaded against the farmer given the unequal power relations between them. The state governments like that of Punjab which earn over Rs.3500 crores annually by levying market fees fear that if the center shifts the entire procurement of wheat and paddy outside the APMC mandis, they will lose a significant amount of revenue which is used for maintaining rural roads, warehouses, and mandi infrastructure. Finally, the potential abolition of the APMC mandis endangers the jobs of many people who work at these places; be it laborers, staff/employees of market committees, arhatiyas, etc.
The Farmer Empowerment and Protection Agreement on Price Assurance and Farm services Bill 2020
According to this bill, the farmers can enter into a contract with agribusiness firms, private companies, and wholesalers for the sale of future production at a predetermined price. It provides for a three-level dispute settlement mechanism. It is believed that expansion of contract farming will take time to materialize as the quality specification required by organized businesses like exporters, processors and e-commerce players are demanding and most farmers are not used to these standards. Moreover, these players also hesitate in committing themselves to a price given wide fluctuations in the market place. However, advocates argue that contract farming will gain better acceptability among farmers in the case of commercial and high-value crops leading to their crop diversification and income rise.
Critics argue that this bill is also in favor of big corporate more than the farmers as farmers lack the resources and capital to bargain on equal terms with buyers. Since the big players would enter into the contract not only for the food grains but also for horticulture, floriculture, and a variety of other produce including cash crops, which they would export besides selling domestically, a consequence of such a contract farming would be that it may in due course shift the acreage from food-grain to non-food-grain production. If not regulated properly, such diversion may put the food security of the country in danger. The mechanism for the dispute resolution regarding the price and quality and the wording of the provision for changing or terminating the agreement is again very difficult for a common farmer to initiate against a big private player.
The Essential Commodities Amendment Bill 2020
This bill deregulates the production, storage, movement, and sale of several major foodstuffs, including cereals, pulses, edible oils, and onion, except in the case of extraordinary circumstances. The central government claims that the changes in the ECA have long been demanded by businesses as well as farmers. Due to the fear of sudden imposition of restrictions on stock movement and exports, the private sector was hesitant to invest in the supply chain. This removes limits on the quantity of foodgrains that can be stocked up, thus allowing big traders to hold large amounts of stocks. The amendments to the ECA Act could attract large corporate into the sector and can lead to new investment in warehouse and cold storage infrastructure. However, at the same time, it is possible that the big players could skew the playing field, with the small farmers unlikely to avail benefits of the amendments due to lack of storage facilities. The big players may also resort to hoarding a large quantity of crops to create an artificial shortage, only to sell at higher prices later. In order to keep a check on speculative hoarding, the government can make registration of the warehouses mandatory under the Warehousing Development and Regulation Act 2007. Surprisingly, when this bill was under consideration in the parliament last month, the government imposed a ban on the export of onions and restricted the stock limit in an attempt to moderate the prices in the domestic market. It remains to be seen if the amendments to the ECA would be implemented on the ground or it will be a reform just on paper.
What has been the reaction?
The three farm bills have met with stiff resistance by the farmer groups and opposition leaders. It led to the resignation of one of the cabinet members, apparently for the first time over a policy disagreement. Rashtriya Krishi Mahasang, RKM, the umbrella body of more than 180 farmers groups across the country has written to the chief ministers of all states seeking their cooperation in their fight against the controversial farm market reforms. Farmers are also demanding that MSPs must be made universal both within mandis and outside so that all buyers, government or private players will have to use these rates as a floor price below which sales cannot be made. Citing the findings of the Shanta Kumar committee 2015, which suggested that government should reduce its coverage under the PDS from 67% to 40% of the population, the opposition parties across the political spectrum have expressed deep concern that the laws could corporatize agriculture, threaten the existing mandi network and dilute the system of government procurement at guaranteed prices. According to a new survey in 16 States conducted by Gaon Connection, more than half of Indian farmers oppose the three farm bills while almost 60% are in favor of a legal guarantee for MSPs. The state governments in Kerala, Chhattisgarh, and West Bengal are planning to challenge the constitutional validity of these farm bills at the Supreme Court on the grounds that the Centre has usurped the states’ rights to make laws on agriculture issues which fall in the state list. The Punjab Government spearheading the protests enacted state amendments to their farm acts to override the effect of the legislations passed by the parliament. The stance of the central government was made clear by the Prime Minister’s tweet in English, Hindi, and Punjabi where he wrote, "MSP will continue. Government procurement will continue. We are here to serve our farmers. We will do everything possible to support them and ensure a better life for their coming generations."
The massive outrage against the three farm bills points to the fact that the Centre has miserably failed in doing its homework before pushing the legislations in a hasty manner. The liberalization reforms which according to the government would revolutionize the agricultural sector is in effect threatening the existing system of government procurement at the guaranteed prices. The reduction in the role of the State and a simultaneous opening of the markets for private players in absence of adequate regulatory mechanisms would arguably not auger well for the livelihood of the majority of farmers as well as the nation’s food security. Furthermore, the Centre has encroached into the states’ legislative domain by widely interpreting the entry 33 of the concurrent list which concerns trade and commerce, production supply, and distribution of foodstuffs. As already mentioned, many states are planning to put up a legal challenge on grounds of this misinterpretation. However, considering the track record of the Supreme court in the last couple of years, it is safe to assume that it would not strike down the legislations passed by the Centre. Hence, the only wise move going forward is to engage in a consultative process amongst all the stakeholders in order to build confidence and consensus.
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