Agriculture and allied activities employ more than 50% of India’s workforce. To empower the country’s farm economy, the Modi government passed three historic bills. The first bill is the Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020. The key provisions of the bill are — (a) to create an ecosystem where farmers and traders enjoy the freedom to sell and purchase farm produce outside registered mandis under States’ APMCs; (b) to promote barrier-free inter-state and intra-state trade of farmers’ produce; (c) to reduce marketing and transportation costs and help farmers in getting better prices; and (d) to provide a facilitative framework for electronic trading.
The second bill is the Farm- er (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020. The key provisions of this bill are — (a) farmers can enter into a contract with processors, wholesalers, ex- porters or large retailers for sale of future farming produce at a pre-agreed price; (b) marginal and small farmers, who account for 86% of total farmers in India, with land less than five hectares, per farmer, to gain via aggregation and contract; (c) to transfer the risk of market un- predictability from farmers to sponsors; (d) to enable farmers to access modern technology and get better inputs.
The third bill is the Essential Commodities (Amendment) Bill, 2020. The key provisions of this bill are — (a) to remove commodities like cereals, pulses, oilseeds, onion and potatoes from the list of essential commodities. It will do away with the imposition of stockholding limits on such items except under “extraordinary circumstances” like war; (b) the bill will attract private sector/FDI into the farm sector, as it will remove fears of excessive regulatory interference in business operations; (c) to bring investment for farm infrastructure like cold storages and modernising food supply chain; (d) to help both farmers and consumers by bringing in price stability; (e) to create competitive market environment and cut wastage of farm produce.
The erstwhile Union Minister for Food Processing Industries, Harsimrat Kaur Badal of the Shiromani Akali Dal, resigned, saying that the aforesaid bills were against the interests of farmers, in a misguided display of political posturing. Are the bills “anti- farmer”? Of course, not! New legislations will do the follow- ing: (A) Accelerate agrarian growth through private sec- tor investment in agri infrastructure. (B) Create greater employment opportunities in rural India. (C) Since the bills will not override Agri- culture Produce Marketing Committee (APMC) Acts of the states, the mandis will continue to exist. (D) The AP- MCs require farmers to only sell to licensed middlemen in notified markets, usually in the same area where the farmers reside, rather than in open markets, thereby, scuttling price discovery and hurting farm profits. But with these reforms, farmers will have the added option and choice to sell outside existing mandis, without having to route their produce via middlemen. (E) Since APMCs will face competition, it will enable food traders to buy farmers’ produce from any market, rather than bind them to the specific markets where they are licensed to operate. (F) Contract farming will enable farmers to engage with processors, wholesalers, exporters, or large retailers for the sale of future farm- ing produce at a mutually pre-agreed price, even before the crop is harvested. (G) The Essential Commodities Act will come in only if re- tail prices rise 50% in case of non-perishables and 100% in case of perishables, from the average retail prices in the preceding 12 months or last five years. Lack of stock limits will thereby allow farmers to sell surplus at lucrative prices and traders too can buy in bulk, without resorting to hoarding. (H) Any dispute resolution between farmers and counter parties will be quick, as it will be resolved via a Conciliation Board, under the aegis of the Sub Divisional Magistrate, rather than civil courts, which are already overburdened. (I) The Opposition’s baseless allegations that these reforms undermine MSP and the food procurement process are a pack of lies. If anything, as recently as June 2020, the MSP for rabi crops was hiked by 50- 109%. The MSP for paddy at Rs 1,868 per quintal and for wheat, at Rs 1,925 per quintal, have been the highest ever.
Who is opposing these bills? A trader with a valid licence as per the State APMC Act can operate in APMC mandi and a valid licence to operate in “Trade Area” allows him to operate here as well. The catch, however, is that existing mandis established under the APMC Acts have been excluded from the definition of “Trade Area” under the new legislation. In effect, mandis will have to compete with Trade Areas now. While farmers are happy with more choices, wealthy mandi agents are opposing the bills as their monopoly has been snatched away.
Agents in an APMC often get together to form a cartel. This creates a “monopsony” or a market situation where there is only one buyer or trader, who then exercises control over the price at which he buys. Produce is procured at manipulatively discovered prices and sold at far higher prices, defeating the very purpose of APMCs. While a farmer gets only 20- 25% of the final consumer price, loading, warehousing, traders and commission agents skim off the rest. Prime Minister Narendra Modi’s landmark Farm Bills seek to end this profiteering. Further, APMCs play a dual role as the regulator and wholesale buyer. Consequently, their role as a regulator is undermined by a conflict of interest.
Why are most protests from Punjab? No market fees, cess or levy, under any State APMC Act, shall be levied on farmers or on any electronic trading platform in a “Trade Area”, say the proposed new legislations. Under the exist- ing system, in states like Punjab, APMC/mandi fees come to around 8.5% — a market fee of 3%, rural development charge of 3% and the middle- man (Arhatiya’s) commis- sion of 2.5%. The “Arhatiya” system is more influential in Punjab than elsewhere in India and hence, most protests are from this region. In FY20, 36,000 Arhatiyas in Punjab reportedly pocketed commis- sions worth Rs 1,600 crore, while the state of Punjab collected Rs 3,600 crore in trade fees. Farmers made precious little. Prime Minister Modi’s Farm Bills, however, seek to put money into the hands of the farmers, something which no political leader has ever dared to attempt.
The path-breaking Farm Bills of 2020 are a culmination of a slew of agri reforms by the Modi government. The Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) to give credit at subsidised interest rates for building warehouses, cold storages and other facilities to reduce post-harvest losses, the release of Rs 17,100 crore to over 8.5 crore farmers under the PM-Kisan scheme, an extension of 2% Interest Subvention (IS) benefit and 3% Prompt Repayment Incentive (PRI) to farmers for all crop loans up to Rs 3 lakh and the decision to establish 10,000 Farmer Producer Organisations (FPOs) in the next three years to improve the bargain- ing power of farmers are all truly outstanding moves by the Modi government.
PM Modi has famously said, “The mind is never a problem, the mindset is.” Well, it is time for India’s beleaguered Opposition to wake up, smell the coffee and change its mindset, because the agri- reforms are certainly here to stay for good.
Sanju Verma is an economist, the chief spokesperson for BJP Mumbai and the bestselling author of ‘Truth & Dare: The Modi Dynamic’