By Deepak Pacha ([email protected])
Why are the agitating farmers not ready for any compromise other than repealing the three controversial laws brought by Modi government? How are these three laws going to affect the Indian agricultural sector and the general populace? This write-up is my humble effort to explain these issues in a simple fashion.
The new laws that have enraged the farmers are:
- Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020- (FPTC Act)
- Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 – FAPAFS Act
- The Essential Commodities (Amendment) – ECA Act 2020,
Let us first examine the discussions around FPTC Act.
What are Government’s arguments?
The Central government and the proponents of these laws claim that when FPTC Act comes into force, existing APMC regulations will be removed and thereby farmers will get wider markets outside Mandis to sell their produce directly to traders. They claim that the new bill will put an end to the exploitation of farmers by middle- men. They also say this act will help the traders to come out of the tax imposed under the existing APMC Act
What is the APMC Act?
In the first few years after independence, traders used to buy products directly from the farmers. In those days, traders with better economic conditions used various pressure tactics to buy produce from farmers at low prices. The APMC Act was put in place to bring an end to this exploitation. The act is contextual and different for each state. According to the APMC act, each locality will have its own mandis (markets) and the selling of agricultural produce happens through these mandis. Mandis function under two basic principles.
- End the exploitation of farmers by traders where products are bought off at a low
- All products will be first brought to mandis following which they will be bargained and bought by traders.
How do APMC mandis function?
Every locality will have a mandi of its own. There will be a committee which will control the particular mandi. The traders who would like to buy the products from a particular mandi are expected to take license from the APMC. Only those traders with licenses are allowed to buy commodities from the mandi.
After harvesting, a farmer takes his/her products to the mandi. Assume there are 10 traders who have procured license from the committee. For certain essential products, there is a minimum selling price (MSP) fixed by the government. The traders can bargain and buy the products only above these minimum selling prices. Government, through this system, aims to ensure that farmers will be able to get a fair price for their products. According to this system, a farmer will only be able to sell his/her products in the mandi within his/her locality. He/She will not be able to sell them off at another locality of his/her preference. Also, a trader will not be able to procure products outside the mandi system. (Most states have later amended the APMC act which allows farmers to sell outside mandi also. The above mentioned is only about the basic act that is in place).
Are APMC systems flawless?
Of course not. APMC systems currently have several issues that need to be addressed. Over time APMC became corrupted and license procedure to new traders was seen by APMC as a source of bribes. Thus traders who paid and obtained licenses came to form cartels. This means an agreement will be reached among the traders on the price (for a particular product) before the auction at a mandi starts. For example, something along the lines of “we will not quote more than Rs 10 for per kg of onions today” will be decided in advance by the cartel of traders. As a result, farmers are forced to sell their produce at a price set by traders without auction. Farmers’ organizations have repeatedly called for this issue to be addressed.
Will the new rules solve APMCs’ problems?
The new laws will not solve these problems but will push farmers to a deeper crisis as you can see below:
- Under the new law, farmers can sell their produce in any This means an onion farmer in Nashik can sell onions in Kerala. That’s nice to hear. But it is not practical for small farmers to ‘trade’ their produce transporting to distant markets. This law is not intended for the farmers to gain by acquiring a larger market but it’s making it easier for the big corporates to buy from all parts of India for the cheapest price possible.
- Large companies can now buy produce directly from farmers. If they are paying a lower price, farmers can go to APMC run mandis as these mandis will still be in operation even after the new law comes to This is what the proponents of the law say. We have enough experience that show how government systems have been systematically sabotaged in all sectors which have been opened for the private players. The same is going to happen in agriculture also. For example, suppose the big companies pay the farmer a better price in the early years. Ofcourse, the farmers will leave the APMC. When there is an opportunity to buy directly from farmers outside Mandi, traders will not prefer to buy goods through Mandi by paying licenses and paying taxes. Gradually the APMC system will weaken and become just a market for private entrepreneurs. Under the new law, the government does not guarantee a minimum support price for trading outside APMC mandis. Even if government declares a minimum support price, there is no guarantee that farmers will get that price unless the government actively participates in the market to guarantee MSP. Otherwise MSP will remain just on paper.
- It will affect not only the farmers but also the lives of the people in depending on agriculture. State Governments like those Punjab and Haryana receive a good amount of tax on sales through mandis. This amount is the main source of revenue for many The new law will eliminate the tax that states are currently receiving.
- The main reason for farmer indebtedness is not that harvest is Farmers do not get a fair price for their produce – that is the real reason. Minimum support price is the mechanism to address this issue. The Swaminathan Committee recommended that the support price should be one and a half times (C2 + 50%) of the cost of production. This was one of Modi’s key promises in the 2014 elections. But the new law does not even mention support price. If the support price becomes a legal right, the big corporates who aim to conquer the market through the new law will have to pay that price or more. The goal of gaining big profit and hence the market-share will have to be abandoned by the corporates. To avoid that, the new law will allow corporates to trade outside the designated mandi’s without any MSP protection. In fact, it is very clear from the law the ruling Government is in service of the corporates.
- Farmers fear that the practice of FCI procuring at subsidized rates from farmers for public distribution will end with this bill. This is because this was mainly done through the mandis. One of the key recommendations of the Shanta Kumar Committee set up by the government in 2014 to study the issues related to FCI was to reduce this stockpile. That is exactly what the government is aiming for through the new law.
How can this law help the corporates?
Our farmers will never be able to secure better prices by bargaining with corporate traders like Reliance Fresh, D-Mart and Big Bazaar. For that to happen, government-controlled systems are needed. There is nothing legal in the new law to ensure a support price for trade outside the mandis. Small farmers complain that this is to help big corporates. In Bihar, where the APMC market system has been abandoned, small farmers are sitting on the roadside selling their produce for a pittance. Poor farmers cannot afford to stockpile perishable products for long periods of time like the big ones. The experience of Bihar frightens the farmers even more.
Are there any issues affecting non-farmers and ordinary people?
We are a country where 70% of the rural households live by farming. 86% of them are small farmers with less than two hectares of land. Any problem that affects them will affect our entire society. Experts say inflation will intensify as monopolies establish themselves in the sector. This is because there is another big risk in losing the APMC system. We know that when inflation occurs, the government intervenes in the commodity market, and the government receives information about prices through mandi- centric market intelligence. Once the system collapses, the government will gradually withdraw from the task of controlling inflation.
There is no doubt that the pre-existing APMC mandi system has shortcomings. But to solve it, the government is leaving the Indian agricultural sector to the corporates which will eventually ruin the farmers. Instead of curing the disease of the APMC, the law is going to kill the entire agricultural sector itself. Even now MSP is very low. This new law makes farmers’ conditions worse than now. That is why they are agitating.
Now let us look at how the second law, the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act 2020(FAPAFS), allows large corporations to further exploit farmers.
What is FAPAFS ACT?
Under this Act, large companies across the country will be allowed to engage in contract farming with farmers. This means that the price and quality of the produce will be fixed prior to arming through a contract. Farmer will get a guaranteed fixed price for the produce. But the story does not end there.
What are the risks that farmers find?
- As we know, there will be a ‘conditions apply’ note whenever corporates enter into any How can poor farmers understand the intricacies of contract law when even the educated cannot understand and intervene accurately? Small farmers cannot win legal battles with big corporates. (The law does not even permit deliberations to go directly to civil court). For example, if ITC signs a soybean crop contract with a farmer in Madhya Pradesh at a price of Rs 4,000 per quintal for certain quality of soybeans. At the time of harvest, the company cam allege that the produce is of poor quality for which they will pay only Rs. 3,500 per quintal. The provisions for changing from initially agreed price would be already there is some obscure paragraph of the contract!
- Just as the first law allows trade without MSP guarantees outside the mandis, there is no provision in the new law to legally guarantee that companies must pay MSP to farmers even when engaged in contract farming.
- Under the new law, farmers will not be able to approach the civil court directly if there is any dispute over the Settling any issue in the contact is the responsibility of a committee set up by the sub – divisional magistrate.
- For the farmers involved in contract farming of Hybrid Seed Production the companies give only 25% of the actual cost of the newly developed seed at the time of the The balance 75% will be paid only after the successful completion of the genetic Purity Test of the seeds. This test would take a delay of 70 to 80 days leading the farmers in great distress.
- This is not just a possibility. PepsiCo has a monopoly on FC-5 potato seeds, which are used to make Lays PepsiCo had sued four farmers from Gujarat for farming potato with the same variety of seeds in their fields. As protests intensified, PepsiCo withdrew the case. In the context of a new law like this, when corporates exploit farmers, they will always have to fight for justice which is not affordable for most of our farmers.
What are the far-reaching problems of contract farming?
It is noteworthy that the Swaminathan Committee said in 2006 about the problems that would arise in connection with contract farming. Companies will always focus on short term profits they make. Therefore, they may motivate farmers to adopt many farming practices that affect soil quality in the long run. Companies have the opportunity to go to other farmers after some time of exploitation. By then, the land of the farmer who had entered into the contract earlier will become uncultivable. The farmer may also be forced to move away from the major food crop and cultivate crops of export value. The Swaminathan Committee said that this would affect the food security of the country itself. Many states already have contract farming. Studies indicate that contract farming has adversely affected the farmer’s income. (The failed ‘Kuppam model’ contract implemented by Chandrababu in Andhra is a case in point)
Do we have any bad experience with contract farming?
The Supreme court gave its ruling in the first week of March in Nandan Biometrics Limited vs Ambika Devi case. Ambika Devi is a farmer from Kerala who owns one and a half acres of land. In 2004, they entered into an agreement with Biometrics Company for the sale of a medicinal plant called Safed Musli. The agreement was to buy the product from Ambika Devi at Rs 1,000 per kg, but the company broke the contract. In 2008, Ambika Devi filed a complaint in the Kerala Consumer Court and when the verdict was in Ambika Devi’s favor, the company went to the Supreme Court. The Supreme Court also ruled in favor of Ambika Devi. The verdict is now in favor of Ambika Devi. However it took more than decade to get a final decision in her favour. Not all ordinary farmers can win a legal battle like Ambika Devi. They do not have the time or financial capacity to do so.
Can’t you see now that the concerns of agitating farmers are genuine?
Are the agricultural laws introduced by the Central Government affecting only the farmers? If you think so, you are wrong. We are all going to suffer. Of the three new laws, The Essential Commodities (Amendment) Act 2020 will directly affect all ordinary people in the days to come.
What is Essential Commodities Act (ECA)?
Under the Essential Commodities Act (ECA), which came into force in 1955, some products were declared essential commodities by the government. The production, storage and distribution of these products will be under the control of the Government. That is, it is not permitted to store such products in excess of a certain quantity. In addition, the government will set the Maximum Retail Price (MRP) for these products (as set for masks and sanitizers at the time of lockdown). This system is for avoiding illegal black market and hoarding of essential commodities and controlling the inflation. The ECA covered nine categories of products, including pharmaceuticals, fertilizers, jute, foodstuffs, petroleum and petroleum products, fodder, seeds of food crops and fruits.
What is the current amendment to the ECA?
The new law will remove cereals, pulses, oilseeds, edible oils, onions and potatoes that were previously on the ECA list from the essential list. However, these will be considered as essential items in times of unforeseen circumstances such as war and natural disasters.
As per the provisions of the new law, any action on imposing stock limits will be based on the price trigger. Thus, in case of horticultural produce, a 100% increase in the retail price of a commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower, will be the trigger for invoking the stock limit. For non-perishable agricultural food stuffs, the price trigger will be a 50% increase in the retail price of the commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower.
What does the government say on ECA?
The government argues that private investment in procurement and distribution of products will lead to development.
How can this law adversely affect us?
Let us try to illustrate this with an example. For example, potato is one of the items removed from the essential commodity list as per the new amendment. Assume that the average retail price of potatoes for the last five years is Rs. 40. Reliance Fresh bought the bulk from the farmer at Rs 20 per kg. As there are no restrictions as per the new ECA amendment, they store it in their cold storage for up to two months (shelf life of potatoes is nearly 3 months). It sells for Rs 75 per kg when demand is high. According to government law, restrictions can be imposed only if the amount exceeds Rs 80. The government has cleverly inserted provisions in the new laws that will result in losses for farmers and ordinary consumers and profits for companies with large capital. The farmers’ agitation going on in Delhi is also to ensure that the common man does not suffer from inflation in the coming days.
(My sincere thanks to my friends Bornie Thomas, Deepak Johnson, Liya Thomas, Raeesa P.C and Sangamithra Vinayan for their input in preparing this note)