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Home > 2020 > New Farm Laws: For Farmers or Corporates? | K N Ninan

Mainstream, VOL LVIII No 47, New Delhi, November 7, 2020

New Farm Laws: For Farmers or Corporates? | K N Ninan

Sunday 8 November 2020

by K N Ninan *

The new farm bills approved by the Parliament recently have led to widespread protests by farmers and opposition parties. The bills were steamrolled by the Central Government without any discussion in Parliament or consultation with stakeholders especially farmers and state governments even though agriculture is a state subject. Critics have questioned the justification for rushing through these controversial bills when the country is still battling the Corona-19 pandemic and threats posed by our hostile northern neighbours. While some consider this as a watershed moment that will propel Indian agriculture to new heights, others fear that this is to promote the corporatisation of Indian agriculture to the detriment of small and marginal farmers who constitute 86% of farming households in India. Prime Minister Narendra Modi alleged that opposition parties were supporting middlemen. Of course, all political parties shed crocodile tears and promise the moon to farmers during elections, but once elections are over, they are forgotten.

The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 states that it is “to provide an ecosystem where farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternate trading channels, promote efficient, transparent and barrier-free inter-state and intra-state trade and commerce outside the physical premises of markets or deemed markets notified…..and facilitate electronic trading..” The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill 2020 states that it is “ to provide for a national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner…”

Farmers are apprehensive that Minimum Support Prices (MSP) that were introduced in 1966-67 to guarantee a minimum price to farmers for procurement of foodgrains will be discontinued by the government. Given that the Modi government had reneged on its election promise of implementing the Swaminathan Committee recommendation to fix MSP at 50% above the weighted average cost of production, farmers’ apprehensions are not unfounded. MSP covers 23 crops, but bulk of government’s procurement operations are centred on wheat and rice. There is no reference to MSP in the new farm laws which only states that “the price to be paid for the purchase of a farming produce may be determined and mentioned in the farming agreement itself.”

It is claimed that the enactment of the new farm laws will free farmers from the clutches of Agricultural Produce Marketing Committee (APMCs) which are being abolished and they are free to sell their produce anywhere in the country. However, only 6% of farmers sell their produce in APMC markets and the remaining 94% sell their produce outside APMCs. Further “only traders with a Pan Number can trade” and requires electronic registration of traders. All this works to the advantage of big traders and corporates and detrimental to small farmers and players. The argument that farmers will receive remunerative prices due to competitive trading in free markets is a myth since markets are imperfect and access to markets and resources are highly unequal. Big traders are known to use their dominant position to manipulate markets to their benefit by creating artificial scarcities, manipulate prices and indulge in other unfair practices. Bihar abolished APMCs in 2006 but that did not bring about any transformative change in Bihar’s agriculture. There is concern that in the long run the government plans to stop public procurement of foodgrains and dismantle the public distribution system (PDS) which will have serious impacts on food security and on the poor and vulnerable sections.

The new laws envisage an important role to farmers entering into contracts with agri-business firms and processors. This is expected to lead to win-win outcomes that will benefit farmers, traders, and agri-business firms. Contract farming gained prominence in India in the 1980s when PepsiCo entered the processing of tomato in Punjab. Presently contract farming is practised in many states covering seeds, agricultural commodities, flowers, and poultry. Experience with contract farming in India has been mixed. According to former Union Agricultural Secretary Siraj Hussain even though India has had a few successful models, contract farming has largely failed due to many problems.

A study of contract farming of broiler poultry in Andhra Pradesh and Karnataka by P.V.K. Sasidhar and M. Suvedi noted that although it helped lower market risks and ensured prompt payment, the average net returns per bird was higher for non-contract farms than for contract farmers. A study by Parmod Kumar et al. in Punjab, Haryana, Andhra Pradesh, and Karnataka noted that contract farming mostly benefited medium and large farmers. Wage labour in contract farms reported over-exploitation and payment of lower wages. Another study in Maharashtra noted that although yields in contract farms were higher than in non-contract farms, contract farmers reported losses for potato while non-contract farmers reported profits. But for onion, contract farmers reported profits whereas non-contract farmers reported losses. Overall while contract farming has led to higher yields and lower transaction costs, due to higher input costs they led to losses for some commodities.

There are concerns regarding the adverse social impacts of contract farming such as groundwater depletion, excessive use of fertilisers and pesticides, and incentivising crops favoured by multinational companies and agri-business firms which may affect food security and India’s self-sufficiency in foodgrains. The Rs one crore suit filed by PepsiCo against some Gujarat farmers that was withdrawn later also haunts small farmers of getting embroiled in litigation for which only big companies and traders have the resources and energy to fight. Laws enacted without discussion with stakeholders raise more problems than they solve.

(* The author is an economist)

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