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Varanasi
Tuesday, November 30, 2021

Farm Laws from U-turn to new turn

Only 6% of the farmers in Bharat get an MSP for their crops. As of now, CACP (Commission for Agricultural Costs & Prices) recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and 4 commercial crops (copra, sugarcane, cotton and raw jute). 

The NABARD All India Rural Financial Inclusion Survey (NAFIS) shows that average agriculture household income was Rs 8,931 per month in 2016-17. Agricultural households in Bihar, Jharkhand, West Bengal, Uttarakhand, Odisha, and Uttar Pradesh have very low monthly average incomes. Agriculture has a share of 16.5% in GDP and close to 50% of the country’s population is dependent on it. 

Category Land holding as a % of Total holdings
Small & Marginal farmersBelow 2 hectares  86.21%
Semi medium & medium farmers 2- 10 hectares  13.22%
Large farmers10 hectares & above    0.57%
Total 100%
(Source: Agricultural census 2015-16)   

As could be seen from the above data majority of the farmers have very small land holdings of less than 2 acres which constitute 86.21% of the total agricultural land holdings (but they hold only 47.3% of the crop area) that fetch them low incomes. They also primarily depend on micro finance companies and local money lenders for crop loans that attract higher interest rates.

As these farmers neither have direct market access nor can afford to hold the farm produce to get remunerative prices, they are normally compelled to go for distress sale to the middlemen.

Cropping patterns many times are not in line with the market demand and availability of the water resources which in turn predominantly depends on the rainfall. Government departments and agencies like – meteorology department, agricultural ministry, and agricultural marketing federations do not function in collaboration and coordination with each other thereby leading to avoidable wastages caused by wrong cropping patterns.

Studies indicate poor infrastructure like bad roads and shortage of godowns and cold storage centres is resulting in around 10 percent additional transport and storage costs to Bharat’s farmers. Food loss in Bharat is estimated at ₹ 920 billion per annum (harvest and post- harvest losses). Globally the food loss is estimated at 24% during production, 24% during handling and storage and 35% at consumption.

Therefore, strengthening the rural infrastructure can save the annual food loss of ₹ 220 billion in Bharat. Only 35 percent of the farmers in Bharat are insured for crop losses (2019 data). Expensive insurance premium and out of market methods of computation of crop losses for insurance claims are a few of the factors that deter many small and marginal farmers from taking the crop insurance cover.

The three farm laws

The government took a major initiative and introduced three laws viz., Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 and the Essential Commodities (Amendment) Act, 2020 hoping that the farmers will get remunerative prices and their incomes would increase substantially to realize the goal of the government to double the farmers’ incomes by 2022-23 (base year 2015-16).

The author suggested in December, 2020 to consider the following amendments to the Acts, in order to assure remunerative prices to the farmers and put a check on hoarding and also give scope for greater number of players to become processors and value chain participants infusing competition which in tune will lead to greater choice to the farmers in negotiating fair prices for their produce:

1. Amending the section 5 of The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 to link the farm price to MSP or market price or any other bench mark price to protect the farmer’s interests. In case the government does not want to include MSP in the law it could at least include a floor price to ensure remunerative prices to the farmers. 

2. Amending the Section 3 of the Essential Commodities Act, 1955 which was amended in the recent past giving scope for the processor or value chain participant to install very huge capacity of processing in order to circumvent the regulation for stock limit and effectively resort to hoarding. Therefore, this clause has to be suitably amended further in order to enable the government to retain the discretion of deciding the ceiling on installed capacity of processing of the processors or value chain participants.

The author had expressed the view that the recently passed three farm laws are though aimed at providing direct market access to the farmers and selling their produce as per their choice to the intermediaries, i.e., traders, middlemen and corporates at a price that is remunerative to them, due to the lack of direct access to market linkages it may end up in the farmers continuing to sell their produce to the intermediaries and also not necessarily at remunerative prices in view of the above mentioned reasons.

The three farm laws also do not have any reference to MSP (MSP is not a statutory obligation for the government as on date but it is only as a matter of convention that the government continues this MSP mechanism). In fact, it gives the farmers the option of choosing either a fixed price or a guaranteed price in case the price so agreed upon is subject to variation when they enter into contract with their buyers. However, careful reading of the important clauses of the farm laws indicates:

A. There is a possibility of the processor or value chain participant installing very huge capacity of processing in order to circumvent the regulation for stock limit and effectively resort to hoarding as there is no ceiling specified in the Act on the installed capacity.

B. Farmers getting forced (i.e., not necessarily by the trader but by other circumstances) to agree for a fixed price that may be lower than the market price or MSP as on the date of signing the agreement for future sale as well as current sale of the produce. This compelling circumstance will arise due to the farmers’ inability to access the markets directly since they neither have adequate storage facilities nor can they afford to hold the food stock with themselves or transport their farm products directly to the markets, all due to lack of funds.

The open market access created by the government through the three farm laws which is obviously without a level playing field will in all probability lead to corporates entering the fray along with the existing middlemen through the channel of back ward integration and have an upper hand over the farmers in procurement of the farm produce unless the above-mentioned necessary amendments to the Acts were carried out.

The Essential Commodities (Amendment) Bill, 2020, which will replace an ordinance, provides that stock limits may be imposed on agricultural produce only if there is a steep price rise. By removing stock limits on all Agri-commodities, the government is hoping that freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/ foreign direct investment into agriculture sector and significantly drive-up investment in cold storages and modernization of food supply chain.

The above measure is expected to provide more choices for the farmer, reduce marketing costs and help them in getting better prices. The government is also hopeful that the farmers of regions with surplus produce would directly access the regions where there is shortage resulting in a win –win situation to both the farmers and the consumers.

However, there is an argument that these measures may not really help the marginal and small farmers since they do not have the capacity to hold back the stock and move it to markets directly where the prices are remunerative without depending on middlemen.

In effect the current three farm laws essentially provide back ward integration for traders, middlemen and corporates (i.e., from market to farmers) whereas what the farmers basically need is forward integration (i.e., farm land to market).

Open market access to the farmers can become a reality only when forward linkage is provided from the farm yard to the markets wherein the farmers will have a control over the supply chain so that the middlemen can be eliminated. This will also ensure remunerative prices to the farm produce which in turn will improve the farmers’ incomes.

In this regard the author had suggested the following measures in December, 2020, which are reproduced as under.

Leveraging on the PDS infrastructure to provide forward integration and direct market access to the farmers.

There are 5,44,584 fair price shops (FPSs) licensed across the country out of which 5,34,786 are operational. Out of 4,88,832ePOS supplied 3,89,170 have been active in FPSs all over the country (data as on 21 st November, 2021). The main items that are available under PDS are- wheat, rice, sugar, edible oil and kerosene. 

Currently the PDS mechanism is operated as a cost centre and the government does not get any revenues out of it but incurs massive expenditure annually to the tune of more than₹.1 Lakh Crorewhich accounts for close to 6% of the budget of the central Government and almost 1% of GDP.

 The author suggests that the FPSs can be also used as outlets to sell the farm produce to the people directly by the farmers in addition to serving as PDS channels. By expanding the PDS to serve as outlets to sell farm produce in the open market the government may collect reasonable charges from the proceeds of the sale by the farmers who will still be benefited since they can avoid the middlemen and access the market directly and sell at remunerative prices.

The government can use the revenues so collected to further upgrade and strengthen the storage, transportation and FPSs infrastructure and make it on par with the market standards.

In due course, the government may convert the PDS infrastructure into a Special Purpose Vehicle under joint sector by collaborating with the small and marginal farmers who may be encouraged to form SHGs, cooperative societies, producer companies and trusts for this purpose. This will enable the small and marginal farmers to jointly own and operate the PDS to access the market and sell their produce at remunerative prices and completely eliminate the middlemen.

Currently we have 5981 Pradhan Mantri Bhartiya JanaushadhiKendras spread covering 693 districts out of 725 (data as on 20-12-2019) where generic medicines are made available to the people at affordable prices. The FPSs may be additionally used to stock the essential medicines and also function as JanaushadhiKendras which will extend their outreach rapidly. 

Clarity in policy measures not charity

Bharat’s farmer does not want charity. He considers agriculture as not only a livelihood but a passionate activity that he worships. He wants the necessary supporting infrastructure and remunerative prices for his toiled work and crop insurance at affordable premiums to have sustainable living. It is high time the Indian policy makers understood the mindsets of Bharat’s farmers and took long term policy measures with an integrated approach to address the above major issues to promote sustainable agriculture.

While the intention of the government in introducing the farm laws is certainly meant to improve the livelihoods of the farmers, prior to enacting the laws, in consultation with the farmers’ s representative bodies,if the necessary provisions were incorporated in these laws, then the farmers’ s agitation which resulted the loss of human lives and protracted protests for close to one year could have been averted.

Nevertheless, the current decision of the government announcing that the farm laws will be rolled back is a very courageous and bold step and has to be appreciated by one and all as it will at least put to an end the farmers’ on- going agitation.

However, this will not solve the existing problems being faced by the farmers and it will only lead to status quo ante.  The author hopes that the government will consider the suggestions mentioned in this article for implementation for a long-term solution to the farmers’ problems.

Reference:

  1. https://nfsa.gov.in/public/nfsadashboard/PublicFPSDashboard.aspx.
  1. https://niti.gov.in/writereaddata/files/document_publication/DOUBLING%20FARMERS%20INCOME.pdf
  2. https://cacp.dacnet.nic.in/content.aspx?pid=32.
  3. https://www.nabard.org/auth/writereaddata/tender/1608180417NABARD-Repo-16_Web_P.pdf
  4. https://www.prsindia.org/sites/default/files/bill_files/Farmers%27%20Produce%20Trade%20and%20Commerce%20bill%2C%202020.pdf
  5. https://ruralindiaonline.org/library/resource/the-essential-commodities-amendment-act-2020/?gclid=EAIaIQobChMI16f-ncbK7QIVDjErCh1RSg4pEAAYASAAEgK8APD_BwE
  6. https://ruralindiaonline.org/library/resource/the-farmers-empowerment-and-protection-agreement-on-price-assurance-and-farm-services-act-2020/
  7. http://janaushadhi.gov.in/Data/Annual%20Report%202019-20_21052020.pdf.  

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Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]

1 COMMENT

  1. Highly analytial, and eye opener to anti national forces, and real farmers.
    Farmers must realise the necessacity, and usfulness of the laws come out of fake agitation and support the govt for implimentation of farm laws letter and spirit.

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