Parliament passed three bills, ‘the farm bills’, in its just concluded session. They are The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and The Essential Commodities (Amendment) Bill, 2020.
The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 seeks to give freedom to farmers to sell their produce outside the notified APMC market yards (mandis). The objective of the Government of India is that the additional channels of sale provided by the new Act would help the farmer get better prices due to the increased demand from alternative channels (The well know demand-supply curve: When demand increases without a corresponding increase in supply, prices increase). Farmers will also be allowed to transport their produce to other Districts/States in order to take advantage of better prices due to shortages over there (Most farmers are unlikely to do this). Further, farmers need not pay any cess for sales outside the Mandi. All said, the proposed framework is good.
Obvious losers due to this are State Governments (especially Punjab, Haryana and Madhya Pradesh) who will lose revenue they previously collected as 'mandi fees’. It is reported that Punjab stands to lose about INR 5000 Crores and Haryana more than INR 1000 Crores. Commission agents (Called Arhatiyas in those states) could lose substantial volume of business and hence income by way of commission fees. Arhatiyas commonly finance the agricultural operations of farmers thereby getting a hold over sales of the produce. When corporate buyers enter the situation, they would end up taking away the financing business of Arhatiyas as well as other locals, who in most cases are politically affiliated.
The Union government has sought to project the legislation as “creating an ecosystem” where farmers will enjoy the “freedom of choice” to sell to anyone, anywhere in the country as none are forced to sell or buy on the physical premises of APMC mandis. Laudable, provided some of the fears of farmers are addressed.
Farmers, at least from the above states, perceive a threat to the existing system, which, with all its limitations, has worked reasonably well for them. In 2019-20, government agencies procured 201.14 lakh tonnes (LT) of wheat and 226.56 LT of paddy from Punjab and Haryana. That, at their respective MSPs of Rs 1,925 and Rs 1,835 per quintal, would have been worth INR 80,293.21 Crores, and all these purchases were done in the mandis and at Minimum support price (MSP) or higher.
For farmers, arhatiyas and labourers in the mandis, freedom is a theoretical concept, but potential loss from APMCs being rendered unviable is real. Mandis could very well be unviable in a few years if trade moves outside them and the government gradually stops buying. When the element of compulsion is removed, some mandis would certainly become unviable and would not be able to sustain themselves (Similar to BSNL versus Jio/Airtel/Idea). The bigger, well established mandis are likely to survive longer. Even though Bihar repealed its APMC Act in 2006, the Gulab Bagh mandi in Purnea district handles an estimated 5-6 LT of maize arrivals annually. Similarly, Unjha Mandi in Gujarat for jeera, Guntur Mandi in Andhra for chilli, Lasalgaon and Narayangaon for onions and tomatoes in Maharashtra are unlikely to face any existential threat in the near future. But, weaker mandis would in all likelihood collapse under their own weight.
Many Corporates, on the other hand, have deep pockets and would willingly suffer losses initially in order to capture market share. In time, they would aggressively compete against the mandis, and given the inherent inefficiencies in Government systems, the weaker mandis would collapse.
Mandis are political bodies and farmers do have some say in the way things are done and even on the entire transaction process. Death of mandis would deleverage farmers greatly. They would have very little say in the market as they are bit players and their opportunity for political intervention would have been eliminated with the death of the Mandi. Their capacity to organize economically might happen in a one off case, but, they simply do not have the economic muscle to organize and get a better bargain for themselves.
Would corporates establish direct relations with farmers and eliminate intermediaries? In general, corporates prefer to operate through local intermediaries rather than deal with all farmers by themselves. Their cost of operation would be much less if they did not deal with farmers on their own and outsourcing procurement would be their preferred option. Intermediaries are unlikely to die out anytime soon.
Farmers fear that with Mandis dying away, Governments may slowly do away with MSP operations (cannot be ruled out at some point of time). Farmers fear that when MSP based procurement is off the table (Whatever little of it), it may eventually lead to exploitation by Corporates. Thought the Mandi system is beset with problems, it still provides a Price discovery/Price assurance Mechanism. Presently, farmers will not sell their produce for a price that is very much off the Mandi price, even when they decide to make an off-market sale. The presence of the mandi also keeps profiteering attitudes of traders in check.
Farmers feel that the Union Government should protect the MSP mechanism by including the same in the new Acts. The Union Government has not agreed with this saying that it was never part of any law. However, they have reiterated that they are committed to ensuring MSP for farmers.
Farmers fear that in a fiscal crunch, MSP will be rolled back or procurement curtailed. Such curtailed procurement has been witnessed in scores of instances over years. The Union Government imposes quotas on states when MSP operations are taken up for commodities. They procure a small quantity and direct state governments to bear the financial burden for the balance quantity. Most state governments do not have the fiscal space to foot the bill for MSP operations and hence survive on mere rhetoric. The demands and attention span of farmers are not drawn out long enough to exert required political pressure on governments to protect their interests.
The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 seeks to give farmers the right to enter into a contract with agri-business firms, processors, wholesalers, exporters, or large retailers for the sale of future farming produce at a pre-agreed price, thereby potentially reducing price risk for themselves. It has the potential of increasing access of farmers to new technology and inputs. Farmers’ bodies say the law would increase the monopoly of corporates as their share in the market gradually increases. It would also weaken the negotiating power of farmers.
This law does not mandate a written contract between farmers and companies. It also does not have any provision to penalize companies that do not register their contracts. This makes enforcement of contracts difficult given that the legal and financial muscle of companies is more than that of farmers.
The law also does not prescribe or specify that the contract price of the crop should be at least equivalent or above the MSP. Under such circumstances, farmers would prefer to sell their produce in the Mandi, if it were alive and kicking.
The Essential Commodities (Amendment) Bill, 2020 seeks to remove commodities like cereals, pulses, oilseeds, onion, and potatoes from the list of essential commodities and will do away with the imposition of stock holding limits on such items except under 'extraordinary circumstances' like war, famine, extraordinary price rise and natural calamity. Stock limits can be imposed only in case of extra ordinary situations i.e. in case of 100% increase in horticultural produce prices and 50% increase in non-perishable commodities. It aims to deregulate the market in agri-commodities and make prices market oriented.
Some sections of society fear that this would give corporates the freedom to stock commodities and unduly influence the market and pricing of agri-commodities. This is more likely to be opposed by urban citizens who could see price fluctuations that were previously evened out by Governments through appropriate regulatory action. Farmers are less likely to oppose this Act and in fact, farmers have been asking for repealing EC Act for many years as it will benefit them.
On the face of it, the bills are good. The difficulty is that farmers do not trust them. A dialogue with farmers is necessary and their concerns ought to be addressed by necessary changes. That would bring greater acceptance.
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