THREE FARM BILLS

Relevance:

  • GS3: Agriculture: Marketing of agricultural produce and issues and related constraints; Issues related to direct and indirect farm subsidies and minimum support prices
  • SOCIOLOGY: Paper II/Social Changes in India/ Rural and Agrarian transformation in India/Contemporary Issues

INTRODUCTION

The three bills passed by the Indian Parliament aiming at introducing reforms in the agricultural sector are:

  • ‘Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill‘, 2020: allows farmers to sell their harvest outside the notified Agricultural Produce Market Committee (APMC) mandis without paying any State taxes or fees;
  • ‘Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill‘, 2020: facilitates contract farming and direct marketing;
  • ‘Essential Commodities (Amendment) Bill‘, 2020: deregulates the production, storage, movement and sale of several major foodstuffs, including cereals, pulses, edible oils and onion, except in the case of extraordinary circumstances

FEATURES OF THE BILLS AND RELATED CONCERNS:

  • Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act
    • The Act aims at opening up agricultural sale and marketing outside the notified Agricultural Produce Market Committee (APMC) mandis for farmers, removes barriers to inter-State trade and provides a framework for electronic trading of agricultural produce. It prohibits State governments from collecting market fee, cess or levy for trade outside the APMC markets.
    • Concerns: End of MSPs?
      • Farmers feel that the Minimum Support Prices (MSP) regime is threatened by this Act. MSPs are the pre-set rates at which the Central government purchases produce from farmers, regardless of market rates, and are declared for 23 crops at the beginning of each sowing season. However, the Centre only purchases paddy, wheat and select pulses in large quantities, and only 6% of farmers actually sell their crops at MSP rates, according to the 2015 Shanta Kumar Committee’s report using National Sample Survey data.
    • None of the 3 laws directly impinges upon the MSP regime. However, most government procurement centres in Punjab, Haryana and a few other States are located within the notified APMC mandis. Farmers fear that encouraging tax-free private trade outside the APMC mandis will make these notified markets unviable, which could lead to a reduction in government procurement itself.
    • Farmers are also demanding that MSPs be made universal, within mandis and outside, so that all buyers — government or private — will have to use these rates as a floor price below which sales cannot be made.
    • Critics view the dismantling of the monopoly of the APMCs as a sign of ending the assured procurement of food grains at minimum support prices (MSP).
  • Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act:
    • This relates to contract farming, providing a framework on trade agreements for the sale and purchase of farm produce. The mutually agreed remunerative price framework envisaged in the legislation is touted as one that would protect and empower farmers.
    • The written farming agreement, entered into prior to the production or rearing of any farm produce, lists the terms and conditions for supply, quality, grade, standards and price of farm produce and services.
    • The price to be paid for the purchase is to be mentioned in the agreement. In case of prices subjected to variations, the agreement must include a guaranteed price to be paid for such produce, and a clear reference – linked to the prevailing prices or any other suitable benchmark prices – for any additional amount over and above the guaranteed price, including bonus or premium. The method of determining such price, including guaranteed price and additional amount, will be provided in the agreement as annexures.
    • Concerns: No mechanism for price fixation:
      • The Act, while offering protection to farmers against price exploitation, does not prescribe the mechanism for price fixation. There is apprehension that the free hand given to private corporate houses could lead to farmer exploitation.
      • Contract farming is not a new concept to the country’s farmers – informal contracts for food grains, formal contracts in sugarcane and poultry sectors are common. Critics are apprehensive about formal contractual obligations owing to the unorganised nature of the farm sector and lack of resources for a legal battle with private corporate entities.
    • Essential Commodities (Amendment) Act
      • The Act removes cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. The amendment deregulates the production, storage, movement and distribution of these food commodities. The central government is allowed regulation of supply during war, famine, extraordinary price rise and natural calamity, while providing exemptions for exporters and processors at such times as well.
      • The Act requires that imposition of any stock limit on agricultural produce must be based on price rise. A stock limit may be imposed only if there is a 100% increase in retail price of horticultural produce; and a 50% increase in the retail price of non-perishable agricultural food items, according to PRS.
      • Concerns: Food security undermined?
        • Farmers fear that the easing of regulation of food items would lead to exporters, processors and traders hoarding farm produce during the harvest season, when prices are generally lower, and releasing it later when prices increase.
        • This could undermine food security since the States would have no information about the availability of stocks within the State.
      • Concerns regarding Cooperative federalism:
        • Since agriculture and markets are State subjects – entry 14 and 28 respectively in List II – the Acts are being seen as a direct encroachment upon the functions of the States and against the spirit of cooperative federalism enshrined in the Constitution.

WAY FORWARD:

For the reforms to really change the lives of farmers for better, following key dimensions need to be considered seriously:

  • Universal basic income through direct benefit transfer mode:
    • The free-market may increase the market-risk for farmer families in the short-termFarmers need cash in their hands for consumption. As most of them currently lose money from farming, a reliable source of income can give them more choices for e.g non-farm activities like animal husbandry, agri-processing and other related activities based on their access to resources and alternatives.
    • Therefore, the government should double DBT from the current level of ₹70,000 crore. This can ensure that farmers become more resilient to withstand the demand-supply shocks.
  • E-Nam to become a ‘Unified Payment Interface’ equivalent for agri markets: The creation of UPI, and gradual advancement of The Indian payments ecosystem led all the Banks and innovators like Google Pay, PhonePe and others to inter-operate and made digital payments a reality even for street hawkers and panipuri sellers. National Agricultural Market, e NAM should take learnings from UPI success and provide a seamless application programming interface (API) for innovators, like agri start-ups and businesses. Such innovators will in turn build solutions that reach the farmers and bridge the information gap. The right approach can help markets leapfrog. A special task force can be set up under the leadership of technology policy experts for this purpose.
  • Feedback loop: Important tough questions should be asked periodically like – Is the objective of benefit to the farmers being achieved? Do the benefits outweigh the costs? Etc. to ensure that the reforms feed into a constructive feedback loop that actually benefits farmers.
  • Policy predictability: As the reforms aim to reduce the scope for government intervention, it is important to have predictability and consistency in this philosophy. Public choice theory steers us away from the optimism about the government. It shows us that the root cause to many problems is the poor government capacity. It often craves for arbitrary power. Government’s interference in onion pricing is an example of that. If the government exercises arbitrary power in a coercive manner, the private sector will speak with their money by reducing the investments. It indeed breaks the trust, which is a catalyst for reforms.
  • Farmer forum for dispute resolution: Contract farming will be a transaction between a weak party called a farmer and a strong party called the corporation. Farmers should not be coerced to sell to anyone. If one of the parties doesn’t honour the terms, the other party requires a resolution mechanism. Farmers need a ‘consumer forum’ equivalent at a district or block level. Without this, all the good intentions of the market-based model can go waste.

 

CONCLUSION:

Despite all the growth and advancement in the past thirty years, India still has about 84 million poor, the majority being rural poor. If we combine the power of markets and technology, we have a unique opportunity to change the lives of India’s poor for the better. The reforms may not be the perfect solution, but they are better than the status quo. The Bill is a starting point. With focussed attention on the five dimensions laid out above, the government can sow the seeds of prosperity for the smallholder farmers of Bharat.

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