India’s 3 new Farm Bills create uproar among Indian farmers.

In what is arguably a watershed moment for Indian agriculture, the Parliament passes the three contentious farm bills-

  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (FAPAFS)

  • The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC)

  • The Essential Commodities (Amendment) Act, 2020 (EC)

farmers protest against farm bill 2020
The Centre and the farmers find themselves in a deadlock over the farm reforms with no results deriving out of negotiations

This has evoked huge protests on the outskirts of Delhi, demanding a repeal of the three Acts, and making Minimum Support Price (MSP) a legal right of the farmers.

The MSP assures the farmers of a fixed price for their crops, well above their production cost. It is also the price that the Govt. pays whenever they procure a particular crop. The Centre currently fixes MSP for 23 farm commodities based on the recommendations from The Commission for Agricultural Costs & Prices (CACP) and is currently set at 1.5 times the cost of production but is not legally bound to pay these even if open market rates for the said produce are ruling below their announced floor prices.

A closer look at the Farm Bills and what they mean

The amendment to the Essential Commodities Act is the least controversial whereby it reduces the powers that the State and the Centre had to enforce stock limits, price limits etc. on any commodity. The Act also limits the list of commodities it can be enforced on and more importantly this can now only be imposed in case of emergency, war or famine or sudden price rise. This will allow agri-business to stock food commodities and remove the government's ability to impose restrictions arbitrarily.

The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, popularly known as APMC mandi bypass Act, creates a new “trade-area" outside the Agriculture Produce Market Committee (APMC) market yards where any buyer with a Permanent Account Number (PAN) will be able to buy directly from farmers and the State govt. can't impose any taxes on such a transaction. Earlier the farmers had to sell to their respective district APMC mandis (mainly in Punjab & Haryana) and pay the additional mandi tax. The Act will now end APMC’s monopoly of business and geography and put an end to the cartelization by the commission agents or Arhatiyas. The existing system is a clear example of “Broken Window Economics” because if the same commodity is procured by private traders and the farmers are saved the arbitrage of mandi taxes, chances are supply chains will run smoothly and the consumers will have to pay less.

the farm bills 2020 explained

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act aims at freeing the farmers from the vicious cycle of buyers and traders and talks about Contract Farming reforms. By Contract Farming big agribusiness companies (like Reliance, Adani Wilmar, PepsiCo etc.) make a contract with farmers to produce a specific variety of vegetables or crops. For example, McDonalds would want a specific size and variety of tomato to go with their burgers. The companies then procure these at the earlier fixed price as per the contract. This will help the farmers to lock in the price before the harvest. It will also take away intermediaries and reduce the gap between ‘farm and fork’ (farm – price the farmer gets for its produce; fork – price the end consumer pays) which happens to be an outrageous 65% - 95%.

Addressing the flaws in the Acts & paranoia among farmers

There seems to be some obvious flaws with the Acts sowing seeds of hysteria among the farmers. For example, small and marginal scale farmers do not have the same bargaining powers when it comes to Contract Farming and are generally excluded or face highly one-sided contracts.

contract farming reforms
Contract farming reforms poses a threat to small scale and marginal farmers as they may be exploited by corporations putting their own terms of agreement.

Also, since there is no mention of MSP in the bills, they fear that they will lose the assured option of selling to the APMC mandis indicating corporate exploitation. (Though the Govt. has reiterated that the MSP stays)

Further, the Contract Farming Act does not provide for remedies when companies cancel their contracts or there us delay in taking delivery of produce or in case of drought there is breach of contract from either end. Therefore, a robust Contract Farming regulation was needed as there is no strong grievance redressal mechanism yet.

The Bill is one that is ill-formed and with loopholes.

Do the reforms really warrant for fear-mongering? (opinion)

This is case of massive communication failure between the Centre and the farmers exploited by misinformation pertaining to MSP and Contract Farming. There are apprehensions about how the farmers’ land would be seized though the Act clearly states that farmers’ land can’t be leased, mortgaged or bought by the contracting agency.

The situation is much different today than 60 years ago, when farmers were exploited at the hands of loan sharks. Back then APMC mandi system was brought to tackle this problem. Today there are many safeguards in place to protect farmers’ interests including the newly passed farm laws.

MSP was an idea that came up in the starvation years and it worked. But these are no longer starvation years. MSP which was supposed to incentivize the farmers to invest in imports has become a liability. MSP has turned into Maximum Selling Price rather than Minimum Support Price. Research of farm incomes reveal that since 1970 when APMCs and MSP were mandated, the price of wheat has increased by only 19 times in 45 years where as the salary of Govt. employee has increased by over 120 times.

Moreover, the protests are anything but of Pan-India nature, with mostly farmers groups from the State of Punjab and a few from Haryana and UP. The protests also don’t do justice to farmers in most part of the country who have welcomed the reforms.

Punjab is one of the few states where both farmers and Arhatiyas are comfortable with the status quo of the APMC mandi system. In fact, Punjab and Haryana are the major contributors to the Food Corporation of India (FCI) procurement for National Buffer Stock and they both put heavy levies on sale and purchase in their mandis (6% Punjab; 4% Haryana). Commission agents also take home 2.5% of sale price amounting to 8.5% arbitrage. Punjab earns ₹ 1,700 crores through rural development cess and mandi tax. If the reforms were to be implemented, it would upset the existing ecosystem of the State Govt., the Arhatiyas and the farmers.

The protestors and their demands are increasingly becoming Punjab centric and have very little to do with the recent farm reforms. This farm reform permitting direct trade beyond APMC walls may take time to make a desired impact but it shouldn’t be discarded right away merely on the unfounded apprehensions.