The new farm reforms: Content and controversy

The farm Bills promise farmers the freedom to sell wherever, and to whomever, they please. This corrects the restrictive trade and marketing policies followed so far.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, received the Presidential assent on Sunday after both the Houses of Parliament passed the Bill earlier this month.
All producers work on the signals that prices convey and, to the extent the ECA interferes with price-signalling, it hurts investment decisions.

The passing of farm bills in both the houses of Parliament has led to a major controversy in the country. The government claims that it is a historic step taken in the interest of farmers, giving them freedom to sell their produce anywhere and to whomsoever they want in the country. But the opposition parties say it is a ‘black day’ as it will destroy the existing system of minimum support price (MSP) and APMC markets, and leave the farmers at the mercy of big corporations.

Where does the truth lie? Let us dig a little deeper into the economics and politics of it.

The three farm bills, The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 (FPTC), The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill 2020 (FAPAFS), and The Essential Commodities (Amendment) Bill 2020 (ECA 2020), have to be seen in totality.

Essentially, the FPTC breaks the monopolistic powers of APMC markets, while FAPAFS allows contract farming, and ECA 2020 removes stocking limits on traders for a large number of commodities, with some caveats still in place.

The economic rationale of all these bills is to provide greater choice and freedom to farmers to sell their produce and buyers to buy and store, thereby creating competition in agricultural marketing. This competition is expected to help build more efficient value chains in agriculture by reducing marketing costs, enabling better price discovery, improving price realisation for farmers and yet reducing the price paid by consumers. It will also encourage private investment in storage and thus reduce wastages, and help contain the seasonal price volatility. It is because of these potential benefits that I compared it to the de-licencing of industry in 1991 ( I had also suggested that, for these legal changes to deliver results, we need to create Farmer Producer Organisations (FPOs) and invest in marketing infrastructure. In that context, it is good to see that the prime minister has already initiated programmes for creation of 10,000 FPOs and the Agriculture Infrastructure Fund (AIF) of `1 lakh crore for handling post-harvest produce, anchored largely with FPOs. The implementation of this has been entrusted to NABARD, working along with other agencies and state governments.

I must caution that sometimes good ideas/laws fail to fully fructify if the implementation is bad. Just to cite an example, late Arun Jaitley had announced a scheme called TOP (tomatoes, onions and potatoes) to stabilise their prices through processing and storage. He also allocated Rs 500 crore for it. The Ministry of Food Processing was entrusted with its implementation. But, even after three years of the scheme, not even 5% of the announced money has been spent. No wonder, the Centre is back to banning export of onions for fear of spike in prices! This is contrary to the signal that the government wants to give through the farm Bills, that farmers have full freedom to sell. It seems government has one foot on the accelerator to liberalise agri markets, while the other is on the brake (ban on onion exports); this dents the Centre’s credibility. All this is to emphasise that NABARD has a lot of heavy lifting to do, lest it fails the country in realising the full potential of these legal changes. NABARD must get its act together, take professional advice and work with implementing agencies in the private sector, including various foundations that are already working with farmers. The pay off will be very high. It will make Indian agriculture globally competitive and benefit farmers and consumers alike.

But then, why is there so much opposition? The Congress party is leading the charge. But its own manifesto of 2019 says, “Congress will repeal the Agricultural Produce Market Committee Act and make trade in agricultural produce-including exports and inter-state trade- free from all restrictions”. And further, “We will establish farmers’ markets with adequate infrastructure and support in large villages and small towns to enable the farmer to bring his/her produce and freely market the same” (see points 11 and 12, in Congress Manifesto 2019 under Agriculture section). I fail to understand how this is different from what the three Bills are about? I don’t have any political affiliation, but all my professional life, I spent analysing agri-policies and found how farmers in India have been implicitly taxed through restrictive trade and marketing policies. This is in so much contrast to China and other OECD counties that heavily subsidise their agriculture (see graphic). So, freedom to sell is the beginning of correcting this massive distortion; that is why I welcome this move.

But, the opposition has now changed its goal-post. It is asking for MSP to be made legal, meaning any private player buying below MSP can be jailed! That will spell disaster in the markets and private trade will shun buying. The government does not have the wherewithal to buy all the 23 commodities for which MSP is announced. Even for wheat and paddy, it cannot assure MSP throughout India. The reality is that, since the MSP regime came into existence in 1965, with the birth of Agricultural Prices Commission and Food Corporation of India, the NSSO report says that only 6% of farmers have gained from the regime. Roughly the same percentage of value of agri-produce is sold at MSP. Rest of the farming community (94%) has been facing imperfect markets. It is time to “get agri-markets right”. And these farm Bills are steps in that direction.

Some states fear losing revenue from mandi fee, cess, etc. The Centre can promise them some compensation for, say, three-to-five years, subject to reforms in APMC markets. Arhatiyas are smart. They can take on new roles of aggregation for the private sector.

The author is Infosys chair professor for agriculture, Icrier
Views are personal

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