26 Feb 2021 00:47 IST

Farm Bill 2020: The missing pieces and what the government can do

Farmers participate in a tractor rally to protest against the newly passed farm bills, on a highway on the outskirts of New Delhi, India, January 7, 2021.   -  Adnan Abidi | Reuters

With rising input costs, farmers believe market freedom will not assure remunerative prices for their harvest

The agriculture sector, which employs close to 57 per cent of India’s working population, was the only sector that posted growth last year. Small and marginal farmers constitute 86 per cent of the total farmers and they are the worst hit. So the paradox is the agricultural sector is one fraught with problems and abundant with opportunities.

The development of the Indian agriculture can be segmented into four phases.

The preliminary phase forms the years post-Independence years till the mid-sixties. In this phase government policy prioritised institutional change in the sector — enabling agrarian reform, granting land titles to cultivators, and establishing support prices for crops.

Minimum Support Prices (MSPs), the minimum price at which the government procures agricultural produce, act as an assurance to farmers to earn an adequate profit for their harvest. However, the agricultural sector is still not self-sufficient in a few crops and relied on the import of pulses to meet the needs of the population.

The period between the 1960s and 1980s were the Green Revolution years, where the country became self-reliant in foodgrain production. Under Green Revolution, planting of High Yielding Varieties (HYV) and contemporary farm practices were introduced.

It is in this period that the government introduced the Agricultural Produce and Marketing Committee (APMC) Act, which put in place the existing mandi system through which farmers sell their produce. The Act allows state governments to set up agricultural markets called mandis, and agricultural produce is only to be sold here through an auction system. Farmers would then have to sell their produce to middlemen who would sell the produce to traders.

The next phase ensued after the government instituted economic reforms to liberalise the economy in 1991. The reforms aimed to reduce the role of the government in various sectors. But these policies made the agricultural sector vulnerable to cheaper imports, and lack of government support in the risky agri-industry.

Hence, the government enacted the New Agricultural Policy (NAP) in 2000, which aimed at strengthening domestic farming to achieve growth and improve exports.

New farm laws

Cutting to the present, the government has pushed for an aggressive restructuring of the agriculture sector by passing three Bills in Parliament. To elaborate, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, encourages farmers to enter into contracts with wholesalers, retailers, and agri-businesses for the sake of obtaining and selling farm produce.

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 aims to reduce barriers in the trade of agricultural produce, hence, allowing farmers to sell their harvest outside of the APMC gates. Further, it opens up channels for electronic trading of produce, all of which do not subject the farmer to fees for engaging in commerce like the APMC fees do.

It will be particularly beneficial for the marginal farmers who do not have the means to get a better price for their produce. The Amendment to the Essential Commodities Act deregulates the sector, and the choice of foodstuffs to produce will not be determined by the government, except in the case of an emergency. It aims to attract greater private investment into agricultural production.

Unease among farmers

However, these laws have ignited farmer protests across the country, particularly in Punjab and Haryana. The main contentions of the farmers are the distrust with the State, and their concern that corporate interests are being safeguarded over farmers’ interests.

The Farm Acts enable farmers to sell produce outside the regulated APMC mandis, in unregulated markets. The regulations such as Minimum Support Price (MSP) guarantee profits for the harvest. However, the fear is that private corporations purchasing from farmers are unregulated and hence might offer contracts that are detrimental to the farmer.

Farmers have concerns over their ability to navigate contracts with these larger corporations and there are genuine fears of information assymmetry.

Further, given the rising costs of inputs in the current economy, farmers believe that market freedom under the current circumstances will not assure them remunerative prices for their harvest. State governments have also opposed the passing of the Bills because they fear losing revenues from mandi fees.

The government and farmers have held several rounds of meetings where the government has assured farmers that MSPs for government procurement of agricultural produce will continue.

Economically, however, the implications of the Bills on the prosperity of Indian agriculture are tough to determine. There is a lack of investment in agriculture which has hit productivity. Deregulating the market could propel the productivity and increase investments.

Further, there would no longer be a need to pay middlemen fees and farmers can directly enter into contracts with the final traders. Theoretically, the policies could raise farmer’s revenues and boost productivity of the sector. However, the actual manner in which the scenario plays out could lead to adverse outcomes.

Middle ground

The private businesses that farmers will enter into contract with are also driven by a profit incentive. Private investors can collude to offer low prices to the farmers in order to increase the mark-up on the final products. The products might still be offered at the same prices such that consumers are not dissuaded to buy, but the private businesses would see much larger profits.

Hence, there is a tangible economic incentive for private corporations to neglect the interests of farmers for fair trade agreements. Government will have to take steps to address the issues raised by the farmers to ensure smooth roll out of the laws. The Bills are also silent on the crop insurance aspect and risk mitigation at the production stage. Marginal farmers suffer mainly due to crop failure. A comprehensive policy which takes care of concerns and incorporates all the aspects is the need of the hour.

(Sandhya Garimella is a Student of BSc. (Hons.) Economics and Finance at Ashoka University; and Sangita Dutta Gupta is Associate Professor-Economics, Chairperson-Centre for Research, Jagdish Sheth School of Management.)