Agriculture --- This stalwart field has definitely seen lot of institutional and technological reforms. We have always wished for some real situation changing breakthroughs basically to strengthen our dear farmers in the field of agriculture. India with it's growing population is also trying to maintain it's global stardom by taking up impactful decisions quite often. The agriculture market reforms in India has been historically vexatious in nature. One such recent issue is the Farm bills of September 20,2020. I, in this blog tries to elucidate the three farm bills of 2020.
After Independence, farmers were directly selling their produce to consumers.But on imposing Zamindari system etc, farmers were brutally exploited and fell in debt.
Hence, the money lenders were ready to give loans at higher interests.Eventually when farmers failed to pay high interest rates, money lenders forced farmers to sell their produce at lower prices. Therefore, for the cultivation of next crop, again money and resources became constraints and farmers fell into the trap of debt all over again! This gradually became a cycle repeated over several years.
What was the necessity to bring new farm bills?
Every state has certain number of Mandis under the control of State government through APMCs( Agriculture Market Produce Committee). But how is the produce sold??
Auctioning of Agricultural produce is sold in 2 ways:
1. MSP: It is the Minimum Support Price decided by the Government of India. To put it simple, it is the initial price or standard reference price above which any produce has to be sold. Below this price, no Agricultural produce will be sold. In India, MSP has been set for only 22 important crops which includes Paddy, Bajra, Maize, Sesamum, Cotton, Wheat etc.
2. Price discovery: This is fixed for the remaining crops other than those 22 for which MSP already exists.It is used for determining the price of an asset or produce by negotiation between the buyer and seller.
Loop holes of Supply chain
Farmers ------> APMC--------> Commission agents------> Traders---------> Transaction agent-------->Farmers
The transaction agents in turn go to Farmers to procure their commission amount leaving them with little or no profit at all. By the end of this supply chain, the farmers witness a price difference of at least 50% and sadly 25% of the produce would be already wasted.
Flaws in the existing APMC System
1. Who can become a trader?
It is an obvious guess that since APMCs are the puppetries of state government, traders are usually those people having more influence of a political party.Hence, whatever the price is fixed by them would be finalised and the helpless farmers cannot voice out under their own risks.
2. Too many middlemen!
After passing from various vendors, finally the consumers purchase at a very high inflated price and farmers are bound to sell their produce at lowest prices possible!
Hence, to put a temporary full stop to all these problems, in 1963 APMC Act was passed in Gujarat and Maharashtra.
To save the farmers from being exploited by middlemen, moneylenders, market fluctuations etc But eventually the APMCs themselves became reason of exploitation.
In most of the situations, traders form a cartwheel or a group among themselves. They purchase the essentials from farmers at a specific Mandi where the don't purchase the produce above a specific MSP. But our farmers grow mostly perishable crops which deteriorate slowly. So, to some how earn a bread, farmers are bound to sell their produce at whatever low price fixed by the influential traders.Thereby APMC act itself became a source of Monopoly and exploitation of farmers.
Then the government interfered into the supply chain backed up by some laws in 2020.
1. THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES BILL 2020
This bill has something more to deal with the farmers' interests through a legal agreement.For example: If a business owner demands 1 tonne of Rice and fixes a price after negotiating with the farmer. But eventually, due to the poor quality of Rice,the business owner refuses to purchase 50% of the produce and also reduces the price. Here, things are going against the interests of the farmers. Hence, to prevent this form of exploitation, the bill provides "dispute settlement mechanism" between farmer and the buyer by an established authority in the form of a written legal paperwork.
The second half of the bill states Price assurance and Farm services.It sounds that the buyer can specifically interfere for a particular quality of Produce, when to deliver the produce etc...which is actually called Contract farming. It involves agriculture production under the agreement between farmer and buyer.
Advantages (Government's view)
✓The bill's primary purpose is Contract farming where the farmers have full powers to decide the price of their produce and they will receive their payment within 3days.
✓ This bill provides a nation wide legal framework wherein the farmers produce the yield based on the contracts with corporate companies or business owners for mutually agreed renumeration.
✓ Government says it will transform India's agriculture system and attract more private investors. In case of any dispute, no need of approaching the court, there will be a local dispute redressal system.
Disadvantages ( Farmers' views)
✓ Farmers fear that a powerful corporate investors would legally dominate farmers and put liability clauses on them. Therefore Private companies can easily exploit farmers over the price issues which is quite genuine.
✓ How will the small and marginal farmers do contract farming? The sponsorers will not finance them.
✓ During price fixation and disputes it is obvious that private companies will have their bigger say! Hence, it makes no difference as earliest. The farmers' interests are as usual exploited by corporate giants.
2. THE FARMERS' PRODUCE TRADE AND COMMERCE ( PROMOTION AND FACILITATION ) BILL ,2020
This bill talks about trading of farm goods outside the Mand or APMC yards.The farmers get the free Option of selling their produce within and outside their state as well. It would enable barrier-free inter state and intra state trading outside the physical bounderies of the state. The farmers will not have to pay any cess or levy for sale of their produce and they need not pay any transportation costs. This bill is an advantage to large farmers because they will have more choices and trade with private companies. But it hardly makes any differences to small farmers.
Advantages (Government's view)
✓Farmers will be able to do direct marketing thereby eliminating all the intermediaries which helps in getting honest prices.
✓ Mandis will be open as like before.But the farmers have an option of selling their produce outside too. The e-NAM trading method will be functional in the Mandis.
✓ The auctioning processes in mandis will be digitalized thereby increasing the transparency and also saving time.
Disadvantages ( Farmers'views)
✓ Agriculture comes under the "State list" of all subjects in India. Many agriculture dependent states like Punjab and Haryana would lose a big share of revenue.
✓ • Small & marginal farmers --> sell directly to consumers --> outside mandis, APMCs---> No MSP.Therefore, government shall not intervene.
• Large farmers --> sell within the mandis & APMCs specifically to those traders who have a license.Because the large farmers want their MSP to be protected by the state government.
✓ Here comes the major disadvantage.It is a way for the government to get out of the Agri-business.Once the farmers enter the actual market, they sell their produce to anyone outside Mandi. But what if the market demand is low? Due to lower demand, prices fall but the cost of cultivation would have been higher. Now the farmer will be squeezed between "Raising cost of cultivation" and "Low prices due to low demand."
So, now in this situation the farmers fear that government will not come to their rescue as it will not support with subsidies or procurement. Hence, there is a trade - off between government and farmers.
3. THE ESSENTIAL COMMODITIES ( AMENDMENT) BILL, 2020
In this bill, an artificial demand is created and the government regulates production, supply,
distribution, trade and commerce of essential commodities such as food including cereals, pulses, onions, potatoes, edible oilseeds and oils only under extraordinary circumstances. This includes
• Extraordinary price rise ( wherein the stock limits could be modified on 100% rise for perishable goods and 50% rise for non-perishable agriculture food items)
• Severe natural Calamities.
To put it simple, let me explain with illustrations.
Eg: Shortage of Onions.
There are traders and wholesalers who have kept huge stock of Onions to create artificial demand in the public. Naturally, the demand for onions increases, price hikes and selling price also increases.
Now, the government intervenes and brings the onions under the Essential Commodities Act to make sure that onions are available to people at right price. Recently, in March 2020 Masks and sanitizers were brought under the act to provide good quality products to the public at fair prices. Again from July, government had removed masks and hand sanitizers from the essential goods act.
Advantages ( Government's views)
✓ This bill can help in stabilization of prices.For example, if the supply of a commodity is more than the demand, then they can store them to prevent the price fall.This enhances the cold storage and other facilities in our country.
Disadvantages ( Farmers' views)
✓ As per the government's assurance, the regulation of market prices is under them. But it is safe unless it's in the responsible wings of govt. otherwise on moving to the hands of big businessman, it puts both farmers and consumers at risk.
✓When the restrictions that are imposed on some of the products are removed, imports can increase. Hence, protecting our indigenous farmers from imports would be a challenge because they had to cope up with the competition.
On a honest note, the Union government had to take the opinions before passing such important, impactful bills.The way the bills were passed created a mistrust, agitation and protests among the farming community and the results are visible in the form of strikes all
along the borders of the capital. Most importantly, to modernize the agriculture sector has been the dream project of many leaders. Therefore, strengthening the government market spaces - APMCs and to eliminate the apertures of this system is the need of the hour.