Reasons to Support & Oppose New Farm Bills, 2020

Agriculture is the backbone of Indian economy and plays a significant role in overall socio-economic foundation of the country, roughly around two-thirds of the Indian population is engaged in the cultivation of land and is dependable directly or indirectly on agriculture. Agriculture contributes to more than 15 percent of India’s Gross Domestic Product of the Indian economy.

One of the most compelling members of society is a farmer. Every part of the economic progress in the country is achievable only if the farming community is taken care of on a priority basis.

Background

Subsequent to Independence, during the period of 1950’s farmers’ had a routine of selling their agricultural produce directly to the consumers. By virtue of Zamindari system and several other circumstances, majority of the population consisted of Smallholder farmers and were in a situation to take on loan. And in turn money lenders charged high interest for amount borrowed by farmers’. When farmers’ were incapable of clearing the debt, money lenders rather demanded the agricultural produce for a discounted price. Result of which the farmers’ turned out to be insolvent, ever since they did not receive the appropriate price for their crops, and all over again required to borrow money from the money lenders for the next cultivation. The cyclic process continued from which the farmers’ were unable to get relieved from the hurdle and the exploitation continued.

Government in 1960’s when the country was going through Green Revolution, takes the cognizance of the crisis and with the intent to resolve, enacted an act of “Agricultural Produce Marketing Committee”. As per the act, neither the farmers’ were permitted to sell the products directly to the consumers, nor were the consumers permitted to buy the products directly from the farmers’. As per the provisions of the Act, every transaction of the agricultural produce must happen through a system called “Mandi system” which will be further governed by the states.

Existing System of APMC

Each State Government has its own APMC, state further divides and assigns the area a particular Mandi, each area has its own specific Mandi. The farmers’ shall sell their agricultural produce to a specific allotted Mandi only. It is requisite for a trader to acquire license from APMC, if he desires to purchase product from Mandi. This system of selling and purchasing things from the specific mandi is mandatory for both farmers’ and traders.

In APMC selling of the products takes place through auction system. Auction can be called/initiated, only upon two concepts: Minimum Support Price (MSP) and Price discovery.

MSP is decided by the government and roughly around 22 crops have MSP. The other left out crop’s base price is determined through the concept of Price Discovery system, i.e. on the basis of demand and supply of the agricultural produce in the market.

Rationale behind Government reforming the existing system

Transactions of the agricultural produce takes place as stated by APMC system. It is perceptible that the products are getting sold in APMC through a supply chain. There is a lot of involvement of the other persons like, licensed commission agents / Arthiyas meanwhile farmer selling the agricultural produce to the end consumer. The chain includes several negotiations/dealings between the commission agent and trader which are not transparent.

Flaws:

  • Since APMC is governed by the state government, many people claim that there is a lot of nepotism being practiced, only highly influenced persons are granted license of traders.
  • Since the agricultural produce is of perishable in nature, the worth of the produce diminishes every single day. Over a period of time, traders considering this as an advantage gradually colluded and formed a cartel. Where they wholly decided not to buy or bid at the MSP, on the other hand demanding the products at very low price which is less than MSP from the farmers’.
  • By the time the produce reaches the end consumer there is almost a 50 percent hike in the actual cost of the product, and at least 25 percent of the produce gets wasted. Moreover the farmers’ were not given the appropriate value for the produce, nevertheless the middle persons are filling their pockets and stomach by levying tax, commissions and many other charges.

There are merely 7000 Mandisall over India. The National Farmers’ Commission (2004) had recommended that, if APMC system has to be successful a regulated market should be available to farmers’ within a radius of 5 km. But realistically states like Meghalaya have Mandi covering 11,215 Sq.Km, and many other states do not have sufficient number of Mandis. As a result the largest portion of marketable surplus of agricultural produce in India is sold to outside the regulated market yard spaces (NSSO data reflects this). Only around 40 percent or less than that goes to Mandis.

Many small scale framers are not accessible for the APMC Mandis and are not affordable for the transportation of their produce. Thus they sell their agricultural produce to a unlicensed trader in their own village as per the price quoted by them. The current estimates suggest that only 6% of farmers’ have access to the MSP based procurement system.

When the APMC Act was enacted in the year 1963, the main objective of the Act was to protect the farmers’ from middle person, money lenders, and thereby from exploitation. But in changing times the Act itself became the reason for the exploitation of the farmers’.

Analysis

The sad reality is Farmers’ buy their agricultural requirements like seeds, pesticides, fertilizers, etc., at the retail prices however, sell their agricultural produce at wholesale prices, they take the price that’s offered for their production. Therefore Farmers’ are price takers but not price makers

To represent a fundamental reorientation of the existing agricultural marketing regulatory framework, The Government of India on 5 June 2020, amidst the spread of the Covid-19 pandemic and rising concern over the collapse of the economy, promulgated three ordinances.

These ordinances had been brought to Parliament as legislative bills for discussion by September 14, 2020, and have been passed. The proceedings in Parliament have unfortunately been inadequate in highlighting the potential implication of the bills. Neither did the government make use of the parliamentary discussion as an opportunity to reveal and clarify its larger vision for Indian agriculture that these bills are most prominent. On 27 September, the bills received presidential assent and were notified in the gazette.

The bills contain three Acts:

  1. Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.
  2. Farmers’ (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020.
  3. Essential Commodities (Amendment) Act, 2020.

The three bills must be comprehended together. The principle linking them is that they will ease the opportunities of private players to invest in agri-food supply chains, and ensure that proper price is given for the produce depending on the circumstances.

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

Concept of “One Nation-one market” to be introduced, allowing farmer to sell their produce anywhere across the country. The Ordinance authorizes intra-state and inter-state transaction of the produce at any place, need not be mandatorily in APMC Manids. It can also be through other markets as stated by notification of the State APMC Act. Trade furthermore can occur at a place where the produce of farmers’ is processed and collected, like: farm gates, factory premises, warehouses.

The Ordinance furthermore permits the electronic trading in the specified trade area of scheduled farmers’’ produce covered under state APMC Act. In order to assist the direct and online buying and sale of such products through electronic devices and the internet, an electronic trading and transaction platform may be set up.

No market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’’ produce in a trade area.

Benefits

  • One nation–one market can end the monopoly of ‘Agricultural Produce Market Committees‘ traders.
  • With Farmers’’ Produce Trade and Commerce bill, farmers’ can sell the produce as per their choice. Hence the problem of middlemen, which is one of the main loopholes of APMC, will be eradicated.
  • Selling produces outside the physical territory of the Mandis will be an additional marketing channel for the farmers’’.
  • Engenders competition among buyers
  • Farm produce can move freely from surplus to deficit regions, as a result consumer gets quality and reasonable priced products.

Loopholes

  • One nation–one market may not, at all time be useful to small farmers’, as transporting the produce requires more expenditure than selling them at the nearest APMC.
  • This Bill does not provide any statutory support to MSP. The farmers’’ are not much concerned about the legal system but give importance to the MSP, a price at which they sell their produce, either of “MSP” or “Procurement” have been cited nor there has been no law mandating their implementation in the said bill.
  • APMCs are helpful for small farmers not just to sell the produce but also to determine the base prices and production choices. The bill may deteriorate the APMC system and can become an inconvenience to small farmers.
  • State governments will no longer be able to collect the market fee and levy cess thus this may incur a loss of revenue to the State Governments.
  • Trader, who transacts with farmers’ have a choice to make payment for the traded farmers’ produce within the maximum three working days. This can be an advantage for a trader but difficult for farmers’ to accept it when they are in desperate need of money. Unlike Mandi system where the payment had to be made on the same day.

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

The Ordinance empowers contract farming, to engage farmers’ with wholesalers, exporters etc. and consequently assure price before sowing the crop. Agreement to be entered between farmer and buyer, prior to goods being produced or raised. The minimum period of the agreement would be one crop season, or one livestock production cycle. If the production cycle is longer than five years, the utmost duration is five years.

The price determination process must be listed in the agreement. The price for the farm goods ought to be specified in the agreement. For crops whose price varies, it is important to specify a guaranteed price for the product in the agreement and also a reference to any additional amount above the guaranteed price.

A farming agreement shall provide for both a conciliation board and a dispute settlement conciliation process. All the disputes must be primarily referred to the Board for resolution. If the dispute remains unresolved by the Board even after thirty days, the parties can approach the Sub-divisional Magistrate for a resolution. The Parties have the right to appeal against the Magistrate decisions to the Appellate Authority (presided over by the collector or additional collector). The Magistrate and the Appellate Authority would then be required to dispose of the dispute within thirty days of receipt of the appeal. The Magistrate or the Appellate Authority may impose explicit penalties on the party contravening the agreement. Nevertheless, no action against the farmer’s agricultural land for the recovery of any dues can be taken.

Benefits

  • Contract farming provides price assurance beforehand, few companies provide seeds, fertilizers and other requirements too, which will reduce the burden of input costs for farmers’. And thereby farmers’ can avoid taking loans for sowing crops. 
  • Agricultural industry can be a focus for the private investors. Private investments improve the infrastructure of the agricultural sector, which can lead to its modernization.

Loopholes

  • Eventually large corporates’ may dictate terms and farmers’ will end up getting a smaller amount for their crops, the disbanding of the mandi system, will not get an assured price for their crops.
  • Realistically there is a very minimal chance of companies approaching the small scale farmers’ for a Ton’s of produce and spend time in negotiating and dealing with them. The main intention of the bills is to help small scale farmers’ but the bill fall short of it.
  • Companies are potent to have a designated legal teams to draft a one sided contract. And also have financial analysts to pick the best price for them.
  • Scenario of default in contracts may arise which further exploits farmers’ by wandering them to the courts
  • Disputes Redressal Commission bought up by the bill may not be practically feasible. The Sub Divisional Magistrates have tight schedule and several other duties, taking time out to resolve farmers’ disputes may be complicated.

The Essential Commodities (Amendment) Act, 2020

The Central Government, as per the provision of The Essential Commodities Act, 1955 has the authority to categorize materials like food products, fertilizers, and petroleum products as “essential commodities”. The central government can forbid or regulate the production, supply, distribution, exchange, and commerce of such essential commodities.

The Ordinance excludes pulses, oilseeds, onions and few other products from the essential commodities list, and thereby the restrictions on the storage of these items will be withdrawn, the supply can be regulated by the central government only during unusual circumstances like war, famine, extraordinary price rise and natural calamity of grave nature.

The Ordinance requires that imposition of any stock limit on agricultural produce must be based on rise in prices. A stock limit will be enforced only if there is (i) a 100% increase in retail price of horticulture produce and (ii) 50% increase in the retail price of non perishable agricultural food items. The increase will be calculated over the price prevailing immediately preceding the twelve-month duration or on the average retail price of the last five years, whichever is lower.

Benefits

  • Essential commodities bill, 2020 can assist in price stabilization. For instance, if the onion supply is more than the demand, they can store them to prevent the price fall.
  • The cold storage infrastructure and facilities in the country can be improved.
  • Expected to attract private investment in cold storage, warehouses, processing.
  • Improved storage facilities can minimize the wastage of the produce, thereby stabilizing the price and can also raise farmers’ income.

Loopholes

  • Withdrawing the restrictions on storage of food grains may lead to increase in imports at a cheaper price, affecting the small scale domestic farmers.
  • Large corporates’ may store the food grains and control the prices artificially.

Conclusion & Suggestion

The bills were not passed in a democratic manner, the states were not consulted prior passing of bills even though agriculture and trade are state subject matter. The bills have been passed only on a mere voice voting. The main beneficiary of the bills i.e. the farmer, were not provided the opportunity to voice their concerns, and for these reasons there has been created a fear and mistrust in farmers on the government. The withdrawal of system of collecting market fees from mandis’ effects the state revenue, this can be one of the reason why many opposition parties are condemning these bills from the beginning.

The simplest solution against the protest of the farmers with respect to the farm bills can be a statutory backing to the minimum selling prices and procurement in the new bill to eradicate the fear of the farmers. By giving farmers’ the freedom of choice to sell anywhere without the help of middlemen would be of great help only if, there exists a proper transport system along with a road accessing the market easily. And also a well built infrastructure with climate-controlled storage facilities with the reliable electricity supply, and finally a link to food processing companies who could compete to buy their produce.

Unless the prices are regulated by the government, the market will go into the hands of big businesses placing both the farmers and the consumers at the risk of exploitation. There need to be intermediary body to regulate the contracts and explain the agreement to the farmers’. Farmers’ themselves need some time to learn how to read the contracts.

When the Bihar abolished APMCs in 2006, farmers got lower prices for their produce than the MSP. So, agricultural economists suggest that it is important to strengthen the APMCs, instead of transferring the responsibility to private entities.

Moreover, the main thing to do is to ensure the betterment of farmers by strengthening the government market spaces, improve the infrastructure of the APMCs and to eliminate the loopholes in them.

The Supreme Court, on 12 January 2021 has stayed the implementation of three controversial farm laws, calling its order “extraordinary” and a “victory for fair play”. The court has formed a four-member committee of experts “to listen to the grievances of the farmers on the farm laws and the views of the government and make recommendations”.

Author- Vinayak.G.Gowda (PES University)


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