October , 2020
Understanding the commotion behind farm sector laws
17:14 pm

Rajiv Khosla

The Indian President Ramnath Kovind gave assent to the three farm bills passed by the Indian parliament on September 27. These farm bills that have now become farm sector laws comprise of The Farmers’ Produce Trade and Commerce (Promotion and Facilitation), the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services and the Essential Commodities (Amendment) Act. However, farmers have taken to the streets, protesting against these agricultural reforms, particularly in the states of Punjab and Haryana. 31 farmers’ organisations along with opposition parties having different ideologies are collectively fighting against these agricultural reforms. Their leaders have an apprehension that these farming laws will not only support the corporatisation of agriculture but also threaten the existence of the present mandi system and status of the state revenues by diluting the system of procurement of farm produce at guaranteed prices.

The Farmers’ Produce Trade and Commerce (promotion and facilitation) Act

This Act facilitates the creation of an ecosystem wherein farmers as well as traders have an absolute freedom to sell and purchase the farm output beyond registered 'mandis' under the states' agriculture produce market committees (APMCs). The Act also ascertains remunerative prices to the farmers for their produce as barrier-free interstate and intrastate trade and commerce outside the physical premises of markets – as notified under the State Agricultural Produce Marketing legislations - is being promoted. Also, it encourages electronic trading of farmers' produce thereby exempting the farmers from the payment of any cess or levy for selling their produce. Besides, it is emphasised that electronic trading will reduce marketing costs for the farmers’ – thereby ensuring better deals for the farmers. A separate dispute resolution mechanism for the farmers is also notified in the Act.

Eighty-six percent of Indian farmers have less than five acres of land and a further 67% have even less than 2.5 acres. Thus, small farmers are expected to face tremendous problems while selling their produce. In the existing framework, small farmers are successful in selling their produce through a well-established network of ‘arhtiyas’ (middlemen). Absence or weakening of the ‘arhtiya’ system will create numerous problems for small farmers in transporting and selling their output. Though it is advocated that unlike old and regulated mandis, the new mandis won’t be charging any cess or fee for purchasing the crops, yet it is apprehended that in the subsequent years, many indirect taxes like parking fees, weighing charges, packaging and loading and unloading charges may be imposed.

The dynamics behind the working of new, private and free mandis needs to be understood amicably. At present, in Punjab, the market/mandi fees charged from the purchasers of farm produce stands at 8.5% of which 3% is the mandi fees, 3% is the rural development fees and 2.5% constitutes commission for agents. The amount so collected through market fees is used by the government for undertaking rural development tasks. Needless to mention that in this paddy procurement season there has been some reduction in mandi and rural development fees in the states of Punjab and Haryana for better offtake. With the incoming of new mandis, where on one hand, the existence of the old and regulated mandi mechanism will be put in jeopardy, the government will also be robbed off the market fees which will ultimately culminate into distressed rural development. At present, in Punjab, `155 per quintal on the sale of paddy and `164 per quintal on the sale of wheat go into the kitty of the state government. In the beginning, even if the private mandis spare the farmers to an extent of `100 but after decimating the regulated mandis, they may start levying indirect charges like parking fees, weighing charges, packaging and loading and unloading charges in the long run. At the moment, 1852 regulated mandis are operative in Punjab through which small farmers are able to conveniently sell their produce. If this dense network of regulated mandis is ruined, then it will be a severe blow to the small farmers. Small size of the produce may be a disincentive for transporting it to a distant mandi - thereby leading to the exploitation of small farmers. A report from a leading newspaper stands testimony to these facts by reporting that cotton in Haryana in this season is being sold at a market price of `5100 per quintal against the Minimum Support Price (MSP) of `5715 per quintal. It is due to the fact that only 17 procurement centres are working against the promised 40 - thereby leading to the exploitation of farmers.

Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act

This Act provides the basis for promotion of “contract farming”, wherein when farmers will enter into a direct contract with those who wish to buy farm produce, the middlemen will automatically stand eliminated. For example, a deal may be finalised between a farmer and a small restaurant chain, wherein the farmer agrees to sell his tomatoes and mushrooms to that particular restaurant chain or it can be between a farmer and a multinational company like Nestle where a farmer agrees to directly supply certain products for the company’s milk products and chocolates.

Trepidations in context of contract farming range from the poor bargaining power of the farmers vis-à-vis corporates to hiring of sponsors (middlemen) by the corporates who can unite small farmers and then supply to the company, informal striking and termination of contract by the parties. The concept of contract farming is not new to India. So far 14 states have issued regulations governing contract farming but most of the contracts are glued to the cotton and barley crops only. The unsuccessful and unaccomplished stories related to contract farming also discourage farmers from entering into contracts.

The Punjab Contract Farming Act was passed in the year 2013 to protect the interests of farmers wherein mortgaging of the farmland was prohibited. However, in the absence of any provisions on MSP in this Act, the crops under contract farming started giving lesser remuneration to farmers. Since the farmers undertaking contracts had already paid the advance amount to land owners for taking their land on lease, this reduction in remuneration put the farmers under immense stress. In the same fashion, few farmers in Gujarat were sued for a sum of `1 crore approximately for illegally growing and selling a potato variety by Pepsico. Such incidences put a big question mark on the viability of contract farming.

The Essential Commodities (Amendment) Act

This Act deregulates the production, storage and sale of several food items including cereals, pulses, edible oils and onions except in the case of extraordinary circumstances. Further, stockpiling limits are proposed to be imposed only if retail prices increase by 50% above the average in case of non-perishables and  by 100% in case of perishables. It also aims to attract private players/FDI in the farm sector by dispelling excessive regulatory interferences.   

Complete autonomy to the big players to store food gains may lead them to use abusive powers against the underprivileged sections of the society. These players may turn the fortunes on their side by procuring food grains from small farmers from states like Bihar (where APMC was scrapped in 2006) at throwaway prices. Since now there are no restrictions on storing essential food items, corporates may store them in their warehouses and silos till the time is ripe for them to sell them at exorbitant rates. Also, the creation of artificial scarcity cannot be ruled out in this context. This procurement of food items from states/places where their prices are low and selling them on a pan Indian basis at higher prices will lead to additional bagging of profits by the corporates. Besides, it will also force cultivators of other states to sell their produce at cheap rates.

In light of the above discussion, it becomes clear that farm laws enacted by the government do not assure the farmers at large that the existing system of markets won’t be dismantled and that the national agricultural market won’t be handed over to international producers. Unless and until the government does not bring another ordinance/Act, which assures the procurement of food grains and other agricultural products at MSP by the Food Corporation of India, farmers have the reasons and rights to ask questions and get answers to their concerns .

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