Setho ka Gaon

As our country gets deeper and deeper into the consequences of the grave mismanagement of the pandemic by our national leadership, the government faces another round of backlash on a policy that directly affects those who practice the country's largest employing occupation and form the backbone of the economy--agriculture.

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The worst effects of the protests have been seen in the states of Haryana & Punjab (states which collect significant tax revenue from the APMCs) manifested in the form of strikes, road blockages, and rallies. These laws are seen as a move that would lead to the 'corporatization' of agriculture and are a threat to the entire network of agriculture, farmers-market, and revenue distribution models at a national level. It is expected to begin the transition of a monopsony-driven agricultural system to a free-market agrarian economy. In this piece, we briefly look over what do the three bills entail, how the farmers and the masses have perceived them, and to whom exactly are these a boon and a bane.

The Argument against - The ones whom the Bills Hurt

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Who is hurt the most, and Why?

These bills have seen the most outrage from farmers in Punjab & Haryana mainly because these two states combined account for more than half of all the agri-produce procurement by the government. More than three-fourths of the produce from these states are purchased as minimum-support-prices; hence, farmers in these states argue that without MSP regulations, market prices will fall instead of rising.

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The state governments have sided with the farmers' protests in these states because of their high investments in developing the APMC & Mandi networks and in connecting roads between rural-villages and markets. Mandi tax at 6% contributes to a large chunk of the state annual revenue with a contribution of ₹3,500 crores.

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How will farmers' MSP be impacted?

Much like the states mentioned above, MSP has been a central issue of all protests. However, an important point drowned amidst all the public & political action & emotion is the fact that the centre only engages in the purchase of wheat, paddy, and a few pulses based on MSP.

 

What's even more striking is that nationally only 6%

of all the country's farmers sell their produce at MSP rates.

 

Under the newly proposed bills, the MSP regime remains untouched. A notable contention from the farmer's end has been regarding the lack of any legislation on the enforcement of MSP at a universal level - demanding that MSP be applicable to both government and private players and there should be a legally enforceable 'floor price', below which purchases by any party cannot be made from the farmers.

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On a different avenue, these laws can affect the government procurement procedure--state procurements are made at key allotted APMC mandis, and a prevailing fear is that the promotion of tax-free private means of purchase could very well render public procurement at the APMC mandis unviable. This could disrupt a reliable source of market demand for the farmers and also hurt government welfare schemes (PDS), contingent on such procurement and supply.

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A Biased Playing Field

Looking at this issue from a Laissez-faire perspective, we see that there are about 7000 APMC mandis operational in the country. Most private players operating in this sector in the form of small-scale traders operate within the bounds of APMCs. However, with the deregulation of markets in the form of deregulation and unrestricted purchase sizes, we can expect the entry of larger corporate players into the segment. This can very well skew the entire playing field in their favor and make the market biased against the farmers by pulling leverage away from them. The contention here, then becomes one of the isolated bargaining powers and abilities of individual farmers, against organized and often exploitative bargaining powers by MNCs. The similar experience of farmers in countries such as Brazil and the US stands as a grim reminder of how poorly informed farmers can fall prey to the predatory pricing tactics of MNCs, in the absence of any state regulation.

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Whom does the Bill benefit?

A Sectoral Productivity Boost

The government expects the bills to transform the agriculture sector and pull it out of its low-productivity-low-investment trap. These bills are in line with the centre’s ambitious plan to double the farmers' income by 2022. The introduction of free-market economics to the procurement of agricultural produce will introduce efficiency, weed-out intermediaries, and bring domestic prices in-line with prevailing international prices, at least to some extent.

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These expected improvements mean that the farmer gets a

higher share of what the consumer pays for the produce.

 

The bills also encourage intra-state trade and allow the farmers to sell to the best-bidder, rather than just selling to the only bidder, i.e., the government in the earlier system. Further, the Bill formulates a framework on the agreements that enable farmers to engage with agri-business companies, retailers, exporters for service, and sale of products while giving the farmer access to modern technology. The implementation of the bills will see items such as cereals and pulses being removed from the list of essential commodities and therefore, attract FDI into the sector.

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Agri-tech Start-ups & Economic Benefits

The most revolutionary impact of the bills would be on the small and marginal farmers with less than five hectares of land. They will clear up the regulatory bottlenecks surrounding agricultural produce and enable the price-discovery mechanism for small and marginal farmers. A major beneficiary here would be the agri-tech start-ups, who specialize in digitalization, data-led crop advisory services, intermediary elimination, and improved marketing and market linkages. The contract farming norms in the new bills are expected to benefit such agri-tech businesses, who can bridge the gap between the unorganized farmers and the MNCs.

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Not only would these start-ups help in eliminating intermediaries, but crop-processing capabilities, cold-storages, and consumer choices are all set to improve. A slew of new start-ups is also expected to come up to capture this new market, i.e., that of non-APMC-cantered agricultural trade. Thus, if all goes well, through the significant improvement in procurement infrastructure, product marketing, price-discovery, and production efficiency, the small and marginal farmers are expected to gain the most, with the agri-tech start-ups leading the waves of change.

 

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Conclusion

The impact that the new laws will have on the Indian farmer will all depend upon how the free-market experience turns out. Even though the intention behind the laws is to be praised, serious concerns remain with respect to its public acceptability as well as viability in the face of established and well-accepted systems. However, if the experience of other countries is something to go by, and the added peculiarities of the Indian agricultural system coupled with the notoriously corrupt implementation of laws in India, the new farmer bills can have an effect opposite to that originally intended. The farmers, in the absence of any substantive bargaining power, will quickly fall prey to predatory pricing by the MNCs, and in the absence of APMCs (if they are rendered unviable by the private sector), will be forced to sell at abysmally low prices.

Therefore, it is not just the federal structure of the country or the tax revenue of individual states that is put at stake by these laws, but also the future and livelihood of the nation's most important, yet most abused profession: agriculture.