December 13, 2020

Dispelling Modi Govt’s Myths on Farm Laws


THE national capital has been witnessing massive farmers protest over three agricultural bills recently passed by the Modi government. First, protesting farmers were branded as middlemen. Then came the allegation that Khalistani separatists have penetrated the protest. The ruling dispensation further claims that farmers are turning out in large numbers as they are misled by the opposition. Finally, Prime Minister NarendraModi plunged into the scene to defend the government’s agri laws. The BJP launched virulent media and social media campaign to claim that the recent agriculture bills benefit farmers.

Myth 1: Farmers have no freedom to sell their produce outside agricultural mandis. The new bills usher in freedom for the farmer to sell his produce to any buyer, thereby fetching a better price.
But, the reality is otherwise. The majority of the agricultural produce of India is already sold outside the agricultural markets. The official data shows that even for paddy and wheat, only 29 per cent and 44 per cent of the harvest are sold in a mandi, while 49 per cent and 36 per cent is sold to either a local private trader or an input dealer. 

The last Situational Assessment Survey showed that of the 31 crops covered in the survey, local private traders were the main buyers in case of 29 crops.

Myth 2: The inefficient middlemen dominated, regulated agriculture markets monopolize the agricultural trade. This is harming the farmers.
Look at the facts. R Ramakumar, professor at the Tata Institute of Social Sciences, in an article in The Hindu, “The perils of deregulated imperfect Agri markets” writes, already 18 states have allowed the establishment of private markets outside the APMC and 19 states have allowed the direct purchase of agricultural produce from the farmers.

The National Commission for Agriculture has recommended that every Indian farmer should be able to reach a mandi in one hour by a cart. Thus, the average area served by a mandi was to be reduced to 80 sqkm. For this, the number of mandis was to increase to at least 41,000. But, India in 2019 has only 6,630 mandis with an average area served of 463 sqkm. Statistics reveal that there is an inadequate number of markets.

Myth 3: The central government leaders claim that government procurement will continue even after the new farm bills are enacted. The envisaged free-market regime gives freedom to the farmer to sell to any buyer.

The Bihar experience reveals what is going to happen in the country after the free-market farm laws. Bihar abolished Agricultural Produce Marketing Committee (APMC) Act way back in 2006. The data from the Department of Food and Public Distribution, Government of India, reveals that in Bihar less than 20 per cent of paddy and often zero per cent of wheat has been procured by government agencies.

According to reports, the number of government-run grain procurement centres in Bihar had gone down from about 9,000 in 2015-16, to 1,619 in 2019-20.

Myth 4: The new farm laws do not abolish Minimum Support Price (MSP). Farmers will now have freedom to sell in private markets at a higher price.

A Reserve Bank of Indiastudy based on a survey of farmers and traders in 2018 found that more than 50 per cent farmers found Minimum Support Price for crops to be the most beneficial scheme for farmers. But, nowhere in the acts does it say prices given by a trader or agri business to the farmer cannot go below the MSP.However, The MSP may continue on paper. But, it will be weakened as evident from Bihar experience. Bihar farmers are not getting higher prices despite having freedom to sell anywhere. In 2019-20, MSP for rice was fixed at Rs 1,815 per quintal but farmers were forced to sell to traders at only Rs 1,350 to 1400 per quintal. For wheat, MSP was Rs 1,925 but farmers had to sell it at Rs 1,800 or even less in Bihar. For maize, farmers reported getting a price of Rs 1,000-1,300 per quintal while the official MSP was fixed at Rs 1,850 in the current year.

Myth 5: With the enactment of new farm laws, it is claimed that the private sector would set up wholesale markets and cold-chain infrastructure.
But, Bihar’s experience reveals that nothing of that sort has happened. The government of India studies also repudiates the Modi government’s claims on new farm bills in light of the Bihar experience.

The study by the government-run National Institute of Agricultural Marketing (NIAM) states, “The step to move towards the free market regime from that of regulatory mechanism has been taken in the right spirit to make the system more efficient and congenial to the farmers. However, the same has created a vacuum in terms of institutional mechanism for administering the functioning of markets. The small-scale farmers have no alternate channels of marketing except to use the current trader dominated system.”

Myth 6: The free market run agricultural trading regime will usher in a higher agricultural growth rate.

The Bihar experience disproves this hypothesis. In a study published in November 2019, the National Council of Applied Economic Research (NCAER) pointed out that agricultural growth in Bihar decelerated to a mere 1.3 per cent per annum during 2012-13 to 2016-17, compared to three percent between 2008-09 and 2011-12.

Myth 7: The entire logic of abolishing APMCs is that they artificially depress prices for farmers; allowing corporate players will guarantee better returns to farmers.
Agricultural input markets, such as seeds, pesticides etc. have seen a large-scale corporatisation in the past decade, but this has been accompanied by a sharp rise in prices of intermediate inputs in agriculture. Data from the ministry of agriculture shows that a rising cost of intermediate goods has been the biggest reason for stagnation and eventual decline in terms of trade for farmers.
Myth 8: Opening up agriculture trade to private markets will fetch better prices for the farmer due to competition. Farmers can bargain higher prices in competitive agricultural markets having multiple private buyers.
This claim is not found to be true on the ground. In fact, the MSP and the government procurement helped to stabilise agricultural prices. According to situation assessment survey of the National Sample Survey office (NSSO) conducted during 2012-13, the MSP for paddy was set at 1250 per quintal. Marginal farmers in Punjab sold almost half their total paddy harvest at mandis. On an average the marginal farmer in Punjab realised Rs 1,500 per quintal, 20 percent higher than the MSP. In contrast, marginal farmers in Uttar Pradesh sold a mere 16 per cent of total paddy at mandis, where they have realised only Rs 1010 per quintal, far lower than MSP.

The latest agriculture census of 2015-16 reveals that 86 per cent of the total operational holdings are by small and marginal farmers. This lower rung of peasantry, with abysmally small holdings of agricultural land have little or no bargaining power to negotiate better price with private traders. The terms of agricultural trade will turn much more hostile towards small and marginal farmers, when big agri cartels capture the agricultural markets.