I. INTRODUCTION:
A massive population of the country depends on farming for a living, making it an essential foundation of the Indian economy. At the time of Independence, agriculture accounted for around 70% of the employment and contributed approximately 54% to the national income. Over 7 decades, the contribution of the agricultural sector in GDP growth has reduced drastically as it is statistically shown by accounting for less than 17% in 2019-20. In addition, the proportion of landless labourers has surged from 28% in 1951 to 55% in 2011, depicting the rising level of impoverishment. In the past 2 decades, several attempts have been made to facilitate better realisations for farmers and enhanced investment in the Indian agricultural sector. Latest in sequence are the three legislative acts passed by the Parliament- (i) the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; (ii) the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Act, 2020; and (iii) the Essential Commodities (Amendment) Act, 2020. The government hopes that these bills would be helpful in boosting the agricultural sector and generating additional gains for farmers, calling it the biggest game-changer for the farmers in the country. Contrastingly, the farmers believe that these bills would throw them to merciless market forces and entangle them amidst the private/corporate agendas. The primary contestation is that these laws would pave the way for “corporatisation” of the agricultural sector and gradually do away with the MSP regime. Through this paper, we intend to decode this tussle between the farmers and the framers by critically analysing the three bills and evaluating their potential outcomes.
II. THE THREE BILLS:
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020
The underlying objective of the bill is to fulfil the idea of “One Nation, One Agricultural Market”.
Key Provisions
Potential impact on the stakeholders:
1. Farmers– Since the bill intends to reduce the number of middlemen between the farmer and the consumer, the farmers would likely get a fairer price for his produce. Contrastingly, certain small farmers might be subjected to meagre rates, owing to competitive prices.
2. State Governments- There would certainly be a significant decrease of market participation in the mandis, since the State Governments levy a fee on the mandi transactions, thus reducing their revenue from such fees.
3. Traders– A significant number of traders might opt out of the markets, since many farmers would chose to directly sell their produce to the wholesalers. Simultaneously, there might be a group of traders who would most likely benefit since they would not be subjected to the market fees.
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020
This bill aims at formulating an ecosystem for contract farming, where wholesalers and firms can directly collaborate with the farmers.
Key Provisions:
Potential impact on Stakeholders:
1. Farmers– While on one hand, Contract farming transfers the market risks involved in production, from the farmers to the business houses. On the other hand, there are significant chances of the farmers’ losing their bargaining power infront of the mighty business houses. Additionally, in cases of disputes, the farmers again are subject to chances of exploitation by their opponents.
2. Business Houses– Facilitation of direct buying from farmers may help the businesses to monitor the harvest as per their preferences.
The Essential Commodities (Amendment) Act, 2020
This bill is an amendment to the Essential Commodities Act, 1995- which allows the Central Government to regulate the production, supply and distribution of the essential commodities, so as to prevent hoarding of these commodities, and thereby prevent an artificial and deliberate increase in the prices of such essential commodities.
Key Provisions:
Potential impact on stakeholders:
1. Business houses/ Wholesalers: The bill reduces regulations in business, thereby facilitating ease of doing business to attract more investments from the private sector and FDI, in the form of agricultural infrastructures- cold storages, thus revamping the agricultural supply chain.
2. Farmers: Here, the problem arises for small farmers who do not have arrangements for storage and might be exploited by big corporations for hoarding the commodities.
Among the three Bills, the most outcries have been for the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill. A major point of contestation has been the anticipated effects on the regulated mandi system and of contract Farming.
So, we now take a closer look at each of the following:
III. REGULATED MARKETS VS PRIVATE TRADE:
The legislation primarily highlights the proposal of creating a framework where farmers are empowered to sell their produce with unrestricted freedom of choice. A prevalent assumption here is that the mandis are the primary outlet for farmers’ produce and that the mandis restrict the farmers’ ability to earn remunerative returns. However, an analysis of the data stated by Situation Assessment Survey (SAS) conducted in 2013, evidently show that a significant share of the first disposals of the produce is sold directly to local private traders. Barring wheat, bajra, gram, tur, and soyabean, in most cases, the contribution of sales to private traders is significantly higher than that sold at the mandis.
A probable reason for this could be the limited availability of the physical regulated mandis. As per the Report of the Committee on Doubling Farmers’ Income published by the Ministry of Agriculture and Farmers’ Welfare, average area covered by the mandis in the country accounts for 434.48 sq km, which clearly shows that the available mandis are far lesser in number than the recommendation of 1 mandi per 80 sq km made by National Commission for Farmers in 2004. Further, owing to its imperfect competition with few buyers and a large number of sellers, and high transaction costs which act as deterrents to smallholders, mandis do not present an ideal preference for farmers’ welfare
IV. CONTRACT FARMING:
The key benefits of Contract farming are seen as- risk mitigation, productivity improvement, price assurance and quality enhancement. On the other hand, the chief concerns pointed out around the same are- delay in payments, reduction in prices, and undue rejections.
Though the contribution of corporate investment in agriculture is only around 2%, compared to 14% by government, it is believed that the dismantling of restrictions of storages would be helpful in attracting enhanced private investments in the sector. While the Act accounts for provisions of written formalised contracts, dispute settlement framework, and guaranteed price mechanisms, its potential to do much good for smallholders is not very inspiring, unless proper institutional frameworks are designed for effective dispute settlements
V. WHY ARE THE PROTESTS LOUDEST IN THE STATES OF PUNJAB AND HARYANA AND WHY IS MSP A PRIMARY CONCERN?
The Farmer Protests have largely been limited to the states of Punjab and Haryana. Farmers in Punjab and Haryana have been contesting that the proposed laws will do away with the MSP procurement system in place and will also weaken the Agriculture Produce Market Committees (APMC) under the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act.
The farmers worry that the laws would lead to insufficient demands for their produce in local markets. However, such concerns emanate largely from Punjab and Haryana due to their high share in MSP procurement carried out by the Food Corporation of India (FCI)
The FCI is the nodal central agency of the Government of India and procures food grains from the farmers at Minimum Support Price (MSP) to make those available to the weaker sections of the society at affordable prices. Procurement by the FCI happens largely in the crops of Wheat and Paddy which benefits the farmers of Punjab and Haryana.
Punjab accounts for 21 percent of the total rice procurement of 513 lakh tones in 2019-20, the highest, and that of Haryana, 8 percent according to the Department of Food and Public Distribution. Similarly, out of 342 lakh tone of Wheat procurement in 2019-20, Punjab accounted for 35 percent of it.
When we look upon data with a different perspective, farmers of Punjab and Haryana sell a significant portion of their grain output under the government procurement system. In 2019-20, 92 percent of Punjab’s paddy output and 89 percent of Haryana’s was procured by the government. Similarly for wheat, government procurement accounted for almost 71 percent of Punjab’s production and 74 percent of Haryana’s output.
MSPs set for these crops, the rate at which the government procures it from the farmers, are significantly higher than international prices and market prices at which these are traded in the local markets all around the country. For years, the Indian Government has ordered the FCI to purchase in excess of its requirement and mandated levels to run the world’s biggest food welfare programme as a buyer of last resort to placate farmers. This mismatch in prices encourages and incentivizes the farmers of Punjab and Haryana to grow more of Wheat and Rice and sell it to the FCI at MSP even though India is a food surplus country with excess stocks to the tune of 97.27 million tonnes against its requirement of 41.12 million tonnes in June 2020.
The excess of foodgrains bought by the FCI cannot be exported as well due to its uncompetitive prices and also due to the World Trade Organisation guidelines which restrict export of grains meant for welfare programmes.
This result in substantial increase in expenditure for the FCI as the guaranteed MSP rates for the crops has risen substantially while the selling price has remained unchanged.
The difference arising thereby is compensated by the Government of India which is currently earmarked at 1.15 trillion rupees in food subsidies, but FCI is likely to spend about 2.33 trillion rupees, partly because of free grain distributions during the coronavirus lockdown, stretching its debt further. FCI’s total debt has ballooned to 3.81 trillion rupees ($51.83 billion).
The farmers are therefore concerned that with the three farm laws the government aims to de regulate markets which will eventually lead to price discovery and doing away with the MSP rates or substantially reducing them. Since majority of the procurements at MSP happen in Punjab and Haryana, the famers over there have taken centre stage due to this.
The other point of concern for the farmers has been the weakening of APMCs rendering the procurement system meaningless. The farmers fear that the three farm laws will allow the government to meet its procurements requirements outside mandis since the high commission of arihitiyas, fees at the mandi and the other taxes that the states collect will make them uncompetitive.
According to a survey by NSS, majority of output by farmers are sold to private vendors followed by mandis. Less than 10 percent of the crops sold today are sold through the FCI and other government procurement agencies at MSP. So if the current situation is highlighted, it is difficult to imagine a crisis if the MSP system is abolished as majority of farmers are selling to private traders even today and this is the primary reason why protests are limited to states like Punjab, Haryana and western Uttar Pradesh.
VI. NATIONAL AGRICULTURE MARKET (E-NAM): GAME CHANGER FOR AGRICULTURE IN INDIA?
The government in its current financial year’s budget has stated that 100 mandis have been integrated on the e-NAM network across 21 states and Union territories with 1.69 crore farmers registered on it. The government plans to further integrate 1000 mandis in the digital network this year. Direct payment to farmers has also been enabled on this platform.
With the onset of the new laws which allow farmers much more freedom with respect to their choices, farmers can sell their produce to that part of the country which can fetch them the largest of profits after considering the transport and logistics costs. We can only wait and hope to see if the long-awaited improvements in the agricultural sector can be achieved.
~ Contributed by Jasmine Kaur Bhatia and Divyanshu Kedia
(Jasmine Kaur Bhatia is a second year student pursuing Bachelor of Commerce (H) at St. Xavier’s College (Autonomous), Kolkata and a Junior Associate of the Xavier’s Finance Community)
(Divyanshu Kedia is a second year student pursuing Bachelor of Commerce (H) at St. Xavier’s College (Autonomous), Kolkata and a Junior Associate of the Xavier’s Finance Community)