'Farm Bills: Review and Analysis' by Suyash Agrawal

Introduction

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. They were passed by voice vote in both The Lok Sabha and The Rajya Sabha despite fierce opposition. These bills are aimed at transforming agriculture in the country and raising farmers’ income. The provisions of the bills will make barrier free trade of agriculture produce easier and empower farmers to engage with farmers of their choice. The objective and economic rationale behind these reforms are to provide wider freedom to farmers to sell their produce. The Government hopes that these would help build more efficient value chains in agriculture by reducing marketing cost and enabling better price discovery, thus improving price realisation for farmers. Further, they contend that these would encourage private investment in storage, reduce wastage and help contain seasonal price volatility. Advocates argue that liberalising 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 passing of these bills, is a series of protests by farmer groups all across the country especially in the two northern states Punjab and Haryana. Have farmer groups been misguided by the vested interest groups, as government claims or there are 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. Would the farm bills really increase their income? How would they benefit from an expanded access to the market? Would the changes in the ECA help to reduce distressed sales for perishable commodities? These are some fundamental questions that deserve a critical scrutiny before we draw a parallel to the 1990s LPG reforms.

Is Indian agriculture remunerative?

Amidst the uproar caused by the farm bills, a pertinent question to be asked is that are our farmers earning enough by engaging in agricultural and allied activities. Has the farming sector evolved and adapted to the demands of advancing technology and changing times?

At the time of independence, about 70 percent of the total work force was engaged in agriculture and allied activities, contributing nearly 54 percent to the national income. Over the past 70 years, 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 fallen from 70 percent to nearly 55 percent in the same time period. This was observed by the committee for doubling farmers’ income in 2017, where it said that the dependence of the rural workforce on agriculture for employment has not declined in proportion to the falling contribution of agriculture to GDP. Furthermore, the proportion of landless labourers among the people engaged in this sector has surged from 28% in 1951 to 55% in 2011, symbolising 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, even to an extent where efficient production has become non-viable. According to the official data, almost 86% of the farmers are operating in small land holding i.e. between 1 and 2 hectares and marginal i.e. less than 1 hectares. As a consequence of these inherent deficiencies, most Indian farmers are heavily indebted. Rising instances of farmers suicides bears testimony to this trend. The issue of Minimum Support Price MSP has been at the centre stage in the recent debates. MSP is the price at which the government buys a crop from a farmer. 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.

It also protects them from the price fluctuations in the marketplace. Although, 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 become 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. Previously farm produce was sold at notified wholesale markets or mandis under State APMC acts. Notably, there are only 7000 such mandis which were operating in the entire country. 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 fee.

Agricultural markets in India have been regulated by state APMC laws so far. APMC mandis were set up with an objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce. They 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 pre-agreed contracts. Ramesh Chand, 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 accepting this action as a departure. He goes on to describe the acts as forward looking legislations, which will lead to win-win outcomes for all the stakeholders.

However, the provisions of the act have failed to garner the support of the farmer communities, who apprehend that this act is a precursor to the dismantling of the MSP regime that 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. Because of several reasons like long distance to mandi, lack of confidence that procurement centres will accept the quality offered, delay in receiving payment, 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 signalling. Few experts argue that if the APMC system collapses, then this bill has not envisioned any alternative for large markets 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 incentivising 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 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. Moreover, this fear is not limited to any one group of farmers rather is shared by marginal, small and big farmers equally who anticipate their possible exploitation at the hands of big corporate houses. 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 requirement of 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 kinds of mutual relations are unlikely to be built between farmers and the private players, whose main aims include profit maximisation and minimising operational costs. 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 centre 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 jobs of many people who work at these places be it labourers, 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 produce at a predetermined price. Such a contract must also specify the “quality, grade and standards” of the product to be sold by the farmer. It provides for a three level dispute settlement mechanism, the conciliation board, sub-divisional magistrate and appellate authority.

It is believed that expansion of contract farming will take time to materialise as the quality specification required by organised 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 marketplace. However, advocates argue that contract farming will gain better acceptability among farmers in case of commercial and high value crops, leading to their crop diversification and income rise.

Critics argue that this bill is also in favour of the big corporates more than the farmers, as farmers lack 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 diversions may put the food security of the country in danger. Also, the problems pertaining to informal contracts related to sharecropping and tenancy have not been addressed in the bill. 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

The Essential Commodities (Amendment) Bill, 2020, 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, as 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 corporates into the sector and lead to new investment in warehouses and cold storage infrastructure. However, at the same time it is possible that the big players could skew the playing field, with small farmers unlikely to avail benefits of the amendments due to lack of storage facilities. The big players may also resort to hoarding of large quantities 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 ground or it will be a reform just on paper.

What the reaction has been

The three farm bills have met with a 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. Rastriya 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. Lakhwinder Singh, Professor of Economics and Coordinator at the Centre for Development Economics and Innovation Studies at Punjabi University, Patiala, argues that since majority of farmers in India are small and marginal, who don’t have the capacity and resources to trade their produce at distant places, the claim that farmers will have the freedom to sell does not hold true. He further says that giving private players the freedom of food- grain trade without any regulation will eventually lead to the emergence of monopolies, oligopolies or a cartel system. 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 favour 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 falls 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."

Conclusions

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 liberalisation reforms which according to the government would revolutionise 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 augur well for the livelihood of a 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 concurrent list which concerns trade and commerce in and production supply and distribution of food stuffs. As already mentioned, many states are planning to put up a legal challenge on grounds of this misinterpretation.

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.

References

https://www.thehindu.com/news/national/parliament-proceedings-rajya-sabha-passes-2- farm-bills-amid-ruckus-by-opposition-mps/article32652947.ece

https://indianexpress.com/photos/india-news/new-farm-bills-haryana-punjab-farmer- protests-photos-6606588/ https://www.hindustantimes.com/editorials/the-govt-s-rush-to-pass-key-farm-bills-and-the- opposition-s-conduct-were-wrong/story-4zJVOLkZubT7J5ZqjlIP4O.html https://www.thehindu.com/news/national/the-hindu-explains-who-gains-and-who-loses- from-the-farm-bills/article32705820.ece https://www.thehindu.com/news/national/other-states/sowing-seeds-of-doubt-farm-bills- leave-farmers-commission-agents-and-workers-worried/article32698797.ece https://www.thehindu.com/opinion/op-ed/will-the-farm-bills-benefit- farmers/article32690170.ece#:~:text=Three%20farm%20bills%20%E2%80%94%20the%20Es sential,were%20cleared%20by%20Parliament%20amid https://www.thehindu.com/opinion/lead/farm-acts-unwanted-constitutional- adventurism/article32776232.ece https://indianexpress.com/article/explained/quixplained-what-are-farm-reform-bills-and- why-are-the-farmers-worried-6609378/ https://indianexpress.com/article/explained/simply-put-the-farmer-a-field-report-6606785/ https://www.thehindu.com/news/national/new-farm-laws-will-enslave-farmers-rahul- gandhi/article32697592.ece