Farm Bills: Modi’s Big Bang Agrarian Reforms

The Parliament, in September 2020, passed the historic (a) Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 and (b) the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020. These Bills were earlier, passed by the LokSabha, too. A beleaguered Opposition that has faced humiliating electoral defeats in the last six years, politicised the issue, saying the Farm Bills will fully corporatise India’s farm economy, leaving poor farmers at the mercy of wealthy traders, by removing the minimum support price (MSP), which serves as a safety net for farmers.

Apart from the two aforesaid Bills, The Essential Commodities (Amendment) Bill, 2020, which removes cereal, pulses, oilseed, edible oil, onion and potatoes from the list of essential commodities, was also passed by the Rajya Sabha on September 22 2020, to curb hoarding, artificial scarcity and trade cartelisation, after having been cleared by the LokSabha, earlier. Keeping the irrelevant politicisation of these landmark Farm Bills by the opposition, aside, the moot question is, will these Farm Bills help farmers? The answer is a resounding,”Yes”.Do the Farm Bills remove MSP or public procurement? No, they do not.

Farmers have been misinformed to believe that Food Corporation of India (FCI), will shut down annual wheat and rice purchases from the States. It is to be noted that the Centre distributes annual wheat and rice procured from farmers in Punjab and elsewhere,through the Public Distribution System (PDS). The procurement process will continue like before.

In fact, MSP payment to farmers for paddy, rose by 2.4 times at Rs 4.95 lakh between 2014 and 2019 by the Modi government, as against only Rs 2.06 lakh crore, under the previous, Congress-led regime between 2009-2014.MSP to farmers for wheat increased by 1.77 times during 2014-2019, compared to 2009-2014. For pulses, MSP payment of Rs 49,000 crore to farmers, was up by a massive 75 times during the last five years, under the Modi government,in comparison to the 2009-2014 period. Payment to farmers for Oilseeds and Copra surged 10 times to Rs 25,000 crore, during the last five years, in comparison to the period from 2009 to 2014, under the Congress-led, United Progressive Alliance (UPA) establishment.

Do the Farm Bills dismantle the existing “APMC-AnajMandi”, structure”?No, they do not. The rights or livelihood of those associated with Agriculture Produce Marketing Committee (APMC) Mandis, will not be encroached upon. However, it is a known fact that APMC structure has been inefficient, with farmers relying on APMC agents, to help them sell their produce. In this system, while APMC agents walk away with hefty commissions, the hapless farmers make precious little. It is precisely to unshackle the farmers from predatory agents and middlemen, that the Modi government passed the Farm Bills.

So APMCs will not be dismantled but they will certainly face stiff competition now from “Trade Areas”, which will be created and will exist alongside APMC Mandis. Farmers will be free to sell their produce to whomsoever they wish to, at a price they deem fit, in these “Trade Areas”. So let it be clear that it is not farmers who are protesting but Middlemen and APMC Mandi owners who are upset. They are upset because their monopoly has been broken. There will be no taxes of either State or Central government, on trade conducted in these “Trade Areas”, thereby reducing the cost of transaction in the entire food chain, from farm to fork.

The original idea behind setting up APMCs was to protect farmers from greedy middlemen, ensuring competitive practices and optimising farm incomes. Empirical evidence suggests that APMCs have, however, fallen prey to the very vices they were supposed to mend and this made for a strong case for agrarian reforms. In fact, Prime Minister Narendra Modi needs to be applauded for bringing in the Farm Bills and in one fell sweep, dealing a body blow to institutionalised corruption, in the agriculture sector.No leader other than Modi could have taken such a bold step to weed out lethargy from a fattened agrarian system, that for decades was anti-farmer and yet had no accountability.

Do the Farm Bills remove MSP or public procurement? No, they do not. Do these Bills dismantle the existing “APMC-AnajMandi”, structure”? No, they do not. The rights or livelihood of those associated with Agriculture Produce Marketing Committee (APMC) Mandis, will not be encroached upon. However, it is a known fact that APMC structure has been inefficient, with farmers relying on APMC agents, to help them sell their produce. In this system, while the agents walk away with hefty commissions, the hapless farmers make precious little. It is precisely to unshackle the farmers from predatory agents and middlemen, that the Modi government passed the Farm Bills.

Going forward, farmers will have the choice to sell their produce either at APMC designated wholesale Mandis or in “Trade Areas” that will be created, as per provisions of these Bills, outside the jurisdiction of APMCs.Farmers will have the right to sell their produce to anyone at a price they deem fit. There will be no taxes of either State or Central government, on trade conducted in these “Trade Areas”, thereby reducing the cost of transaction in the entire food chain, from farm to fork.

Why are “Farmers” protesting, if the Bills are indeed pro-farmer? Well, let the truth be told–it is not farmers, but wily APMC commission agents and rich landowners with deep political connect, who have flourished under the flawed APMC regime, who are protesting. The original idea behind setting up APMCs was to protect farmers from greedy middlemen, ensuring competitive practices and optimising farm incomes. Empirical evidence suggests that APMCs have, however, fallen prey to the very vices they were supposed to mend and this made for a strong case for agrarian reforms. In fact, Prime Minister Narendra Modi needs to be applauded for bringing in the Farm Bills and in one fell sweep, dealing a body blow to institutionalised corruption, in the agriculture sector.No leader other than Modi could have taken such a bold step to weed out lethargy from a fattened agrarian system, that for decades was anti-farmer and yet had no accountability.

State APMC Acts empower State governments to demarcate their geographical region into various ‘notified market areas’, headed by a Market Committee (MC), for each Market Area. Over time these committees became authoritarian, leading to a monopolistic structure, antithetical to the cause of farm welfare. State APMC Acts typically declare the purchase, sale, storage, and processing of agricultural produce outside the yard set up by the “Market Committee”, unlawful. These Farm Bills, however, have made it lawful and legal henceforth, to deal outside the “Yard Areas”. Basically, APMCs will now face competition from traders who trade in “Trade Areas”, that will be outside the jurisdiction of “Yard Areas”.APMCs enjoyed immense clout and functioned without any competition. The new Bills change that status quo and hence APMCs are protesting.

So why are some States protesting? It is precisely because of this reason–States will lose the unbridled control they have had on Agriculture, via State APMC Acts. Note,intra-State trade is a State subject, but inter-State trade comes under the aegis of the Union government. Since, as per Farm Bills, farmers will now be able to engage in barrier-free, intra and inter-State trade, the iron grip that States have on farmers in their respective geographical areas, will loosen. Obviously, some States like Punjab are uncomfortable with a scenario where farmers have the upper hand and the State government, is the lesser mortal, in the equation.

The Farm Bills also allow for contract farming, whereby farmers can enter into contracts, at a pre-determined price, even before the crop has been harvested, with private companies, aggregators, food processors and exporters. This is an unprecedented reform, as it allows farmers to lock in a good price for their harvest and insulates them from any post-harvest, product-related or price volatility.

Is partial privatisation of agriculture, good? Of course, it is. Who will pay for the insurance, cold storage, machinery and farm equipment, when farmers enter into contracts, with private players? The Farm Bills clearly state that these will be paid for by the counterparty and not the farmer. This will be a big relief for especially small and marginal farmers who can access superior farm technology and become agripreneurs, without having to go out of pocket.

How will farmers negotiate with private entities who are supposedly equipped with more business acumen? Well, in Budget 2020, the Modi government announced the formation of 10,000 Farmer Producer Organisations (FPOs). These FPOs are largely clusters or groups of farmers who are brought together so that credit and other assistance can be extended to them. As a group, FPOs will have better bargaining skills, rather than farmers, operating as individuals. There are already about 5000 FPOs in India.

To cut a long story short, the pathbreaking Farm Bills of 2020 are a culmination of a slew of Agri Reforms by Prime Minister Modi.TheRs 1-lakh crore Agriculture Infrastructure Fund (AIF), to give credit at subsidised interest rates for building post-harvest infrastructure, 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 game-changing decision to give Rs 6000 per year, to over 14 crore farmers under “PMKisan”, have truly empowered India’s unsung heroes–the Indian farmer or “Annadata”. Samuel Johnson famously said, “Agriculture not only gives riches to a nation, but the only riches she can call her own.” Well, Prime Minister Narendra Modi has done the unthinkable–he has mainstreamed farming and ensured that the Farm Bills pave the way for a stronger hinterland, with the farmer choosing to do what he will!

Under the existing APMC-Mandisystem, in States like Punjab, APMC/Mandi fees come to around 8.5% —a market fee of 3%, rural development charge of 3% and middleman (Arhatiya’s) commission of 2.5%. The “Arhatiya” system is more influential and deeply entrenched in Punjab than elsewhere in India, and hence, most protests are concentrated in this region. The 40,000 APMC agents or middlemen who operate in Punjab, made over Rs 1600 crore as commissions last year. The State of Punjab too raked in over Rs 1750 crore as Mandi fees and a similar amount as rural development cess (RDC). These middlemen also double up as moneylenders to farmers. Once new Farm Bills become laws,theseArhatiyas or middlemen will lose their monopoly and hence the protests. Also, in the current Rabi season, despite the extension of procurement season by a month and despite having 3477 purchasing centres (up from 1849 grain centres last year), Punjab was relegated to the 2nd spot and beaten by Madhya Pradesh claimed the number one position, by procuring 127.62 lakh MT of wheat, accounting for a solid 33% of the total wheat procured in the country. The stiff competition from other States has adversely affected traditionally strong players like Punjab and new Farm Bills will only stiffen the competition further, which the stakeholders in Punjab are obviously, averse to.

Earlier, farmers had no option but had to mandatorily sell their produce in the notified wholesale markets, run by the APMC in that particular region. With new Farm Bills, farmers will have the additional choice of selling their produce in the “Trading Area”, which will be outside the jurisdiction of the APMC-Mandi. There will be no State, or Central govt taxes levied in these “Trading Areas”, which will hugely benefit farmers, who will no longer have to depend on licensed middlemen to sell their produce. Clearly, the Farm Bills will dilute the overarching monopoly of big Mandis like the VashiMandi in Navi Mumbai and the AzadpurSabjiMandi in New Delhi. With the power of Mandis getting diluted, small and marginal farmers as also retail customers–both groups of people in the food chain, stand to benefit, as overall costs will come down significantly.

In the long run, the historic Farm Bills, by the visionary Narendra Modi government, will create a new class of “Agripreneurs”, by empowering farmers. By allowing farmers to engage in contract farming, farmers will have the freedom to sell their produce directly to food processors, aggregators or exporters, even before the harvest, at a pre-determined price, thereby insulating farmers from the vagaries of price volatility that agriproducts, have to grapple with. In the short term, the Farm Bills will force various stakeholders in the food chain, to readjust and recalibrate themselves. For example, the APMC Mandi Boards or Marketing Committees (MCs), as they are widely known, will be forced to become efficient,corruption-free and competitive and will no longer have the luxury of making lazy money, purely by virtue of age-old laws that have been heavily lopsided in their favour, for decades together.

Till now, these MCs had a free run and would often indulge in malpractices, to pocket hefty fees and commissions, while the hapless farmer would be left with just 15-20%, of the final consumer price that you or I pay, for farm products. So if say, I pay a retail price of Rs 100 per kg for a vegetable, the farmer in the existing system gets nothing more than Rs 15 or Rs 20, at best. But with new Farm Bills, farmers will make a higher mar-up, as the new Bills would eradicate intermediaries from the equation, putting more money in the hands of the farming community.

Another medium-term impact of the Farm Bill will be to weed out inefficiency from the Food Corporation of India (FCI’s) operations. Grains procured by it are often more costly than that bought by private traders and the open-ended system of procurement by FCI ensures that it has Rs 1.5 lakh crore or so worth of extra foodgrain in its godowns, which eventually get wasted if there is a bumper crop but not enough, matching demand. Even with the Food Security Act’s generous 90-95% subsidy to two-thirds of the population, the Modi government is also engaging in cash transfers to farmers, as is evident from the Rs 6000 per year that is paid to over 14 crore farmers, under the PM Kisan scheme. Hence, the Farm Bills, will weed out wastages, without impinging on the financial security of farmers which is already being addressed via schemes like PM Kisan, PM Fasal Bima Yojana, NFSA and the like.

Prime Minister Narendra Modi has categorically stated that the Farm Bills will have no repercussions of any kind whatsoever, on the prevailing MSP and public procurement practices. That said, the undue attention to the MSP issue is merely a diversionary tactic by India’s beleaguered opposition, to mislead and settle scores with the Modi government. For example, the Shanta Kumar committee report had pointed out several years ago that just 6% of India’s farmers benefitted from MSP operations and that 86% of India’s small and marginal farmers who barely own 2 hectares of land, each, never benefitted from MSP, which over the years, has been monopolised by the rich farmers, thereby defeating the very purpose of MSP operations. The total value of all agriculture output was around Rs 40 lakh crore in FY20 while the total value of MSP operations was around Rs 2.5 lakh crore, corroborating the above argument.

Speaking of procurement, the procurement process will continue like before and reports to the contrary, are a bunch of falsehoods. The Congress and the likes of P.Chidambaram have no locus standi to comment on the MSP issue or the Farm Bills, as most farm prices were 15-20% below MSP, for the decades that Congress was in power. In fact, MSP payment to farmers for paddy, rose by 2.4 times at Rs 4.95 lakh between 2014 and 2019 by the Modi government, as against only Rs 2.06 lakh crore, under the previous, Congress-led regime between 2009-2014.MSP to farmers for wheat increased by 1.77 times during 2014-2019, compared to 2009-2014. For pulses, MSP payment of Rs 49,000 crore to farmers, was up by a massive 75 times during the last five years, under the Modi government,in comparison to the 2009-2014 period. Payment to farmers for Oilseeds and Copra surged 10 times to Rs 25,000 crore, during the last five years, in comparison to the period from 2009 to 2014, under the Congress-led, United Progressive Alliance (UPA) establishment.

Coming to privatisation, farmers will get superior prices despite partial privatisation and corporatisation, because of the existence of FPOs in India. The Modi government started encouraging the setting up of FPOs, since 2018. Critics allege, how will farmers negotiate with private entities who are supposedly equipped with more business acumen? Well, in Budget 2020, the Modi government announced the formation of 10,000 Farmer Producer Organisations (FPOs) in the next 3 years. These FPOs are largely clusters or groups of farmers who are brought together so that credit and other logistical and technical assistance can be extended to them. As a group, FPOs will have better bargaining skills, rather than farmers, operating as individuals. There are already about 5000 FPOs in India.

Also, the Farm Bills clearly state that insurance, cold storage, machinery and farm equipment, will be paid for by the counterparty, when farmers enter into contracts, with private players, thereby mitigating any risk whatsoever,for farmers. In fact, with the entry of the private sector, small and marginal farmers who do not have seed capital, will be able to access superior farm technology and become agripreneurs, without having to go out of pocket.

Do note that over 46% of India’s farm output is not crops—it comprises milk, fishing, forestry, fruit and vegetables (F&V),etc. The production of these items is greater than that of cereals&grains but F&V get no MSP support from the government, nor does milk production. India’s dairy industry, however, has been tremendously successful due to the cooperative movement led by Amul.This shows, it is not price support but a facilitative and participative environment that breeds efficiency, which is eventually what matters the most. The Farm Bills by the Modi government aim at creating many more empowered cooperatives on the lines of the hugely successful Amul, by providing farmers with a business-friendly ecosystem that encourages competition and entrepreneurship and disincentivizes the culture of freebies.

Talking of infrastructure, the Modi government, in August this year, launched a new Agriculture Infrastructure Fund worth Rs 1 lakh crore, meant for setting up storage and processing facilities, which will help farmers get higher prices for their crops.In September this year, the government launched the “Pradhan MantriMatsyaSampadaYojana” – a flagship scheme for focussed development of fisheries sector in the country with an estimated investment of Rs 20,050 crore during a period of five years as part of the Atmanirbhar Bharat package. In June this year, the Modi government announced a Rs 15,000 crore Animal Husbandry Infrastructure Development Fund with an interest subsidy scheme to promote investment by private players and MSMEs in dairy, meat processing and animal feed plants, a move which is expected to create 35 lakh jobs.

So the government has been working at strengthening farm infrastructure. This, along with the new Farm Bills, will boost the productivity of the agrarian sector to areas beyond just growing traditional crops like paddy or wheat.

Prime minister Narendra Modi, in 2018, promised to double farmers income while speaking at the inauguration of a Rs 300 crore chocolate plant of Amul in Anand, the milk capital of India. He said the co-operative movement has shown that an alternative to economic prosperity other than socialism and capitalism, exists. This is precisely where the Farm Bills, come in.

To cut to the chase, Prime Minister Narendra Modi, famously said, “Mind is never a problem; Mindset is”. Well, it is time for India’s hapless opposition to wake up, smell the coffee and change its mindset, because the agri-reforms by the Modi government are certainly here to stay, for good.