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The Farm Bill, 2020: How prosperous today’s farmer is!

This article discusses the aspects of the three Farm bills which has recently been passed by the parliament. We have incorporated the previous laws which gave way to this new law which has become a topic of discussion.

History:

After India got independence in the year 1947, started selling their agricultural produce directly to the consumers in the local markets. But because of the zamindari system and other social conditions which was prevalent during that time, most of the farmers had to encore huge losses and were under debt. Most of them took loan from various creditors and they charged massive interest on them. Also when these farmers were unable to pay the loan, the money lenders bought the agricultural produce at a much lower rate. So what happened was that in order to grow crops in the next season, these farmers took another loan and this vicious cycle continued and there was no end to it. Later with the Mandi system and APMC’s the system became much hostile.

What are the three bills?

The present government introduced three acts:

  1. The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
  2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020; and
  3. The Essential Commodities (Amendment) Ordinance, 2020.

Rajya Sabha has passes the three bills while farmers are protesting against all three Farm Bills, they are majorly protesting against the provisions of the first Farm Bill.

What was the need to introduce the bills?

Why are our farmers poor? Because our farmers are price takers. They buy inputs like seeds, fertilizers, pesticides at retail prices, but sell its output i.e. their produce at wholesale prices. In both these cases, the farmer is the price taker not the maker. Nearly 70% of Indian farmers have land holding less than 2.5 acres which means that small land translates to smaller crop output which also means Lesser produce and much lesser bargaining power. After the zamindari system was abolished in India, the farmlands were split into smaller pieces, the tillers became the owner of such small land but they did not have any bargaining power and traders started exploiting them on such ground. Traders used to extend credit then buy produce from the farmers in harvest season at low prices. The farmers would stay poor because he never got a good price. So the question is what is the correct price and who will decide the correct price for the farmers? To answer this question, in the 1960s, when the country was going through Green Revolution there emerged APMC’s which are also called as Mandis which started regulating farm produce. With the emergence of these APMC’s, nobody was allowed to buy produce from the farmers except from the mandis, also APMC’s would give a license and space to traders to buy. The idea was quiet appealing as mandis have different traders who negotiate with the farmers and decide the price at various quoted prices which gave farmers their choice and options. the reality was far behind what was expected, the mandis had no farmers who were quoting the prices, rather the mandis had traders and the cartels who were negotiating the price became the brutal truth. So the farmers were the price takers and not the ones quoting. The traders formed their majority and cartels to quote one same price which was less or almost equivalent to the MSP (minimum selling/ support price). This mandi system was not perfect, the mandis were only a handful, around 7000 mandis all over India. National committee of Farmers said for mandis to be successful, there should be one mandi in every five kilometer range. As a result, only 40% of the total produce is sold in the mandis, most of the farmers cannot even make it to transport their produce to these mandis and sell the produce to unlicensed traders of their own area at whichever price they quote. As a result, three out of four farmers today are planning to leave farming because the market needs good buyers who can pay enough to these farmers. Thus all these factors gave way to introduce the bills.

The three bills at a glance:

These laws claim to bring farmers closer to the market by altering where they can sell, the ability to store produce, and whether they can enter into contracts. It may be full of amazement that the farmers were confined to the following terms to date. Let us further explore the laws why these restrictions were present in the first place.

The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020

According to this law, a farmer can sell his produce anywhere in the country under the scheme of ‘One Nation- One Market’. Initially as per ECA which restrained the framers to sell their produce anywhere in the country and were forced to sell originally in the mandis of their state. These mandis were government- approved mandis’ called as ‘Agriculture Product Market Committees’, were state- operated where farmers sell their products to the traders or middlemen who then sell the products to the consumers throughout the nation. These APMCs protected the interest of the farmers from big retailers and ensure that process do not get too high. Also that the produce is sold at MSP and not anything less than that.

This new bill passed also:

(i) limits the operation of APMC laws by states to the market yards
(ii) Allows private parties to set up online trading platforms for trading in agricultural commodities by avoiding the middlemen
(iii) Sets up a dispute-resolution mechanism for buyers and farmers to be operated by a sub-divisional magistrate.

Benefit and problems of this act:

  • The farmer of any state can sell his produce at any place throughout the nation because of this bill but not in any other mandi because it is the state government of that region to decide whether they can sell it in their mandis or not. Also this law makes the produce tax free which means that the farmers are not supposed to pay any tax to the mandis or the state. But here the mandis and state are at loss because they won’t be getting the tax which can be used by them. The new law permits the PAN card holder to become trader, whereas in the mandis there are certain conditions to become a trader, they have certain licenses. At mandi, the payment by the farmers has to be done within 1 day while the trades outside the mandis will be given three working days’ credit time which has chances to be misused and such loop holes needs to be addressed.
  • Removal of middlemen: Because of this act the concept of middlemen and the cartel system is diminished, the farmers can directly trade with the consumers are the company and save the tax which was supposed to be given in the mandis. Also the farmers can choose where to sell the goods so that they can save the transportation cost as well.

We must not forget here that this bill has not eradicated the previous APMCs rather it has provided another ecosystem to the farmers and now they have to decide where to sell and how to sell which have given them multiple options too.

  • The redress system: The dispute redress system mentioned in the bill is not practical as the system in overburdened with other cases and sub magistrate has other responsibilities as well.
  • The MSP issue: The minimum support price is decided on 23 food items by the government but there is no guarantee by the government that they will buy it from all the farmers. Governments only ends up buying rice and wheat. The states like Haryana and Punjab are benefited by this MSP. The farmers believe that the government will remove the concept of MSP, once they start selling products outside the mandis.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020

According to this bill the farmers and the consumers, the corporate firms and buyers can directly enter into a contractual farm agreement which means farmers can make contract with the buyers. The benefit that the farmers will receive through this bill is that the price assurance which they will receive even before sowing their produce.

The benefit and loss regarding this bill:

Let’s discuss the three bills with examples. Let’s talk about tomatoes, MC Donald’s and how they can make a contract with these farmers. As per the bills, the company can ask the farmers to produce certain size and quality of tomatoes and at the same quoted price throughout the year. This means that the farmers can sell the tomatoes at rs. 20 to the company when it is at rs.13 in January or at rs.19 in May and still earn the profit. The benefit of this contract farming is that the price is decided in advance also the farmers can ask for advance payments and buy raw materials with the money received. Before such bill, this contract system was there but it was recorded in the mandis. Moreover, a certain fixed sum had to be paid to these middle men in the mandis whereas when these middle men are removed both the parties can be benefited.

  • This system sounds good but no big company would like to deal with dozen small farmers.
  • Also since these companies are massive with huge legal team, the contracts can turn up to be one sided, also these farmers cannot fight against such companies or understand legal contracts.
  • What must be done is that there is a need of an intermediator bodies who can explain such contracts to these framers in simple terms and they should be made to understand these terms for future as well.
  • The dispute redress system mentioned in the bill is not practical as the system in overburdened with other cases and sub magistrate has other responsibilities as well.

The Essential Commodities (Amendment) Ordinance, 2020.

Of all the 3 bills that have been passed, it is the ECA which was long overdue. The ECA has its roots in WW2 where laws were implemented by the British to exploit the supply within the country. The bill places restrictions on the storage of essential commodities like pulses, oilseeds, onions, etc. but has now been amended. The amended ECA reduces the power that states and the centre have.

Benefits and problem with hoarding of essential commodities:

  • With the introduction of this bill the commodities can be stored and bought in bulk. Also the private traders can enter into this business and store the produce.
  • We often see that that where the farmers sell their onions at rs.13, the price of it in the market is as high as rs.100. onions being an essential commodity cannot be stored in the country as there are certain limits.

Also since there are buffer stocks in the country which is being mismanaged, India faces hunger and food shortage.

  • The question is why should any trader or company invest in cold storage when storing of basic stuffs are illegal. While essential commodity act removes the stocking limit from some commodities, protests exist as the trader will buy onions in harvesting season and sell it only when there is a scarcity to gain profit.

Now where government says these bills will change the life of the farmers but still, farmers are protesting?

  1. The downside to this law is that the person in question is a farmer who may not possess the bargaining leverage. This bill will lead to the entry of private corporates that further exploit the farmers.
  2. It is also naïve to simply assume that farmers in Punjab who are accustomed to mandis will go ahead and sell their produce to buyers in Karnataka. India is still plagued by huge connectivity issues and the cost of transit might far exceed that paid to APMC’s. APMC has this advantage as they are already established they have roads connecting most of the villages making it easier for farmers to get to mandis. You may have already noticed that although there have been differing views across the country, protests are concentrated to the states of Punjab, Haryana, M.P. This is because it is in these states that farmers rely on MSP and have strong market systems based on APMC’s. In fact, Bihar, Kerala, and Manipur do not follow the APMC system at all. In India, the state governments have the power to regulate agricultural markets and fairs. Hence different states have different approaches towards this.
  3. In Haryana more than 75% of the wheat and Paddy is grown is bought by the government at MSP rates whereas this number is higher in Punjab at 85%. The Punjab government charges a 6% mandi tax apart from a 2.5% fee for maintaining APMC’s giving them an annual revenue  3500 crores. These revenues that are earned from farmers are then given back to them as graceful subsidies in the form of electricity etc. This plays a very important role in the voting dynamics and hence the unrest in these states. 
  4. The downside to this is, however, lies in the fact that over 86% of the country’s farmers are marginal farmers who own very little land. The possibility that huge corporations will go ahead and exploit the farmers through unbalanced contracts is high. These contracts include the dangers of turning farmers into slaves. 

Closing thoughts:

The flaws lie on the concept that only 6% farmers know about MSP, and there is no uniform method of price discovery for non MSP crops, traders do not buy on MSP and the government does not procure all the produce. The root cause of all the exploitation lies on the fact that the farmers do not know what should be the fair value of their produce. Whether it be from the mandis or contract farming, the fair value is unknown as prices change with area. So how should price discovery be done like we have stock exchange to check the share prices, similarly we must have a system where these farmers can unite and quote the correct price. Also farmers can refer NCDEX and MCX as the base for the price of their commodities. The bargaining power of farmers lies in the unity of farmers and they need to form such organizations and the government should take such steps to unite them. The bills can be a progressive step only when the loopholes are removed.

One of the reasons why there has been a lot of uproar throughout the country is due to the unconstitutional way in which the laws were passed as it is the state governments that regulate these aspects. The government should have included the opposition and also taken into account the voice of farmers in order to plug the loopholes in the bills.

This would not only create an assisted approach towards privatizing the sector but also avoid further exploitation. But unfortunately, the bills due to not being communicated appropriately have created an air of mistrust between the ruling, opposition, and the farmers.

References:-

  1. The farm bills, 2020
  2. https://tradebrains.in/farm-bill-2020-explained
  3. https://www.thehindu.com/news/national/the-hindu-explains-who-gains-and-who-loses-from-the-farm-bills/article32705820.ece
  4. https://www.youtube.com/watch?v=0FCBMEWlvRM&ab_channel=AbhiandNiyu

 

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