Farm Bills 2020 — An unbiased analysis
Just so that we are on the same page,
The three farm bills passed by the parliament are —
- Essential Commodities (Amendment) Bill
- Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill ( Also referred to as APMC Bypass Bill)
- Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill
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- Essential Commodities (Amendment) Bill
Basic idea here is that people are not allowed to hoard commodities in this list. With the amendment, government is trying to deregulate commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes. - Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill ( Also referred to as APMC Bypass Bill)
With this bill, farmers would be allowed to sell on platforms (private markets, online, etc) other than APMC Mandis. - Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill
Farmers can sign an agreement with the purchasing body 6 to 8 months before actually selling the produce. This will ensure that farmers get appropriate prices for their goods even if they drop over a period of time.
Here are a few sources to learn more about them
- https://economictimes.indiatimes.com/news/economy/agriculture/agricultural-reforms-heres-a-look-at-key-measures-in-the-legislation-passed-in-lok-sabha/farmers-empowerment-protection-agreement-of-price-assurance-farm-services-bill/slideshow/78201770.cms
- https://mpa.gov.in/bills-list
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Before 1947, farmers used to sell their goods to consumers directly. This lead to an issue.
Farmers basically took loans from money-lenders who charged high rates of interest. When they failed to repay the money lenders, the farmers would be forced to sell their produce (to the money-lenders) at a very low price. So for the year that followed, they would need to take a loan again. This created sort of a ruthless cycle.
So, the concept of Agriculture Produce Market Committee (APMC) was born. This prohibited farmers from selling their goods directly. It was mandatory for all the transactions to occur via APMC Mandis. APMC Mandis are managed by the State Government.
Only traders who are licensed can purchase from the Mandis. Farmers can only sell their produce in specific Mandis (usually the one in proximity to their location).
The produce is auctioned before the sellers. Government has declared MSP (Minimum Support Price) for certain crops, 22 to be precise. “The MSPs served as the floor prices and were fixed by the Government in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop”. For other crops, the concept of ‘Price Discovery System’ is used which sets the price based on demand and supply of crops.
Supply Chain
The Commission Agents handle the functioning of APMC Mandis (correct me if I am wrong here). The traders bid on produce. The transaction agents handle the processing of selling farmers’ produce. They charge around 2 to 3 percent of the selling price as their fee which is borne by the farmer. The traders sell the produce to retailers who further sell it to consumers. The price of produce increases by around 10 times by the time it finally reaches the consumers. For goods that cost consumers Rs. 100, farmers get just around Rs. 10.
Flaws
Traders:
Since APMC Mandis are entirely managed by State Government, only people who have political connections with the SG usually qualify as traders.
Middlemen:
Consumers get goods at inflated prices. On the other hand, farmers get a very little share of that.
APMC, which was introduced to safeguard interests of farmers has now become a reason for exploitation. There have been instances where Traders would form unions and deny buying goods from farmers over MSP. Since the products are perishable, farmers would be forced to sell them at lower prices. There have been protests from farmers (https://www.thehindu.com/news/national/govt-announces-26-hike-for-wheat-msp-amid-farmers-protests/article32663652.ece) to increase the MSP.
A lot of states such as Maharashtra, Chhattisgarh, Bihar have come up with reforms to ensure that traders don’t end up paying below MSP (Penalty for traders, remuneration for farmers, etc).
Also, I think one more issue that is related to this is not having regional MSP. For a crop C in state S1, the cost of production is different that what it would be in state S2. Having the same MSP for a particular crop all over the country doesn’t seem fair.
APMC has created a monopoly that has affected fair-play in the market.
Can Central Govt make laws related to agriculture?
Short answer, Yes. (Even though Agriculture is in the State List)
L1- Center has right to legislate
L2- State Govts have right to legislate
L3-Joint domain
Entry 14 of State List states that State can make laws related to Agriculture, including agricultural education and research; protection against pests and prevention of plant diseases. (https://en.wikipedia.org/wiki/State_List)
So strictly speaking, only State has power to make laws related to agriculture. However, according to article 248 (Residuary Powers), if an entry is not present in any of the 3 lists, Center reserves right to make laws. Also, according to article 249, if the entry is present in the State List, for the sake of national interest, Central Government is allowed to make laws.
Why are the protests happening?
- The ‘Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill ( Also referred to as APMC Bypass Bill)’ allows intra-state and inter-state trade of farmers’ produce beyond the physical premises of APMC markets. With this in place, State Governments would not be able to levy fees or taxes on operations happening outside APMC areas. Post 1947, based on the development, states have been classified into rich and poor states.
- State Govt acquires funding for itself and also gets funds from the Centre. Based on the status of the states, the Centre allocates funds for them. After collecting funds from all the states, Centre redistributes the funds and during this process, preference is given to poorer states. As you can see, Bihar gets Rs. 219 for every Rs. 100 contributed to Centre’s tax revenue where as Maharashtra gets only Rs. 13.
With this bill, this would further cut off revenue streams for states. For instance, Punjab takes around 8.5% in taxes from APMC Mandis which accounts for around Rs. 1750 crores. This money is further used in development of states. Also, the bill does not say anything about MSP which is a topic of concern for some parties. - Essential Commodities (Amendment) Bill would boost farmers income to some extent but would have adverse effects on public distribution system, as chances of hoarding might increase with government not regulating the the supply of essential commodities. A lot of big corporates might end up hoarding commodities such as cereals, pulses, edible oil, onion and potato which might create a pseudo shortage leading to rise in prices.
- Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill as mentioned before, promotes contract farming and would help farmers to make tie-ups with large buyers and exporters. This will attract private investment in the sector and would transfer market risk from farmer to sponsor to a great extent. However, there are few things which are not clear. If the buyer declines to purchase farmers’ produce because of goods not being up to the mark and the matter gets dragged to court, farmers would not be able to stand for themselves against a giant corporation.
Note: Not every thing you see on the internet is true. I have written this after doing research on the INTERNET. I have tried my best to ensure the veracity of the material in this post. However, if you think something is not right, feel free to point it out.