Decoding the conundrum around India’s new agricultural bills: What do farmers want?
Thousands of farmers from Haryana and Punjab are protesting the contentious farm laws passed in the monsoon session this year. The government has maintained that the FPTC Act and contract farming in these reforms will allow more freedom of selling to farmers. But it seems the distrust in government is not allowing cynical farmers to accept the reforms even on Prime Minister Modi’s assurance.
Anushruti Singh December 23, 2020
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Even after several rounds of talks and a government’s proposal on changes in three farm laws, angry farmers are still not pacified. For farmers from north India primarily, new farm bills do not lead to the road of doubling their incomes by 2022 but are a recipe for disaster. They have termed it as anti-farmer laws as they have many apprehensions with the implementation of suggested laws.
Hence, the farming community wants all three laws to be repealed and a new MSP guarantee bill to be introduced. According to them, the FPTC Act is a primary bone of contention. It permits the sale and purchase of farm produce outside the premises of APMC mandis. Such trades (including on electronic platforms) shall attract no market fee, cess or levy ‘under any State APMC Act or any other State law.’
For years, farmers have been selling their crops under the regulated market yards of APMC and nearly 85 per cent of India’s poor farmers own less than 2 hectares (5 acres) of land. Hence, they find it difficult to directly negotiate with large buyers for their farm produce. Farmer leaders have confessed that wholesale markets which play a crucial role in ensuring timely payments to small farmers would lose their relevance and gradually disappear if large buyers bought the produce directly from growers.
Hence according to farmer leaders, these laws are more beneficial for industrial giants rather than the growing community. Their fear includes the risk of fraud they will be exposed to due to the entry of people without licences or registrations. In case of any dispute in the business with the corporate buyer, there will be an increased danger of farmers’ interests being compromised.
“It questions the intent of one nation, one market theory”, said a member of farmer association. According to him, new laws are creating two distinct markets, one is mandis run by APMC and the second ones are industrial giants in the new law. The farmer leader comments, “The license holders in APMC are job-seekers and businessmen. But traders should have issued ID and PAN card in the trading area. Hence, the rules of the two markets are vastly different.”
He further opines that prior to passing these laws, farmers were free to take their agricultural produce from one state to another, and there were no restrictions. Another contentious point in this bill is farmers’ fear of losing their land under The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 which provides a regulatory framework for contract cultivation.
This specifically suggests mutually entered agreements for farmers with agri-business firms (large food-retailers, processors, or exporters) before any planting or rearing season. In addition to this, farmers also seek scrapping of electricity amendment law and an ordinance on stubble burning. Bharatiya Kisan Union (Rajewal) state general secretary Onkar Singh Agaul adds, “Our demand remains intact that the government should withdraw all three farm laws. We want MSP should be guaranteed through law”.
Government’s stance on the stalemate
With an emergency ordinance in June, the cabinet decided to overhaul the long running agricultural laws that regulate India’s agrarian society. The sector contributes nearly 15 per cent of the total output of the $2.9 trillion economy and employs around half of India’s 1.3 billion people. According to the government, these laws will transform the business of agricultural produce in a big way.
Under these laws, farmers will have the freedom to sell their produce outside the APMC (agricultural produce market committee) market and there will be no tax on such trade. This is aimed at increasing competition among players and to ensure a higher price of produce for farmers. The cultivators can sell their produce within the state or anywhere else in the country and there will be no restriction on this type of trade.
Also, there will be no need for any kind of license for traders to purchase agricultural produce of farmers in the trade area outside the APMC mandi and those holding PAN card, or any other document notified by the Central government can join this trade. In case of any dispute arising in such business, the matter will be settled within 30 days by the Sub-Divisional Magistrate. There are also provisions of heavy penalties for violation of these rules and regulations.
Chief Economic advisor Krishnamurthy Subramanian on CNBC’s Street Signs Asia platform said that these farm laws are designed to benefit small farmers. Commenting on the ongoing protests he remarks that the silent majority is the one that benefits from these reforms while the vocal minority is the one that usually benefits from the continual status quo. “I think we have to recognize the beneficial economics of these reforms and that is what the government is doing,” he adds.
When we seeked the opinion of experts from government departments about these reforms, they denied commenting on the contentious sets of laws. One expert (former government employee) on the condition of anonymity told us that new reforms or amendments should have been discussed first with the farmers’ community as they must deal with it on ground zero.
He adds, “The laws have their own ups and down. I believe it was too hasty of the government to change such laws. If they had taken farmers in confidence, this kind of situation would not have occured. As MSP is one of the main concerns, only farmers from Punjab and Haryana are protesting as they are primary beneficiary of crops sold largely under MSP system in APMC while other farmers are silent.” Meanwhile, the central government did send a proposal for changes in laws.
The proposal indicated that the APMC act would be amended. On the entry of private players, the government has added that these players will have to register for doing business and will be taxed. The government will also give farmers the right to go to court if they agree to do contract forming an industrial giant. Approval will be given for the formation of different fast track courts. But 13 agitating farmer unions have unanimously rejected the proposal and have told to intensify the protest if laws are not repealed.
Bone of contention in MSP
The MSP system has been safeguarding the interests of farmers since 2009. But now, one of the world’s most expensive food procurement programmes has become the fulcrum of India’s biggest farmers’ protest. MSP is the minimum price set by the government to purchase agricultural produce and this rate ensures farmers a minimum profit for the harvest if the open market offers a lesser price.
The central government sets the price for 23 commodities twice a year. MSP for crops is based on recommendations from the Commission for Agricultural Costs and Prices (CACP). Every year, the central government spends billions of dollars on buying million tonnes of rice and wheat from Punjab and Haryana.
This is done by the Food Corporation of India (FCI) which is a main state-run grain procurement agency. The agency buys only rice and wheat at those prices due to lack of storage and funds. These cereals are sold again afterwards but at highly subsidized prices to the poor through the Public Distribution System (PDS). The government then compensates FCI for its losses.
Haryana and Punjab, being the basket of wheat and paddy crops, sell almost their entire produce to FCI at government declared MSPs every year. This can be attributed to a well-developed procurement infrastructure. While other states are not a part of this privilege, farmers from this zone fear that new laws will pave the way for FCI to stop procuring at MSPs and they must deal with private players.
Explaining this fear, Kavitha Kuruganti, a member of All India Kisan Sanghrash Committee (AIKSCC) tells media that although only some farmers get benefit of MSP for some commodities but this meagre protection along with mandi system will be eliminated in the new set up. Farmers now will have to fend for themselves in their interaction with markets where both traditional trader cartels and contemporary big capitalists now co-exist as buyers.
On the other hand, a renowned agricultural economist Ashok Gulati is of the opinion that if MSP is guaranteed, it will spell disaster in markets and private players will shun buying any kind of agricultural produce. Expressing his views in an article, he argues that MSP cannot be assured even with the wheat and paddy crops.
The argument is quite believable since the guaranteed prices encourage farmers to produce large quantities of rice and wheat. Higher production puts pressure on the FCI to buy extra supplies from farmers, resulting in overflowing state warehouses and a ballooning subsidy bill that often pushes up the budget deficit.
Despite having extra mounds of rice and wheat, the FCI finds it challenging to export as the annual rise in MSPs and its own storage costs make FCI’s rice and wheat more expensive than world prices. This makes overseas sales uneconomical for a nation.
Contract farming implies more middlemen
Another visible flaw in these reforms is the contract farming act and farmer leaders are extremely wary of it. Since they find it more threatening for the present agricultural system. According to AIKSCC, the law will bring more middlemen into the system. Currently, commission agents also known as bicholiye or arhitiyas act as intermediately between two parties mainly government and farmer for selling purchase of agricultural commodities.
However, the law states, “A farm agreement is to be between a farmer and a sponsor or a sponsor or any third party prior to the production or rearing of any farming produce of a predetermined quality, in which the sponsor agrees to purchase such farming produce from the farmer and to provide farm services”.
It does not clarify the role of the third party. In a draft given to the government, the union has mentioned that the third party has not been defined in this section, which creates confusion. In this circumstance, the third party could be multiple intermediaries such as commission agents, village people, arhatiyas, or an industry player. Also, other sections in the bill such as section 2 (g) (II) or section 3 (1) (b) further bring other participants into the system like service providers, aggregators, and assayers.
The union questions the intent of these laws while the government is saying otherwise. These may appear to be trivial fears but are not small and marginalized farmers may pay a heavy cost of it. Hence, the government should ensure that these fears are addressed appropriately, and dispute resolution mechanism is strengthened in order to implement these laws effectively.