Note: This article was originally published on September 18, 2020, and was republished on September 25, 2020, in light of the nationwide strike called against the farm Bills. It was also updated to include the passage of the Bills in the Rajya Sabha.
On September 18, Prime Minister Narendra Modi appealed to farmers across the country to ‘beware’ and not get swayed by ‘misinformation’ that they will not get fair prices for their crops.
Over the last few weeks, farmers – largely in the states of Haryana and Punjab – have been protesting three agriculture ordinances which were introduced in May this year and passed by the Lok Sabha on September 15 amidst opposition by several political parties, including Bhartiya Janata Party ally Shiromani Akali Dal (SAD). The Bills were also approved by the Rajya Sabha amidst protests from opposition parties on September 20 and 22.
The issue grabbed front page real estate when SAD leader Harsimrat Kaur Badal in a surprise move quit as Union minister for food processing industries describing the three agriculture Bills as ‘anti farmer’.
So, why has the issue of the three agriculture legislations become so contentious?
The three pieces of legislation are aimed at:
1) Amending the Essential Commodities Act to deregulate prices and quantity sold of certain commodities deemed essential,
2) Allowing and facilitating contract farming
3) Allowing private markets to be set up outside the physical boundaries of the ‘Agriculture Produce Market Committees’ (APMC) mandis.
Effectively, it is the third point that has irked farmers the most. The fear is that once the prevailing hegemony of the APMC collapses, private operators/traders/commission agents will dictate price (It is true that for most agricultural commodities in most states this is already the case, but we will come back to that).
Farmers and farmer leaders fear that once private markets are set up outside the APMCs, the APMC will have few buyers. This is because a key feature of the new legislation is that in the ‘trade areas’ – the new markets – no market fee, cess or levy shall be charged to the farmer or the trader. Under the old system, these charges could add up to a significant proportion of the transactions – as high as 8.5% in Punjab.
So, the new legislation tilts the balance in favour of the private markets set up by traders. “It is not a level playing field,” says social scientist and politician Yogendra Yadav, who has also been a leader of farmer movements in the last few years.
“No one will go to the APMC if there are no taxes outside APMC. The traders will find it cheaper to buy outside. They might even pay farmers a proportion of their gains to lure them outside the APMCs and in two three years’ time the APMC structure will collapse.”
So, one of the fears, as articulated by Yadav, is that the new legislation paves the way for dismantling the APMC structure. “Yes, the apprehension is that this effort of the government is not to improve APMCs but to dismantle them,” Yadav said.
Once that happens, the fear is that the ‘open markets’ will operate as oligopolies where a bunch of traders come together to set a price no trader goes above.
The argument in favour of allowing private markets to flourish is that this will eventually benefit the farmers as it will mean that ‘free trade’ will take place and the market will move closer to the utopian perfect competition thus ensuring that the farmer gets a just price for her crop.
“These Bills will increase competition and promote private investment which will help in the development of farm infrastructure and generate employment,” agriculture minister Narendra Tomar said recently.
That argument seems quite tenuous if one looks at how the only state, Bihar, which has repealed the APMC act has performed. The state revoked the APMC act in 2006 citing the above made argument.
It has led to the virtual dismantling of the APMC structure in the state, with close to zero government procurement of crops that fall under the minimum support price regime (MSP).
One of the methods by which the APMC, in theory, leads to better price for farmers is through a transparent auction mechanism where a bunch of traders bid on the farmer’s produce and the highest bidder buys the produce.
This system does not exist in the private mandis that have come up in Bihar often leading to low prices for farmers and extreme volatility between seasons. For instance, the price of maize in Bihar dropped from around Rs 2,200 a quintal last year to around 1,300 per quintal this year.
As agriculture and food policy expert Devinder Sharma has noted, evidence suggests that the Bihar experiment has not worked in favour of farmers. “The idea was to attract private sector investments in marketing infrastructure where efficient markets were expected to provide for better price discovery. Unfortunately, nothing like that happened,” he wrote in The Hindu Business Line earlier this year.
Another fear that farmer and farmer leaders have is that the new legislation will pave the way for reduction in the quantum of purchase under the MSP regime.
The concern is that even though the new legislation does not directly or indirectly suggest any changes to the MSP regime, it is just a precursor for things to come and that the government’s intention is to slowly but surely dismantle or drastically curtain procurement operations under the MSP regime.
According to Yadav, this worry stems from the way the Narendra Modi led BJP government has acted since 2014.
“Look at the steps this government has taken – preventing states from providing bonus above MSP, then the Shanta Kumar committee report (which said that food subsidy Bill should be reduced and government procurement rationalised), the government saying that procurement of these quantities of wheat and rice is unsustainable. All of these are steps taken to move away from the MSP regime,” he said.
For now the Centre has assured farmers that the MSP regime is here to stay. “MSP will stay, I want to assure all of you,” agriculture minister Narendra Tomar said.
Another question that has been asked is that why the protests are largely confined to the states of Haryana and Punjab.
According to BJP ally Badal, who quit as union minister over the issue, this is not true. “Farmers are agitating not only in Punjab but also in Haryana, Rajasthan, UP, Maharashtra. There is opposition in south India,” she said.
Yadav also contends that there are protests in other states. “There are protests in other states too. For example, there are huge protests happening in Karnataka. There are protests in Madhya Pradesh too,” he said.
But, he does concede that the extent and kind of mobilisation seen in Punjab and Haryana has not been seen elsewhere. “Yes, in a sense, Punjab and Haryana are leading this movement but there is no doubt that this will now spread across the country.”
One reason why the protests are particularly vociferous in Punjab and Haryana is because of the organised nature of farmer unions and organisations in these two states which have significant mobilising powers and ground presence.
Another crucial factor is that state procurement at MSP is particularly strong in these two states. Between 85% and 90% of wheat and paddy that is sold in the markets in Punjab and Haryana is procured by government agencies.
This procurement also forms a major chunk of overall procurement in the country. For instance, in the rabi season this year, 51% of the wheat procured by government agencies was procured from Punjab and Haryana.
What is the way out?
Farmer organisations are saying that the way out is easy. “Just add a clause to the Bill that MSP will be made a legal right,” said Yadav.
This has been a long-standing demand which has even been suggested by the government’s own Commission for Agricultural Costs and Prices (CACP) as far back as 2018. The commission had said that most farmers are unable to sell at MSP and have to settle for prices which are well below the MSP and hence legislation should be put in place to ensure that farmers are not forced to sell below MSP.
In 2018, this Bill was even introduced in parliament as a private member Bill by then MP Raju Shetti. However, it did not come up for discussion.
So far the government has not responded to this demand of farmer organisations.