Farm laws should reflect local realities

Suresh Kumar

Chief Principal Secretary to Punjab CM

The country is seeing intense acrimony among farmers on the new farm laws. These legislations are apparently aimed at transforming agriculture, but the farmers of Punjab, Haryana, and western UP, the original Green Revolution areas, are seeking their recall.

These are, in fact, not farm but trade legislations. After the onset of reforms in 1992, trade has substantially contributed to enhancing the national GDP. Trade as a percentage of the country’s GDP was 55.29 in 2019. However, agriculture has largely remained out of the trade network. Even the world trade negotiations have not been able to break the impasse on rule-based global trade in agriculture and services.

Liberalisation of agri-marketing, promotion of contract farming, and easing of restrictions under the Essential Commodities Act is the basis of the new legislation. These are premised on a lack of transparency and competition, and predominance of intermediaries in agriculture markets under the APMC Acts. Deregulation, freedom of choice for farmers and tax-free trading are the other reasons for these Acts. Stakeholders who were not consulted claim these to be utopian.

These premises are not borne out of facts and experience of over five decades in Punjab, Haryana and western UP. The farmers of these states/region, who are just 6 per cent of the country’s farming population, laid the foundation of national food security. They could do so owing to the assured purchase of their produce — wheat and rice — under a well-designed MSP regime of the Government of India, and appropriately organised marketing infrastructure of the states under the APMC Acts. The system worked well, fully reflecting upon cooperative federalism. As many as 94 per cent of the farmers are out of the allegedly restrictive APMC Acts.

The APMC Acts do not promote monopoly but stabilise the market. Given the huge marketable surplus (about 45 million tonnes per annum of rice and wheat in these states), there are not enough buyers, much less any single monopolist in the market. The government buys the produce at the Minimum Support Price (MSP), which is an appreciable trade-off between farmers’ financial protection and national food security.

The APMC Acts contain the impact of market vagaries on the farmers, without taking away their freedom of choice. They could sell their produce anywhere they like — provided it was commercially viable. Kinnow and seed potatoes of Punjab are sold all over the country. Punjab’s basmati rice is exported to most Gulf countries.

The APMC markets promoted rule-based transparent trading — both by private or government agencies. Unreported sale-purchase of agricultural produce happened outside these markets, but on a very small scale. True, there are intermediaries i.e. the arhtiyas, who are licensed and regulated to protect farmers. How will intermediaries disappear in unregulated markets under the new legislation? In fact, a new class of unregulated intermediaries is likely to emerge. They may not be licensees of the government but are likely to be marketing agents of big businesses. Nevertheless, is there any trading, agricultural or non-agricultural in this country, that happens without intermediaries? Even financial trading happens through agents. Thus, one can make the case to improve the regulations for intermediaries but freeing farmers from them may prove to be detrimental.

Farmers are expected to reap the benefits of the market through open trading. This should happen, but will this happen? Perhaps not! For this, we need to understand the context of our agriculture. Indian agriculture is based on peasant farming with nearly 86 per cent of farmers owning less than five acres. It is a unique feature of our system that we achieved food security with such small-scale agricultural operations. Our agriculturists are not only small but they are localised too. They are largely dependent upon support from outside — the government, intermediaries and the service providers. In many ways, our agriculture is not natural but an economic compulsion, leading to unsustainable operations causing damage to natural resources and biodiversity. However, it still supports over 50 per cent of the country’s rural population for their livelihood, though its share in national GDP has decreased to 15 per cent. Above all, it still has the potential to give the country enough food stocks for national food security. The new legislations are unlikely to address the problems of the present agricultural systems. These may, however, jeopardise the financial security of the farmers.

How will the small and marginal farmers compete with trading giants in the completely unregulated markets? How are they going to discover the best price for their crop? Will they not need assistance from some intermediaries to learn about the prevailing prices in far-flung markets? Will it not involve additional transportation costs for farmers unless the government intends to introduce another subsidy to improve farmers’ access to distant markets? Maybe, the intermediary such as the National commodities and Derivatives Exchange (NCDEX) is enabled through technology, but that too has a price and a regulation. Even in e-NAM and such other digital interventions, the rules of the game would need to be laid down.

Leaving imperfect agriculture markets totally unregulated may not be a good public policy. Commercial trading in agriculture produce can be best achieved with clear statutes protecting the farmers in the market. The Food Corporation of India, should alongside the purchases for the public distribution system (PDS), make commercial purchases to stabilise markets, else a new national Agri-Food Export Corporation should be established for commercial operations in foodgrains. The Cotton Corporation of India does not buy all the produce, but it does help to stabilise markets to protect growers’ interest.

Contract farming is seen as a step towards enabling farmers to access the benefits of the market economy. But the farmers are apprehensive of such an arrangement. In Punjab, the Contract Farming Act was enacted in 2013. The farmers saw it as more of an attempt to corporatise agriculture than as a measure for their economic emancipation. The small farmers were not sure how to secure or receive their full entitlements at contractual or impromptu market-driven prices from big buyers without any external support. They were also apprehensive about their exploitation by big corporates. Some even feared the loss of their land through prolonged litigation. These apprehensions have not been fully allayed even in the new central legislation on contract farming.

Agriculture markets in India cannot be solely guided by the logic of the competitive global economy. The farmers carry out operations with small localised input services and through intermediaries. Inputs are subsidised, but their provisioning, supplies and services are not guaranteed by any law. Instead, at times, these are guided by political gamification, even at the cost of economic logic.

The liberalisation of agriculture markets will succeed only if it fully reflects upon the context of our farming communities. Notwithstanding the economic hypothesis and the experience of other emerging economies, the laws and policies should respond to the requirements, which are much different. The new legislations seem to have failed in this direction and have thus, not captured the imagination and understanding of the farmers.

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