In 2006, Bihar abolished state-run mandis. What followed is a forewarning for India’s new farm laws
The system is rigged in favour of the traders who cheat on every possible parameter—from weight to moisture level—which is why very few farmers come to Bihar’s mandis to sell produce
Biren Bahardar thinks he is too small to raise his voice. Local traders can fleece at will while purchasing his harvest. The ration shop owner can deduct a few kilos of subsidised grains from his family’s quota every month. But Bahardar does not complain—he is well adjusted to being squeezed from all sides.
A frail man in his early sixties, Bahardar farms on less than an acre of land in Turkeli, a village in Araria district of northern Bihar. He grows two crops in a year: paddy during the monsoon for home consumption which is often washed away by floods, and maize in winter—the main source of cash for the marginal farmer.
Last year, Bahardar sold his maize harvest to a byapari, a local trader, for ₹800 a quintal. That’s less than half the fair price announced by the government and lower than what it costs to grow a quintal. How did he know ₹800 was the market price? “Because that is what the byapari offered," Bahardar said. No questions asked.
In Bihar, which abolished state regulated mandis (wholesale markets) back in 2006, that is how the system works. Farmers cannot bargain. The produce is neither graded nor auctioned as is the practice in well-functioning markets in other states. Farmers in Bihar also have no reliable information on market prices; elsewhere, regulated markets which record daily auction data provide a benchmark price.
Farmers like Bahardar are scared to step inside private mandis where brokers and big traders run the show. The local byapari pays him less, but at least the fellow can be trusted to pay on time.
Bahardar’s lived experience of being a farmer in Bihar is markedly different from those in Punjab and Haryana, which boast of well-established market infrastructure coupled with robust state purchase at support prices.
Last September, Parliament enacted a set of new laws to liberalize trade in farm produce and allow traders and farmers to transact outside state regulated markets—also known as agricultural produce market committees or APMCs—without paying any taxes. The Narendra Modi government reasoned that the “freedom to trade"—coupled with provisions for contract farming and relaxations that allow businesses to stock produce without any limits—will pave the way for more investments in post-harvest infrastructure facilities like storage and processing, apart from improving farm incomes.
Road to serfdom?
Relatively prosperous farmers from Punjab and Haryana have fiercely opposed the laws, saying it will weaken existing APMC markets and lead to a gradual withdrawal of assured government purchases at a fair price. For over three months now, thousands of farmers have been camping at Delhi’s doorstep asking for the laws to be repealed. The protesting farmers have argued that the new regime will pauperize them like it did to farmers in Bihar, which, post deregulation, neither invested in creating well-equipped, state-run markets to serve as an alternative nor offered farmers the security of support prices.
“If the new laws are so good, why do small farmers from Bihar come to Punjab to work as farm labourers?" is a statement which is often heard at Singhu and Tikri, where farmers from Punjab and Haryana are camping. This argument is not without merit.
For instance, in mid-February, farmers in Bihar sold their maize crop between ₹1,000 and ₹1,200 per quintal, while in Karnataka, regulated APMC mandi prices hovered around ₹1,400 per quintal. Due to the lack of regulatory oversight in agricultural trade, farmers in Bihar seldom receive even the market price. In fact, farmers often say that the price they receive is dependent on the bol bala (might) and manmani (whim) of traders.
“Despite the abolition of the APMC Act in 2006, private investment in the creation of new markets and the strengthening of facilities in existing ones did not take place in Bihar, leading to low market density," observed a 2019 report by the National Council for Applied Economic Research (NCAER).
The study concluded that “participation of government agencies in procurement and the scale of procurement of grains continue to be low... farmers are left to the mercy of traders who unscrupulously fix lower prices."
The vagaries of an imperfect market are often accentuated by the absence of state support. For instance, farmers in Bihar are nowhere close to the privilege enjoyed by those in Punjab, Haryana or Madhya Pradesh who sell food grains to government agencies at minimum support prices (MSPs). Over the past few months, Bihar farmers were selling paddy for ₹1,200 per quintal, while those in Haryana and Punjab sold it to the government for ₹1,868 per quintal.
State of disrepair
About 70km from Bahardar’s farm is the sprawling Gulabbagh mandi in Purnea, among the largest trading centres of maize in Asia. The scenes at this erstwhile government-operated mandi are markedly different these days. Unlike regulated APMC mandis in other states, when farmers come to Gulabbagh to sell their harvest, the produce is not sorted, graded and auctioned. Instead, brokers use a sharp and long steel instrument called bamna to pierce jute bags loaded with maize—they take a cursory look at the spilt grains and offer a price.
“If we come with a truck carrying 100 quintals of maize, they deduct at least one quintal (to account for the possibility that some grains may be of poor quality)... then, we are made to pay for weighing and labour charges in addition to broker’s fees," said Mohammed Amanullah, who had come to sell his maize at Gulabbagh last month after waiting for close to a year for a better price.
The system is rigged in favour of traders who cheat on every possible parameter—from weight to moisture level—which is why very few come here to sell their produce, added Amanullah, who farms over 15 acres of land in Purnea.
Manoj Shah, a broker standing next to Amanullah corrected him: “It’s not us looting you folks... it’s the bada mahajan (the big trader)." Evidently, deregulation of markets did the opposite of what was intended. Instead of competitive markets offering better price and services or lower transaction costs, farmers had become easy prey.
While taxes and fees collected by the regulated market committees in other states is used to develop marketing infrastructure, including roads and other facilities (weighing, grading, moisture meters etc), mandis like Gulabbagh has seen very little investment since 2006.
“The infrastructure, including the mandi roads, has seen no renovation in years. During the rains, the mandi becomes a swamp. While the traders collect ₹50-100 fee per transaction in the name of mandi fee, the money is not ploughed back into infrastructure upgradation but goes toward donations for the temples surrounding Gulabbagh," noted a comparative study of agriculture markets in Punjab, Bihar and Odisha released last year by the Centre for Advanced Study of India, University of Pennsylvania (CASI-PENN).
“The story of infrastructural disrepair, especially after the repeal of the APMC Act, is common across our study districts (in Bihar)," the authors wrote, citing the instance of Bihar Sharif mandi where the joke is that “abandoned cattle which roam the mandi are the waste management workers of the complex."
The truth is, Bihar never really invested in its regulated markets (even before abolishing the APMC Act) unlike states like Madhya Pradesh or Punjab, said Mekhala Krishnamurthy, who teaches at the Ashoka University and co-authored the CASI-PENN study.
“The experience with regulated APMCs suggests that when markets are well equipped and farmers participate actively in its functioning, it leads to better price discovery... the Bihar experience is a preview to what could happen in states like Karnataka and Madhya Pradesh if well-functioning markets weaken," Krishnamurthy added.
Despite the well-documented shortcomings, existing state APMCs provide a framework and physical infrastructure which can be made to work for farmers. Once the reform laws take root, and as trade moves out of regulated APMC markets to save on taxes and fees, transactions will take place under a cloak of invisibility. Like in Bihar, farmers elsewhere might end up losing out on price information and bargaining power. And well-functioning mandis in Madhya Pradesh and Punjab might struggle to generate enough revenue to pay for the upkeep of existing infrastructure.
Eight in the evening at Lokhara, a village in Araria close to the Nepal border, felt like midnight. A group of farmers sat in a semi-circle and narrated their concerns. The crops are bereft of any value, lamented Manesar Mandal. “Most of us here have never been to a mandi. We do not know what a fair price is. And we cannot hold on to a harvest and wait for prices to improve; we sell immediately to pay for the next planting."
The farmers from Lokhara said they have never sold their paddy to government agencies. Primary Agricultural Credit Societies (PACS)—local cooperative societies—which are tasked to purchase at minimum support prices (MSP) usually pay farmers less than MSP citing poor quality. Middlemen and traders, and not farmers, benefit from the limited procurement. Even if a farmer manages to sell the produce to PACS, payments are delayed by months.
Hazari Prasad Mandal, chairman of the local PACS, was visibly embarrassed while narrating how broken the system is. Due to lack of funds and delays in procurement, only a minuscule quantity of paddy grown in the area is procured, he said. By mid-February, Mandal added, the local PACS procured just 2,000 quintals of paddy (that was harvested last October), which is less than a percent of what farmers sold in the market.
Data from the food ministry showed that for the 2019-20 kharif season, paddy procurement in Bihar, despite being the highest in five years, was 22% of production. In comparison, 92% of the paddy grown in Punjab and 89% in Haryana was procured by government agencies.
The CASI-PENN study reported that “only larger farmers with connections to the PACS officials were able to participate in the procurement system." The field teams also found numerous instances of local traders buying from farmers at lower than MSP but using the farmers’ documents and bank accounts to sell to PACS and claim payments from farmers at a later date. Overall, fewer than 5.5% of paddy farmers in study areas sold their produce to government agencies. In contrast, over 97% of all growers in Punjab sold their paddy at support prices.
Despite the dismal state of affairs, most farmers in Araria and Purnea districts appeared resigned to their fate. “We are too small to make our voices heard," Manesar Mandal from Lokhara village said. Imperfect markets, in addition to denying farmers a fair price, had crushed their spirits as well.
Which is why 26-year-old Samsad from Rampur village in Araria thinks he is better off working as a farm hand at mandis in Haryana and Punjab during the peak harvest season. “In a month, I can earn more than ₹20,000," he said. That’s more than what marginal farmers in Bihar earn in an entire season.
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