In the recently launched famous Farm Bill 2020, three bills have been passed by the Indian Parliament aiming at introducing reforms in the agricultural sector. The importance of reforms can only be understood after considering that over 60% of the population works in the agriculture industry. This sector also contributes to about 18% of the country’s GDP. These bills currently face extreme objection by the opposition in both the houses. The bills have also led to intensifying protests by farmers in states like Punjab, Haryana, and Madhya Pradesh despite COVID-19.
A statewide bandh was imposed on Monday due to protests. But arent reforms positive changes or improvements implemented? Then why have these protests erupted? Today we try and understand these Bills, its possible effects on farmers in order to understand why they are opposed throughout the country.
The 3 Bills that were introduced in Farm Bill 2020
The three bills passed by the Indian Parliament aiming at introducing reforms in the agricultural sector in Farm Bill 2020 are:
- ‘Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill‘, 2020
- ‘Farmers’ (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill‘, 2020
- ‘Essential Commodities (Amendment) Bill‘, 2020
The laws claim to bring farmers closer to the market by changing where they can sell, the ability to store produce, and whether they can enter into contracts.
It may be surprising that the farmers were restricted to the following terms to date. Let us further explore why these laws were introduced and why these restrictions were present in the first place.
– ‘Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill‘, 2020
This law allows farmers to sell anywhere within the country under the ‘One Nation- One Market’ concept. The ECA initially restricted farmers from selling anywhere other than government-approved mandi’s. These government-approved mandis’ are called ‘Agriculture Product Market committees’ [APMC]. An APMC is a state-operated market where farmers are allowed to sell their produce to traders or middlemen. These middlemen then sell their produce to consumers throughout the country.
Become A Better Stock Investor
Thousands of stock market investors just like you are using Trade Brains Portal daily to perform a complete fundamental analysis of stocks. Click here to sign up for Trade Brains Portal and start picking winning stocks.
Some states had earlier criminalized farmers selling their produce anywhere other than these mandis’. Law had earlier criminalized farmers selling their produce anywhere other than these mandis’. These APMCs were initially set up to protect farmers from big retailers and ensure that prices do not get too high.
APMC’s also provide farmers with information regarding prices. This is done through MSP’s. MSP (Minimum Support Price) is the minimum price that farmers can be sold. The MSP’s are set by the government. Such price flooring ensures that farmers do not receive rates that are too low. But unfortunately for farmers, the prices in APMC’s although above MSP, are controlled by the middlemen cartels. These cartels come into an agreement over the price set beforehand.
The new bill passed also
(i) limiting the operation of APMC laws by states to the market yards;
(ii) Allows private parties to set up online trading platforms for trading in agricultural commodities
(iii) Sets up a dispute-resolution mechanism for buyers and farmers to be operated by a sub-divisional magistrate.
The new bill however does not do away with APMC’s. If the farmers still want to, they can go ahead and sell their produce at APMC’s and avail the MSP support. But they have the freedom to sell elsewhere and receive higher prices but are at the risk of not having MSP’s.
Why have there been protests then?
The downside to this law is that the person in question is a farmer who may not possess the bargaining leverage. This bill will lead to the entry of private corporates that further exploit the farmers
It is also naive to simply assume that farmers in Punjab who are accustomed to mandis will go ahead and sell their produce to buyers in Karnataka. India is still plagued by huge connectivity issues and the cost of transit might far exceed that paid to APMC’s. APMC has this advantage as they are already established they have roads connecting most of the villages making it easier for farmers to get to mandis.
You may have already noticed that although there have been differing views across the country, protests are concentrated to the states of Punjab, Haryana, M.P. This is because it is in these states that farmers rely on MSP and have strong market systems based on APMC’s. In fact, Bihar, Kerala, and Manipur do not follow the APMC system at all. In India, the state governments have the power to regulate agricultural markets and fairs. Hence different states have different approaches towards this.
In Haryana more than 75% of the wheat and Paddy is grown is bought by the government at MSP rates whereas this number is higher in Punjab at 85%. The Punjab government charges a 6% mandi tax apart from a 2.5% fee for maintaining APMC’s giving them an annual revenue Rs. 3500 crores. These revenues that are earned from farmers are then given back to them as graceful subsidies in the form of electricity etc. This plays a very important role in the voting dynamics and hence the unrest in these states.
– ‘Farmers’ (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill‘, 2020
This Bill ensures that farmers are allowed to enter into contracts with buyers. Here farming is carried out on the basis of the agreement between the buyers and the producers. One of the greatest advantages that farmers receive through this bill is the price assurance even before sowing his crops.
The scope of contract farming is huge as MNC’s regularly get into contracts with farmers in order to ensure they receive specified types of produce. For eg., Mcdonalds uses only a specified kind of potatoes for their Fries and gets them grown accordingly. Similarly, other chains too require specified produce and would prefer to be directly in touch with farmers rather than traders to ensure that they are organic and fresh.
The downside to this is, however, lies in the fact that over 86% of the country’s farmers are marginal farmers who own very little land. The possibility that huge corporations will go ahead and exploit the farmers through unbalanced contracts is high. These contracts include the dangers of turning farmers into slaves.
‘Essential Commodities (Amendment) Bill‘, 2020
Of all the 3 bills that have been passed, it is the ECA which was long overdue. The ECA has its roots in WW2 where laws were implemented by the British to exploit the supply within the country. The bill places restrictions on the storage of essential commodities like pulses, oilseeds, onions, etc but has now been amended. The amended ECA reduces the power that states and the center have.
One of the reasons why there has been a lot of uproar throughout the country is due to the unconstitutional way in which the laws were passed as it is the state governments that regulate these aspects. The government should have included the opposition and also taken into account the voice of farmers in order to plug the loopholes in the bills.
This would not only create an assisted approach towards privatizing the sector but also avoid further exploitation. But unfortunately, the bills due to not being communicated appropriately have created an air of mistrust between the ruling, opposition, and the farmers.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.