Video by Abhishek Yadav and Richard Kujur
Text by Surabhi Singh
The Indian parliament passed three agriculture reform bills with a “voice vote” in September. While the Bharatiya Janata Party-led National Democratic Alliance government claimed that the passage of the bills was a watershed moment for the agriculture sector, farmers – especially in the northern states of Punjab and Haryana – held massive protests.
StoriesAsia spoke to farmers in Haryana about why they were opposing the laws. A video report on those conversations is above.
And given below are some basic details about the three new laws and their likely impact on farmers.
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act of 2020 seems to be the most contested of the three laws.
This Act seeks to create an ecosystem where farmers can sell their produce to anyone, anywhere in the country without license and stock limits. It is meant to increase the availability of buyers and lead to better competition in the market. The law also says this will facilitate better remunerative prices to the farmers.
This Act is meant to break the monopoly of the Agriculture Produce and Marketing Committees (APMC) which regulate the wholesale markets, better known as mandis. Farmers typically sell their produce in these mandis through middlemen called arhatiyas. The sale and purchase of the produce takes place through auction. APMCs were established with the objective of creating a space where farmers could be offered fair price for their produce in a transparent manner.
The new law allows farmers to sell their produce even outside the mandis. The areas outside the control of APMCs will now be called “trade areas.” They are defined as any space – like farm gates, factory premises, warehouses, silos and cold storages – where farmers choose to sell their produce.
APMCs had two-thirds farmer representation. They were created to make sure the farmers were not exploited by traders. That did not work out well as over the years, the middlemen accumulated more bargaining power. The new law claims to solve this problem by dismantling the monopoly of APMC mandis.
However, the law intrudes into the state governments’ space. Agriculture is a state affair and the wholesaling of produce is governed by state-government-controlled APMCs.
The new law states that the state government cannot levy any tax on transactions performed in these newly-formed trade areas. This takes away revenue from the state government and also weakens the mandi system. It also exempts the traders who are buying from the farmers from paying any tax to the state government.
There is a bigger problem. To make sure farmers get at least a minimum profit for their investment, the government of India buys the produce directly from the farmer at the APMC mandis at what is called the Minimum Support Price (MSP).
This procured food is distributed among the vulnerable sections of society through the public distribution system under the National Food Security Act, which is meant to provide subsidised food grains to about two-thirds of the country’s population.
The fear now is that the government is weakening the mandi system and creating more avenues for the farmer so that it can pull out of the MSP procurement system. Once the government is out of the picture, the farmers would be at the mercy of traders and middlemen.
Another bone of contention is that traders buying from farmers outside the mandis don’t have to pay any fees or cess or levy on the purchase but those trading inside the mandis still do. This is bound to hurt business in mandis and make way for more private participation.
One need not go too far to find evidence that the government is pushing this idea. Its policy think tank NITI Aayog has already published a paper hinting at it.
“There is a need for reorientation of price policy if it is to serve the basic goal of remunerative prices for farmers. This goal cannot be achieved through procurement-backed MSP since it is neither feasible nor desirable for the government to buy each commodity in each market in all regions,” the report says.
A 2015 report by a panel headed by former Union Food and Consumer Affairs Minister Shanta Kumar also made recommendations supporting it. The National Food Security Act must be diluted from covering 67 percent of the population down to 40 percent by reducing government procurement and encouraging private players, it said.
The committee also pointed out that although MSPs are announced for 23 commodities, it works out only for wheat and rice and that too in select states (read Punjab and Haryana). This also explains why the farmers from Punjab and Haryana are angrier than those of other states. The two states have the strongest APMC market network and gain most out of the MSP system.
As per the Commission for Agricultural Costs and Prices, the percentage of rice procured by the government from the states of Punjab and Haryana in 2018-19 was 89 percent and 85 percent, respectively, the highest in the country. In West Bengal state, it was 11.4 percent and for Uttar Pradesh state, 18 percent. This means that only the medium and big farmers from a few states gain from the MSP.
The entire MSP procurement is based on the Food Security Act and the PDS system. So, if we see the new laws together with past committee recommendations, the argument does hold value. But again, the law does not explicitly talk about putting an end to the MSP system.
Experts have pointed out that instead of trying to improve the existing system, the government, through these laws has tried to weaken the mandis and give a free hand to the private players. Therefore, concerns that the law may weaken the mandi system and promote private players are understandable.
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act of 2020provides for a legal framework for farmers to enter into contracts with companies before the production and rearing of their crops. Terms and conditions of quality, grade, time of supply and price would be mentioned in the agreement and the minimum period for the agreement will be one crop season while the maximum can be up to five years.
Contract farming is not new to India. As per the Model APMC Act, 2003, contractual agreements were recorded with the state APMCs and were used when there was a dispute. In the old law, parties entering an agreement had also to pay market fees and levy to the APMC.
The good thing is that the above law seeks to transfer market unpredictability from farmers to sponsors. Even if the market prices are volatile, the farmers would remain shielded due to prior price determination. Moreover, the farmers get access to modern technology and gain from the reduced cost of marketing.
It may also pave the way for more cash crop farming, and food grain production might shrink because private players like to make as much money as they can. Since corporates can enter into contracts for horticulture, floriculture and various cash crops, they might decide not to sell them in the domestic market and head towards the international market.
However, some farmers say this could enslave them to their own land while some others are apprehensive about their voices being heard in case of a dispute. After all, the balance of power is clear.
Essential Commodities (Amendment) Act of 2020 empowers the central government to regulate food items or impose stock limits in extraordinary circumstances like a steep price rise due to war or natural calamity.
Even under extraordinary circumstances, stock limits may be imposed only if there is a 100 percent increase in the retail price of a horticultural commodity or 50 percent increase in retail price of a non-perishable food item like pulses, oilseeds and cereals.
While experts agree that this would attract more private investment, improve storage infrastructure and reduce post-harvest loss of crops, they also warn that it could lead to over-stocking and hoarding of produce and lead to food inflation.