By: Samyak Jain
The Rajya Sabha passed the three farm bills on the 22nd of September 2020. The three acts were- Farmers’ Produce Trade and Commerce Act, 2020, Farmers Agreement of Price Assurance and Farm Services Act, 2020 and The Essential Commodities (Amendment) Act, 2020. These acts discuss the “creation of an ecosystem where farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce” and “trade and commerce of farmers’ produce outside physical premises of markets”[1]. It provides a national framework to protect and empower farmers to engage with “agro-business firms, processors, wholesalers, exporters or large retailers for farm services” at a “mutually agreed remunerative price framework” with fair practices.[2] At present, farmers auction their agriculture produce in 6900 mandis (markets)[3] across India. These acts create the ‘one nation, one market’ policy wherein the farmers will have to auction their produce in only one market. When everything sounds perfect and sorted then why are these protests and strikes taking place at the capital?
The Bad
Just like every other discussion, the farm act poses two points of view. One suggests that the new farm laws are relevant and farmer-centric while the other suggests that they are more of corporate-centric. In India, during 2019-20, 295.67 million tonnes (MT) of food grains were produced.[4] Around 70% of rural households are primarily dependent on agriculture for their livelihood, of which, 82 per cent of farmers are small and marginal. [5]The proportion of small and marginal farmers is because of the division of the land into smaller parts after the abolishment of the zamindar system. When the APMC Act was introduced, the mandi system came along with it, where farmers auctioned their agriculture produce to the traders. However, the link between the two was a middleman. The middlemen charged their commission from both the parties. Eventually, middlemen became the price takers. They would buy the produce from farmers at very low prices and sell traders at a much higher price. This led to the exploitation of farmers and traders and hence the consumers. Now, section 3(3) of the Farmers(Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 gives farmers the freedom to trade with the corporates. The act also defines the modalities of how and when payment must be made to the farmers according to the mutual agreement of both the parties. Section 6(3) mentions that the sponsor shall “make the payment of not less than two-third of the agreed amount at the time of delivery, and the remaining amount after due certification, but not later than thirty days of delivery.” In the mandi system, farmers had to carry their produce to the mandis but now the Section 6(1) of the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, the sponsor or the corporate is obligated to collect the delivery of the farming produce within an agreed time frame and then enter a contract with the farmer. Further, the Government provides land security to the farmers. A private entity rationalises its supply base and negotiates prices on a scale. However, it is also important to know that there is small number of big farmers and a huge number of small farmers. This may force the corporates to shift to the small farmers who may not be in a position to negotiate prices and administer long-term agreements along with owning the risk hence the acts may not nurture benefits to the small farmers. The main problem that arises is regarding the Minimum Support Price (MSP). Earlier, in the procurement centres of the Government, a minimum price was set for the purchase of food grains from the farmers. Now that corporates come into the play, they’ll negotiate for low prices that may not be affordable to the farmer. They will focus on earning profits and in that process, the produce will eventually be costlier for the consumers to purchase. Further, there is no mention of a minimum support price guarantee in any of the acts. Section 5 of the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, mentions that “the price to be paid for the purchase of a farming produce may be determined and mentioned in the farming agreement itself” and in case of price variation, prices can refer according to the “specified APMC yard or electronic trading and transaction platform or any other suitable benchmark prices.” The act is therefore agreement centric. There won’t be any interference by the Government for pricing to provide the “best value to the farmer.” As mentioned above, since there will be large number of farmers to sell to a few numbers of corporates or buyers, corporates will have the market power. Thus, farmers become the price takers. Some farmers believe that the corporations will initially offer them “comparatively higher prices” for their produce to lure them, while “giving the government enough to abolish MSP completely.” ibid While some farmers believe that due to “limited innovation”, the farmers' focus is to produce huge quantity instead of quality. [6]Farmers believe that maximum output results in maximum profits. Whereas, if profits are the motive of a corporate, corporates will demand high-quality products and pay the farmers accordingly. In the budget 2020-21, “the government has created a formal entry mechanism for private players to collaborate with FPOs and build trust among the farming community to augment their footprints in contract farming in India.” Farmer Producer Organisation will act like a union to benefit the small farmers whom the corporates won't prefer as suppliers due to “their limited use of resources, technology, and land.”[7]
The Good
With PM Modi’s Startup India initiative, Make in India Initiative and the introduction of farm acts, it is expected that there will be a boom in the agriculture sector. Along with farmers, corporates and startups also have the freedom to do business in the agriculture sector of the economy. It is forecasted that a huge amount of foreign and domestic investments will be made in the agriculture sector in India. In FY21Q1, Agriculture, Forestry and Fishing (AFF) contributed 18% of the GDP.[8] Farmers and startups will enter an agreement where they will agree on a pre-defined quality and price for the produce. “Contract farming is an agreement between buyers and farmers on the basis of which agriculture production is carried out.”ibid Through contract farming, farmer’s cost of production will decrease considerably. The companies will have to collect the delivery thus reducing the cost of transportation to several mandis and middlemen of the farmer. By producing the right quality and the required quantity of the demanded product, farmers will cut the cost of warehousing and wastage. “Startups can connect with certain regions and geographies for specific crops and assist farmers in carrying out contracts with them.” The equilibrium of quality and quantity will ensure a “fixed return to the farmer.”ibid Financing will become easier for farmers as they can use contracts as collateral for raising loans from banks instead of land or for that matter any asset. In the APMC regime, along with commission, market fee or cess or levy, the black market in agriculture also existed. This would increase the cost of the transaction and hence increasing the cost of production for the farmer. Section 6 of the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, states that “no market fee or cess or levy” “shall be levied on any farmer or trader or electronic trading and transaction platform for trade or commerce in scheduled farmers’ produce in a trade area.” The new acts allow for storage of produce. Farmers can store long shelf-life products like onions and “benefit by selling at a later date.” It is also possible that startups “assist the farmers with inputs and advice. These inputs could consist of seeds, chemicals, fertilisers, etc, and the advice would be informative and instructive, allowing the farmers to follow good agricultural practices to increase their productivity and quality of produce harvested.” The most important development would be the new age of entrepreneurs, agripreneurs and farmpreneurs who will focus on the science and technology that will help “reduce wastage, drive supply chain efficiencies and improve product quality.” [9]
The Verdict
From a cursory reading of the law, it seems that the farm acts seek to benefit all the stakeholders- government, corporates, startups and farmers. However, there are some points that the acts do not address. First, the minimum guarantee price. There is no mention of a minimum guarantee price in any of the acts. There should be a mechanism set to provide at least a minimum of what the farmer is producing. Even in the worst situation, a farmer must be able to recover his cost of production. Apart from the fixed and agreed-upon price in the contract, corporates should also consider setting a minimum support price for the farmer’s produce. Second, to ensure that the consumers are not exploited, a maximum selling price should be set for each product according to its quality that is being sold by the corporates. This should be done on the part of the Government. Third, a proper grievance redressal mechanism should be brought in. Any dispute between the parties shall be addressed here. Fourth, the Government should motivate the farmers to set up direct links with the consumers. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 gives farmers the “freedom” to work with the corporates. It nowhere makes a compulsion for them to work with the corporates. The government has nowhere mentioned about the shutting down of APMCs. Farmers have the freedom to work with both. If these points are not addressed, it might be true that “the new middlemen will be a corporate entity with well-dressed representatives”, “working to manage its employer’s bottom line.”
[1] http://egazette.nic.in/WriteReadData/2020/222039.pdf
[2] http://164.100.47.4/ActsTexts/LSActTexts/PassedLoksabha/Act%20Farmers%20%20Empowermente%20(As%20passed_Eng).pdf
[3] “E-NAM Platform Onboards 1,000 Mandis in 21 States/UTs: Centre.” The Economic Times. The Economic Times, https://economictimes.indiatimes.com/news/economy/agriculture/e-nam-platform-onboards-1000-mandis-in-21-states/uts-centre/articleshow/75764965.cms?from=mdr. Accessed 5 Feb. 2021.
[4] Agriculture in India: Industry Overview, Market Size, Role in Development...| IBEF. https://www.ibef.org/industry/agriculture-india.aspx. Accessed 5 Feb. 2021.
[5] India at a Glance | FAO in India | Food and Agriculture Organization of the United Nations. http://www.fao.org/india/fao-in-india/india-at-a-glance/en/#:~:text=Agriculture%2C%20with%20its%20allied%20sectors,275%20million%20tonnes%20(MT).
Accessed 5 Feb. 2021.
[6] “Who Benefits From The Farm Acts—Farmers Or Private Players?” Forbes India, https://www.forbesindia.com/article/take-one-big-story-of-the-day/who-benefits-from-the-farm-actsfarmers-or-private-players/62971/1. Accessed 5 Feb. 2021.
[7] Khan, Sakshi Gupta &. Zeba. “There’s Business in Farming: How Companies Gain from Agri Sector Reforms.” Business Standard India, 28 Oct. 2020. Business Standard, https://www.business-standard.com/article/economy-policy/there-s-business-in-farming-how-companies-gain-from-agri-sector-reforms-120102800698_1.html.
[8] Jha, B. K. “Agriculture Emerges as 2nd Largest Contributor to India’s GDP: ASSOCHAM Analysis.” Agriculture Post, 20 Oct. 2020, https://agriculturepost.com/agriculture-emerges-as-2nd-largest-contributor-to-indias-gdp-assocham-analysis/.
[9] “Why Contract Farming Could Be The Next Big Thing For Agritech Startups.” Inc42 Media, 5 Oct. 2020, https://inc42.com/features/why-contract-farming-could-be-the-next-big-thing-for-agritech-startups/.
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