It’s business as usual after the farm reforms9 min read . Updated: 02 Oct 2020, 05:34 AM IST
- With many states on the warpath, corporations will shy away from investing in private mandis and value chains
- The extent of opposition from farmer unions will also determine the roll-out. October could be a trying month for the govt if market prices collapse on the back of record food production
NEW DELHI : Words like ‘choice’ and ‘freedom’ are alien to Santosh Kumar. As a young farmer from Araria in Bihar, Kumar has always seen petty traders pick up the harvest from the farm-gate. Prices of maize, wheat and rice are usually fixed by a few local middlemen. So, when the federal government enacted a new set of laws to free farmers from the shackles of regulated markets and unscrupulous traders, Kumar could not help but reflect what this freedom meant for him.
Bihar abolished the much-maligned Agriculture Produce Market Committee or APMC Act way back in 2006 when he was barely 14 years old. But that did not translate into private buyers lining up to purchase the produce.
For instance, in about two weeks from now, farmers in Kumar’s village will be harvesting their paddy. And the middlemen have arrived—farmers who need money urgently are pledging the crop for ₹1,100 per quintal. The ‘free market’ is offering Kumar ₹768 less per quintal compared to the minimum support price (MSP) announced by the central government ( ₹1868 per quintal).
Fact is, the market price does not even cover the costs of growing paddy— ₹1,245 per quintal—as calculated by the commission for agricultural costs and prices.
Small farmers like Kumar are price-takers in this ‘free market’ with little or no bargaining power. “Most of the farmers here do not even know what support prices are. They have no idea that a farmer in Punjab is selling the same paddy at 70% higher prices," Kumar said.
“I can understand why farmers in Punjab and Haryana are out on the streets protesting... in one season I have lost more than ₹1.6 lakh in just one harvest of maize (sold at a 60% discount to MSP). Freedom has actually meant a free fall for us... and every year, we keep selling our land bit by bit to cover expenses of a marriage or repay debts."
On Sunday, the President signed off on three farm reform bills that were passed by the Parliament earlier in a chaotic sitting. As of now, it remains unclear how these structural reforms—which Prime Minister Narendra Modi described as a ‘watershed’ moment—will play out on the ground. Will competitive markets lead to better prices? Will the roll-out be smooth if states are not on board? How long will it take food companies to invest in private markets and value chains? And, can farmer protests put a spanner on the reforms path?
Last Friday, farmers across states came out on the streets protesting the laws. They fear that by leaving them to market forces and large corporate buyers, the government will gradually withdraw from procurement at support prices. Understandably, the protests were loudest in Punjab and Haryana, where most farmers depend on the government to sell their grains at support prices.
Farmers also fear that a dual regime—4-8% taxes and fees inside regulated markets and zero taxes outside—will prompt traders to move outside APMCs. As the Bihar experience shows, free markets, without regulatory oversight and monitoring might worsen their suffering.
It’s unfortunate that the debate has turned political and opinions are sharply polarised, said T Nanda Kumar, former agriculture secretary to the federal government. “The problem is compounded by the trust deficit faced by farmers. To get private players to participate in trade and meet farmers’ expectations will be a challenge. Do organised players have the resources to mop up the large marketable surplus produced by farmers? Or is it more likely that the small trader will run the show (outside mandis) leading to a Bihar-like situation?"
The most contentious among the three laws is the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, which seeks to create a barrier-free trade regime where farmers are free to sell their produce to any buyer minus any taxes and fees. Currently, a chunk of the trade is routed through regulated mandis or APMCs where licensed trader cartels often collude to keep prices low.
The government hopes by opening up trade to competition, farmers will have a greater choice of buyers and receive better prices. The other law allows farmers to enter into contracts with businesses at assured prices; the third one, an amendment to the decades old Essential Commodities Act removed the power of the government to impose arbitrary stock limits on grains and pulses. The government expects this to spur investment in storage, transport and value addition.
The fact that the laws were brought in as ordinances in the middle of a pandemic with little or no consultation with state governments will likely delay their implementation. It will also rekindle the debate on cooperative federalism and the centre usurping regulatory powers of the state governments.
Also, corporates may shy away from investing in infrastructure facilities like private mandis and value chains if states are on the warpath. Since critical elements like trade related dispute resolution (to be decided by local magistrates) are in the states’ domain under the new law, the roll out will be anything but smooth if states are not on board.
On Monday, after months of dogged opposition to the new bills, the Punjab Chief Minister Amarinder Singh sat on a protest demonstration even as a tractor was burnt in the national capital by Congress party workers. Meanwhile the state is considering options on how to block the reforms.
One, it is mulling the feasibility of bringing the entire state under the purview of the APMC Act, since the new law is only applicable outside the geographical boundary of a state-regulated market yard. The other option is to challenge the constitutional validity of the laws as agriculture and agriculture marketing are the exclusive domain of state legislatures, according to the constitution.
States like Chhattisgarh and Kerala are considering these options and as farmer protests gain ground more opposition-ruled states like West Bengal and Telangana might follow. As of now, Rajasthan, ruled by the opposition Congress party has notified all registered warehouses, including those operated by the Food Corporation of India, under the state APMC Act. On Wednesday, the Maharashtra government withdrew an earlier order to implement the laws in the state.
To cool down tempers of Punjab and Haryana farmers who fear the new laws are designed to hit MSP-based procurement in the long run, the centre has begun procuring kharif crops (mostly paddy) from farmers, a week ahead of schedule.
But interestingly, it chose not to shake up the existing system. So the Food Corporation of India is procuring grains in Punjab after paying 8.5% in taxes and mandi fees using the services of commission agents who the centre blamed were misguiding farmers. It’s ironic: the government is urging private players to purchase directly from farmers but carrying out its own procurement from inside mandis.
For now, the battle lines are sharply drawn. On Tuesday, Prime Minister Narendra Modi launched another scathing attack on opposition parties, a day after Congress leader Sonia Gandhi urged states ruled by her party to block the reforms. “They want middlemen to prosper... so they are spreading confusion. They are unable to tolerate the freedom we gave farmers," Modi said.
The reforms have been lauded by companies with a stake in the agriculture economy. The freedom to purchase and trade without any restrictions will benefit the likes of ITC Limited, Cargill India, Adani Wilmar and Reliance Retail, among others, who are likely to invest in the long run.
According to Simon George, president of Cargill India, the reforms will go a long way in creating modern value chains and integrating farmers with global markets. “By focusing on MSP, we have blinded ourselves to opportunities elsewhere. As a company we are awaiting the fine print and evaluating the overall climate and how states embrace these reforms. The process may take between 24-36 months to show results on ground."
“For years, private traders have been blamed for hoarding and manipulating prices but now farmers are asked to trust them," said the former head of a large food company who did not want to be named. He added that businesses will have to invest to build back trust and it will take for the reforms to work.
For now, businesses will keenly watch the volume of trade which shifts out of regulated markets to take advantage of the tax-free regime.
“We are expecting at least 20% of mandi arrivals to shift outside during the kharif harvest season (beginning October). Competition will ensure that farmers will not lose out since large food processors can offer them a better price by cutting down on intermediaries," said Amith Agarwal, CEO of Star AgriBazaar which runs an online platform for trading of farm produce. Agarwal is expecting trade volumes on the electronic platform to grow five-fold in the current financial year to ₹20,000 crore.
However, the optimism may take time to result in fresh investments in post-harvest infrastructure. With several states on a warpath on the reform bills, businesses will wait and watch. More so, since consumer demand is depressed due to the ongoing pandemic and income-hit households are unlikely to shift to packaged groceries. The limited share of processed food (only about 7% food items are processed) in the consumption basket and the minuscule size of organised retail in India also puts a limit to the volumes food companies can procure from farmers.
“Businesses will wait before the government frames rules and definitions. Setting up even a small private market yard needs significant investment and no one will jump in immediately," said a consultant working in the food processing sector on condition of anonymity.
The extent to which farmer unions oppose the bills will also determine its roll out. It was largely due to the farmer protests that the ruling Bharatiya Janata Party lost its oldest ally, the Shiromani Akali Dal from Punjab. In Haryana, farmer organisations have urged BJP’s junior partner and Jannayak Janata Party leader Dushyant Chautala to oppose the bills and resign from the post of deputy chief minister of the state.
Beyond the political ramifications, price movements in the ongoing Kharif (monsoon) harvest season will be a key factor. Internally, farmer organisations are planning to put the government on the mat on the issue of honouring support prices—especially since the Prime Minister has promised farmers that the new trade regime will not weaken the state procurement system.
October could be a trying month for the government if market prices collapse on the back of record food production, estimated at 145 million tonnes.
Going by initial price trends, several crops like maize, paddy, cotton, soybean, and bajra are selling at a significant discount to MSP. Other than paddy (the main Kharif harvest), the centre has so far allowed states to undertake MSP-based purchase of 1.4 million tonnes of pulses, about 15% of the estimated production. The procurement volumes are likely to be revised upwards.
On Tuesday, the All India Kisan Sangharsh Coordination Committee (AIKSCC), a coalition of over 250 farmer unions across the country, announced another round of agitation beginning 2 October with a call to march to the nation capital in end November. “Farmers will take a pledge to socially boycott political parties which have not opposed these reforms and we will urge state assemblies to adopt resolutions to not implement these laws," said Avik Saha, general secretary of AIKSCC.
For now, Punjab farmers have upped the ante. They have decided to block railway tracks indefinitely, pass resolutions in village councils against the bills, and protest outside retail outlets and warehouses run by large businesses. The course of the new laws, however, will be determined by the spill-over effect of these protests in other states.