Farm reform? Why I can’t support the new farm Bills
September 25, 2020 5:15 AM
The Essential Commodities Act hasn’t been really defanged, and the new law on contract farming does not look at the fundamental obstacle to formal contract farming—the various restrictive laws on land ownership
These three ordinances, and, now, the Bills are being touted as the 1991 liberalisation moment for agriculture.
By Barun S Mitra
Ironically, the day the central government was celebrating the passage of three new Bills related to agriculture, the ministry of commerce imposed a complete ban on exports of onions with immediate effect on September 14. Not surprisingly, the contrast was reflected in the acrimonious debate within Parliament, as well as in the highly contentious political climate outside it.
Nothing could have brought out the contradictions between the government’s stated intention to liberalise agriculture from the stranglehold of regulatory red tape, and the practised ease with which the same government stifled the prospect of onion farmers without any qualms. Clearly, actions spoke louder than the words thrown about in Parliament.
These three ordinances, and, now, the Bills are being touted as the 1991 liberalisation moment for agriculture. Trade liberalisation was the hallmark of the 1991 reforms. Instead, what the farmers witnessed was the annual ritual of restricting the export of onion, as if nothing had changed. Ideally, I should support the efforts to reform APMC and trade, the Essential Commodities Act, and contract farming. Laws like these have depressed the potential of Indian agriculture for decades.
But these new ordinances/bills hardly do any of these. Worse, they are being shepherded through Parliament in a manner that suggests that the Bills are meant to score rhetorical points, rather than bring any substantive changes on the ground. Three months under the ordinances didn’t really show any promise of better days.
The new law does not abolish APMC, since these are governed by state laws.
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, seeks to open the agriculture market beyond the APMC regulated markets so that farmers can sell their produce anywhere to anyone. However, APMCs are governed by state laws; therefore, the new bill seeks to bypass the issue. No one denies that APMCs have serious shortcomings. There was a need to persuade the state governments to reform, liberalise or even abolish the APMCs.
It is equally important to recognise Bihar as the first and the only state to abolish APMCs in 2006, and a need to assess its impact on farmers and agriculture trade in that state. Yet, hardly anything is heard about the pathbreaking step taken by Bihar 15 years ago.
The various political parties that support these agriculture Bills, today, between them govern 21 states. The true spirit of cooperative federalism would have been strengthened if these state governments had walked the talk of reforms, and led by example in reforming or abolishing APMC. Such experimentation would have led to a more informed discussion, the possibility of wider political consensus. Successful instances of market reforms at the state-level would have inspired others to reform and used the central law to sidestep the redundant APMCs. Instead, along with APMC, there is going to be another set of regulations that govern the non-APMC markets. This raises the prospect of new conflicts and is not exactly a recipe for an open and free market for agricultural produce.
The amendment to the Essential Commodities Act removes some of the specific items from the list of products on which it may be invoked. But, says that the ECA can be invoked in an emergency, without defining these emergencies. Instead, it puts a catch-all criterion when the price of an item increases by 100%, which is a common occurrence for most fresh vegetables and fruits, including tomato, onion, and potato, depending on the seasons, during a year.
The Essential Commodities Act has been hanging like a sword on the heads of traders and investors for decades. It is believed that with a truly free trade environment, the ECA ought to become irrelevant. Instead, the present effort is limited to tinkering with ECA by removing a few items from its scope, while expanding the scope ECA. The new law defines the scope of price rise, which may trigger the imposition of ECA again.
It didn’t help at all that on the very day the Lok Sabha passed these agriculture Bills, the ministry of commerce imposed an immediate and complete ban on onion exports, under the Foreign Trade Act. In the past decade, FTA has been invoked to restrict or prohibit the export of onion almost every year. Such restrictions make the exporters vulnerable, undermining their capacity to meet their contractual obligations, equally such periodic and abrupt actions by the government undermines the country’s reputation as a reliable trading partner. Similar misguided policy interventions have helped to push the terms of trade against agriculture for much of the past 70 years and singularly contributed to holding farm income down as a deliberate economic policy.
Taken together, ECA and the FTA, by restricting domestic and international trade, contribute significantly to lowering farmers’ income potential. Even while the price of onion was rising domestically, with indications of a seasonal shortfall in supply visible in July, the import duty on onion continued to be 30%.
This made the possibility of imports as a way to moderate the spike in domestic prices unviable. The greater paradox is that production of onion in India today is higher than the domestic consumption. ECA and FTA have actually made prices more volatile, reducing the incentive to invest in modern storage facilities. These ad-hoc and arbitrary trade restrictions have added to the farmers’ woes by making them vulnerable to vagaries of regulations, in addition to the vagaries of nature.
The new law aimed at empowering farmers by allowing contract farming ignores that 25-50% of agriculture is done under some kind of contracts. If most such contracts are informal, it is because the cost of formalising is too high. The new law only adds new layers of regulatory complexities.
The third new Bill, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, seeks to empower farmers by facilitating contract farming.
With 85% of agriculture being done by small and marginal farmers, and lack of economic viability of such small parcels of land, contract farming has become the norm. Estimates range from 25-50% of agriculture under some form of contract in many parts of the country, albeit informally. It would seem that disputes on such informal contracts are far fewer, and perhaps there is a greater resolve to try and settle whatever disputes that may arise at the community and society level.
Unfortunately, the new law on contract farming does not look at the fundamental obstacle to formal contract farming. The fear of potential loss of ownership of land due to the plethora of complex land laws is the most significant obstacle to formalising contract farming. Among such state laws are the tenancy Acts, land use and land transfer laws, and the land ceiling Acts. Land is the only capital asset of farmers, these laws singularly undermine the value of capital assets, and makes the farmer vulnerable, and therefore reluctant to engage in formal contracts. A Bill that seeks to empower the farmers, unfortunately, seems blind to the most disempowering aspects of the land laws that have tied Indian farmers to poverty. Instead, the new law places further layers of regulations, including the format of the contract and dispute settlement procedures, which would only increase the cost of undertaking formal contracts for farming.
Apart from the contents of the new Bills, the procedure adopted to pass these legislations exposed the total disregard for precedence and propriety. First, there was no urgency in proclaiming these presumably structural changes in the agriculture sector through ordinances. The last three months under the ordinances have not provided any indication of green shoots of freedom for the farmers. Instead, it has brought many farmers and traders on to the streets. And then the Bills were rushed through Parliament that in a way further undermined its democratic legitimacy. The voice vote adopted in the house to pass the Bills in a highly polarised issue only underscored the desire to shove criticisms under the carpet, and not record the numbers in a division. More so in the Rajya Sabha where even the numbers on either side were uncertain, and any simple assessment would suggest that there was no assurance that the government had the numbers. In fact, by overriding the call for division in the Rajya Sabha, and passing the Bills by voice vote has only fuelled suspicion that the numbers may not have suited the government.
While majorities are important, the spirit of democracy lies in the legitimacy bestowed on that majority by the graceful acceptance of the decision by the minorities. Democracy requires recognition from all, as majorities are transient, but citizens are permanent. Whatever merits there might be in the alleged agriculture reforms, it will not take root and flourish in a contested and divisive environment. In fact, sowing divisions in the name of reforms only underscores the possibility that agriculture reforms may never have been the main objectives. Farmers have become the latest pawns in a wider game of power based on an old idea of divide and rule.
Every farmer knows we can only reap what we sow! The seeds being sown by the new agriculture Bills do not promise a good harvest.
Mitra is a free thinker and had a hand in drafting the Farmers’ Manifesto for Freedom in 2019