HOW IS AGRICULTURE BILL IN FAVOUR OF AGRICULTURE FARMERS?
DR. RAJESH KUMAR SINGH,
Livestock Consultant
From the last 20 days we have been witnessing how the Agriculture farmers of Punjab and Hariyana are protesting the Agriculture bill. Through Electronic/Print media and social media we saw that most of the farmers who are in protest don’t have actual knowledge of the Agriculture bill.If these farmers come to know the reality of the bill ,they will realize it as watershed in the agriculture reform. My intention of this write-up is to let our agriculture farmers know about the reality of the Agriculture Bill.
Ever since the agriculture bills were passed by the Parliament in September 2020, they have been surrounded by controversy. Ministers have quit from their posts, farmers have taken the streets and several attempts have been made by the government to assuage the situation, but with no success.
Here, we try to understand what the 3 laws entail, why the farmers want them to be rolled back and where the protests stand now.
The farmers are protesting against 2 Farm Bills that the Rajya Sabha recently passed: (1) the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, and (2) the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020.
Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020—
Under this Act, the farmer and the buyer can enter an agreement before the crops are produced. The minimum time set for this agreement is 1 crop cycle or production of livestock. The maximum is 5 years. It can be extended further but by the mutual agreement of both parties, that is stated clearly in the contract. The amount the farmer will be getting for selling the products should also be explicitly mentioned in the agreement. If there are products for which price variation is predicted, there should be a provision for guaranteed price setting.
According to the Act, the cases of any dispute go through 3 stages – Conciliation Board, Sub-Divisional Magistrate and Appellate Authority
Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020———–
The Act allows the farmers to sell their produce within and outside, without having to be in the premises of Agricultural Produce Market Committee markets AKA mandis.
The farmers can also opt for another route of selling, one among them being online. Additionally, ‘market fee’, earlier levied on farmers for selling produce ‘outside trade area’ will be done away with.
Essential Commodities (Amendment) Act, 2020 ————
According to this Act, the government of India oversees and can take decisions pertaining to the selling of essential commodities such as medicines, fuel etc and can decide what its MRP is going to be.
It can also add things to the list of essential items and remove them according to its discretion. Apart from this, the government can also control prices of these items by increasing their availability by putting a limit on stock-holding.
State government can or cannot use their powers, according to their discretion.
Now the amendment of this Act states that the government can only put things in the ‘essential’ category during ‘extraordinary cases’. Which means, war, famine, natural calamities or unprecedented price hike.
The government has also removed eatables like pulses, potatoes, and cereals from the list.
Further, it has been stated that the stock-holding limit can only be imposed if there is a 100% rise in the retail prices of horticulture products and 50% in the case of non-perishable food items.
This increase will be calculated either by substracting the price of products from one year ago or by taking out the average of last 5 years. Whichever of these two is lower, will be applied.
HOW DOES IT FAVOUR FARMER———-
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill allows farmers to sell produce outside the APMC (Agricultural Produce Marketing Committee) mandi yard in the newly created “traded areas”. In these areas any buyer with a PAN card can buy directly from farmers without the requirement of licence and commission fees.
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill provides an architecture for the contract farming, and the Essential Commodities (Amendment) Bill removes the restriction on stocking, movement and export of agriculture commodities.
Collectively, the Bills are designed to reduce the barriers in the agriculture supply chain, liberate agriculture from the dominance of arhtiyas (middlemen) and enable a framework for assuring farmers a pre-determined price at the time of sowing and minimising the effect of cobweb phenomenon.
The Bills, will encourage private players to invest in the agriculture sector, especially marketing infrastructure, leading to higher productivity and prices to the farmer. The Bills are expected to help create a single unified market for agriculture, enabling farmers to sell their produce throughout the country. The present mandi system favour middlemen who earn a heavy commission — small farmers sell their produce to village middlemen, who sell to wholesale traders, who in turn sell in large mandis. Moreover, the system has created a monopsony market structure giving middlemen an undue advantage over the farmers.
The new reforms are particularly beneficial for small and marginal farmers, who own less than two acres of farmland each. These smallholder farmers make up over 80 percent of the agrarian population, and are not the ones protesting.
The new Farm Bills are set to benefit marginal farmers, who constitute 80 percent of Indian agriculture. Others who gain are agritech startups, agri warehouses, and organised players in the food trade.
Large farmer dynamics are very different from small farmers with marginal landholdings who constitute most of Indian agriculture. The larger farmers who tend to benefit more from the earlier scenario might have more reason to protest
The legislation allows them to sell produce directly to any buyer as opposed to restricting them to the local mandis. These additional channels could be anyone from large corporations and agritech startups to food processors, wholesalers, modern retailers, and B2B customers like hotels and restaurants.
Transactions taking place outside mandis will not be charged the APMC (Agricultural Produce Market Committee) cess. Add to that, farmers will benefit from direct market linkages and better supply chains that will impact their incomes positively.
The Bills also bring in a slew of benefits for agritech startups and organised players who connect farmers to agribusinesses, food processors and exporters; agri warehousing companies and cold storage providers; supply chain and logistics operators that ensure transparency and timeliness; online agri trading marketplaces, and practically anyone in the agri value chain that works towards eliminating inefficiencies in ‘farm-to-table’.
Smallholder farmers, particularly, need supply chain efficiencies — from better matching of supply and demand to lower volatility on pricing, and superior cold storage. The Farm Bills open up these avenues and let farmers interface directly with agri service providers, most of which are new-age startups that have built their foundations on technology.
The free market benefits not only farmers, but also agritech startups. They will no longer be restricted by state-level bureaucracies and the License Raj of local APMCs, which would often impede their growth and scalability.
One can go to any state or farming belt directly without partnering with local mandis. Earlier, the farmers would have to sell their produce through local aggregators and mandis, which would then sell to consumers at a higher price. Each intermediary jacks up the price of produce, but the farmer still earns less because the commissions went to the middlemen. The small farmer is so small that he cannot command anything. But now, they can work with platforms like us directly. They are not mandated to go to the mandi. With a free market and increased competition, farmers will get price benefits
Besides the streamlining of processes, elimination of some intermediaries, and reduction in red-tapism, the Farm Bills may even lead to the mushrooming of new startups that will help draw up legal frameworks and contracts between farmers and agribusinesses, and also educate farmers on the Bills’ benefits.
Because of the opening up of the agri trade, there is likely to be more corporatisation, privatisation and participation of organised players. A bit like what India witnessed after the liberalisation of the economy in 1991.
Most stakeholders believe that more privatisation will lead to increased investments and tech-led innovations, especially in sourcing and collection centres, storage, and supply chain infrastructure. These areas are likely to draw VC attention too.
Efficient supply chains are almost imperative given India’s post-harvest loss stands at 40 percent annually. Perishables are the worst hit, with losses amounting to a staggering Rs 13,300 crore. The Farm Bills will allow deep-pocketed private players to fix this pain point with state-of-the-art infrastructure and advanced farm-to-table processes.
A quicker supply chain directly reduces the prices as fewer hands are involved. Better infrastructure and climate-controlled storage facilities give end consumers good quality perishables with a longer shelf life. While farm-to-table efficiency may be the most immediate impact of increased innovation, in the long run, the Farm Bills are also expected to boost agri storage infrastructure even in smaller locations.
Warehousing has always been skewed towards larger markets. Because of the lack of market linkages, finance, and other support, a lot of the storage capacity lies unoccupied in smaller locations. These locations can now become vibrant storage hubs.
The Farm Bills are also expected to bring corporates closer to farmers. It will lead to more buying, contract farming, and farmer-first programmes from them.
The new Bills will encourage organisations, individuals, and farmers to stock select agri commodities to increase profits. It is likely that the government will rely on private players for storage, which makes sense. Historically, the government has incurred huge losses due to mismanagement when it tried to store agri commodities.
In Punjab and Haryana, for instance, 75 percent of the procurement is done by the government. So much so that large farmers in these states are incentivised to grow certain crops against others. This creates a surplus, which is stored in dysfunctional godowns, where it simply rots and leads to wastage.
Privatisation of agri warehousing is expected to solve the storage problem while increased buying from non-government players — enabled by the Farm Bills — will eventually bring down surplus production of food grains.
APMCs in India make Rs 11,200 crore in annual revenues, as per industry estimates. Because of the rationalisation of cess, and the end of their monopoly due to the availability of alternate channels, they might be hit in the short term.
FPOs/VMOs can buy and aggregate produce from small and marginal farmers and negotiate on their behalf with mandi agents, private players and wholesalers.
Establishment of alternative marketing platforms will enhance the competition for farmers’ produce and will limit the monopsony power of both mandis and private buyers.
A new incentive structure encouraging farmers to transition from foodgrains to dairy, horticulture, poultry, floriculture or fisheries should be created.
The transition from grain-based farming to non-grain farming is key. A similar diversification is required towards the non-farm sector that will make rural areas more economically viable.
Encouraging small, marginal and landless farmers to diversify towards non-farm activities by creating opportunities in food processing, livestock, retail trade, and rural infrastructure (roads) could help.
How will the Bills benefit the farmers?——
The three farm laws offer three basic freedoms to the farmer.
- Defeat the monopoly cartel at the APMC mandi and sell the produce anywhere to anyone
- Bypass the Essential Commodities ACt and be free to store inventory which was constrained so far by stocking limits of ESCA.
- Free to make contracts and transfer risk to businessmen in deals made over a crop even before yield is made or met
