FCI INTERVIEW ---'Fear of price fluctuation, distrust behind protests against farm laws' | Business Standard News (business-standard.com)
'Fear of price
fluctuation, distrust behind protests against farm laws'
“It is more about the changes in the ‘social contract’ between the
farmers and the Union government that is the root cause of fear,” said Sukhpal
Singh, professor and former chairperson, Centre for Management in Agriculture
at the Indian Institute of Management, Ahmedabad, on why farmers from Punjab
and Haryana, among others, are protesting the three new farms laws passed by
India’s Parliament.
The Farmers’ Produce Trade and Commerce (Promotion and
Facilitation) Act, 2020 (FPTC), the Essential Commodities (Amendment) Act,
2020, and the Farmers (Empowerment and Protection) Agreement on Price Assurance
and Farm Services Act, 2020 (FAPAFS) were passed during the monsoon session of
parliament during the COVID-19 pandemic.
Thousands of farmers are at the outskirts of the national capital as they march to Delhi
to demand the repeal of these laws. One of the reasons farmers are protesting
is because they think that they were not consulted before making these
far-reaching changes and that the central government is governing issues that
are under the states’ domain, said Singh.
Farmers think these laws may affect the procurement of foodgrains
under the minimum support price (MSP), which guarantees a minimum price for
some of the agricultural produce bought by the government, Singh said. The
government procures large quantities from Punjab and Haryana. But making MSP a
‘legal right’ isn’t the solution, according to Singh. Such a law will “kill”
the agricultural market in a state because if private buyers are mandated to
buy at a government-set MSP, they might look for cheaper costs elsewhere, Singh
explained.
What is needed, instead, is a range of pre-production support
(like seeds, fertilisers, credit, machinery) and post-production aggregation
(marketing and selling through farmer collectives), he said. The government
must also invest in warehousing and cold storage to reduce forced sales because
of a lack of storage.
Singh was a member of the working group on disadvantaged farmers
and the working group on agriculture marketing infrastructure of the erstwhile
Planning Commission in 2011. He was also a member of Punjab’s expert committee
to formulate policy for development and promotion of Farmer Producer
Organisations (FPOs)--producer organisations where primary producers like
farmers are members.
In an interview, Singh spoke to IndiaSpend about the impact of the
new laws, Agricultural Produce Market Committees(APMC), issues with contract
farming, the problems with an MSP for private players and the power of arhtiyas
or commission agents within an APMC. Edited excerpts:
Farmers
from across the country, led by those from Punjab and Haryana, are protesting
against the three farm laws. Why is there such a strong opposition from
farmers, particularly in these two states? What are the main issues?
First, there was perhaps inadequate consultation with
stakeholders, i.e. farmers, traders and policy experts, as ordinances were
brought in and then Acts were passed during the pandemic.
Second, in some states, there is a feeling that the Centre is
trampling on the domain of states by making laws on state subjects particularly
with respect to contract farming, which has more to do with farming [which is
on the state list] and less with marketing [since activities such as
production, trade, supply and distribution of raw agricultural produce are on
the concurrent list, governed by both the states and the Centre]. It seems that
the Centre was not able to convince states to open up agricultural markets as
quickly and as much as it had planned to, since the early 2000s, else it would
not tread into a matter that was in the states’ domain. States were reluctant
to make reforms, and therefore this route was taken.
Thirdly, Punjab will lose revenue (6%, including 3% mandi fee and
3% rural development fund cess) as no tax can now be imposed on farm produce
transactions in new trade areas outside the APMC or mandi. Punjab has been
earning nearly Rs 4,000 crore annually from mandi taxes and cesses.
Fourth, commission agents or arhtiyas in Punjab get 2.5%
commission, which is around Rs 1,500 crore annually. Once new trade areas
develop, the market may not require the commission agents. Even if buyers go
through these agents, their commissions will fall drastically.
More importantly, in Punjab, Haryana and some of the north Indian
states, there is an interlocking of the credit and produce market, where
arhtiyas lend to farmers and recover [the loan] from the sale of [the farmer’s]
produce. The state government has been facilitating this because payments by
procurement agencies like the Food Corporation of India (FCI) are made (in
Punjab) to arhtiyas, and not directly to farmers. Direct payments to farmers
instead of routing them through these agents has been an issue in the state for
more than a decade now. Central agencies were keen to pay [the farmers]
directly but the state government did not support it. It is only during this
kharif season, for the first time, that the CCI [Cotton Corporation of India]
has bought cotton directly from farmers and has not not paid commission to
arhtiyas. Even under the amended state Agriculture Produce Marketing
(Regulation) Act, 2017, for which rules were framed in 2020, [the government]
makes payments to farmers only indirectly through the arhtiyas. The act also
allows some cash payments [upto Rs 10,000] to farmers by the arhtiya.
Further, farmers are agitated about these Acts due to their
potential procurement and MSP linkage. The fear comes from some previous
documents like the Shanta Kumar Committee report and the Commission for
Agricultural Costs & Prices (CACP) reports, which suggested reduced
procurement to cut down costs of the FCI and an end to open-ended procurement
from states like Punjab where most of the grains are bought by the FCI. It is
feared that the FCI itself may start procuring directly from the new trade area
to cut down its buying costs like market fees and arhtiya commission. It is
more about the changes in the ‘social contract’ between the state’s [Punjab’s]
farmers and the Union government that is the root cause of fear.
There is a
fear that Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act,
2020, would expose farmers to price fluctuations of the open market. There is
also a demand for a law in the country to make MSP mandatory. Farmers have long
been demanding that the MS Swaminathan Committee recommendations on the MSP be
implemented. How does the new law impact MSP, and is it possible to make a law
on the MSP mandatory?
States like Punjab do not get many private buyers as the
government procures most of the produce (wheat and paddy). Farmers feel that if
the FCI moves out of the APMC to avoid paying commission to the arhityas and
the market fees/cesses to the state mandi board, mandis will collapse as
arhtiyas would also move out of mandis.
The demand for legal backing to MSP comes due to the fact that the
government has been announcing MSP for 23 crops but procurement is limited to a
few crops and a few states only, and farmers in most states (with the exception
of Punjab and Haryana) end up selling below MSP, even major crop produce like
paddy and wheat. Also, CACP in one of its reports in 2017-18 (kharif) suggested
that “to instill confidence among farmers for procurement of their produce, a
legislation conferring on farmers ‘The Right to Sell at MSP’ may be brought
out”.
I am not convinced about the demand for MSP as a legal right. If a
private player decides that they will not buy at MSP and rather import
agricultural produce, and the FCI decides to not procure for various reasons
mentioned above, where will the farmer sell? Punjab’s amendments to the farm
acts making MSP mandatory are ill-advised, as this law will kill their own
market, and discourage private buyers from buying.
Even though Punjab has made a law against selling wheat and paddy
below MSP, how does the state know if a farmer has been forced to sell below
MSP? It is difficult to enforce such a law. Agricultural markets cannot be run
through such diktats. A farmer is desperate to sell and does not want to/cannot
store produce or take it back after bringing it to the market yard. So, he
would end up consenting to selling at below MSP.
Currently, selling in the private market is the last option for
farmers, where public procurement does not take place, and by creating
stringent rules (fine or imprisonment), the government [of a state] may create
a situation where no sale can be made of the farm produce by the farmer.
Maharashtra made a similar provision in 2018 in their APMC Act but had to
reverse it after protests by traders.
It is important to realise that MSP is a political or
administrative promise, or decision, made by the government to farmers. Why
should a private player be tied to it and be penalised?
On the other hand, when the government is trying to liberalise and
open the market to encourage private buyers, then it cannot at the same time
mandate at what price they should buy (not below MSP in this case).
The FPTC
Act 2020 allows farmers to trade outside of mandis. Can you explain,
historically, how the mandi system, meant to protect farmers, ended up in a
state that experts like yourself have said that “it is a ripe time to abolish
the system of arhtiyas”?
Currently you have many stakeholders, such as cooperatives,
primary agricultural credit societies, farmer producer companies etc., who can
step in and help farmers sell to state and private agencies and there is no
need to rely on arhtiyas for it. Madhya Pradesh had abolished the arhtiya
system in the 1980s itself and buyers have been buying directly from farmers
since then.
Overnight, after these new Acts, arhtiyas are being called service
providers. Some others term them as a ‘necessary evil’. Arhtiyas became
powerful because of the high cost of modern agriculture when institutional
credit and finance was not adequately available to small and marginal farmers.
Even now, 30-35% of farm loans are from informal sources like arhtiyas,
especially for many small and marginal farmers. Due to this, there has been an
interlocking of the credit and the produce market. At the same time, some
reports suggest, in states like Punjab, there is over-financing of the farm
sector.
The arhtiyas only get a license to facilitate purchase and sale of
agricultural produce, and other aspects of their business like lending are
informal and illegal. There is no monitoring of their activity. In some states,
they overprice inputs, underprice produce and charge high interest on loans.
Many not only have a license to buy produce but also have large agro-industrial
interests beyond APMCs but tied to the APMC. Unless farmers are provided
institutional finance access adequately, they will depend on these agents.
Therefore, solutions to their marketing problems lie outside of markets.
How do you
assess the role of APMC and what impact do you see due to the new law?
Madhya Pradesh has reduced the mandi tax to lower the buyer’s cost
of purchase, and government bodies (like the Niti Aayog) have advised the same
to other states so that buyers continue to buy from APMC mandis. But, in a
state like Punjab, where buying costs are high, mandis will find it difficult
to compete with new trade areas. Buyers, and even government agencies, may move
out to new trade areas if buying charges are not reduced.
The APMC will lose if there is no level playing field. So,
arhtiyas are up in arms and farmers are protesting around MSP procurement.
Arhtiya interest should not really matter to policy if the intention is to help
farmers realise better prices. Arhtiyas have other businesses to rely on and
would find new roles sooner rather than later in new trade areas or other
market channels.
With
contract farming, although the farmers are allowed to engage with private
players, how strong is the grievance/dispute redressal mechanism for the
farmers? Can farmers take on big agricultural conglomerates independently given
that clauses of the FPTC Act 2020 stipulate that the cultivator be paid within
three days of the trade? Is it practical to approach a district magistrate for
dispute resolution? What is the ideal mechanism when disputes arise?
Contract farming, as practised in India, across crops and regions,
has shown that marginal and small farmers are generally excluded and there are
many malpractices against farmers. These include one-sided (pro-contracting
agency) contract agreements, delayed payments, quality-based undue rejections
and outright cheating, besides poor enforcement of contract farming provisions
by state governments. Therefore, a robust contract farming act to regulate it
was needed.
In the 2003 model APMC Act, the APMC was supposed to resolve
disputes. This was a better system because the farmer knew and was familiar
with the Committee members and functionaries. Further, when a license is given
to a trader or commission agent, there is a counterparty risk assurance. If there
is an issue with payment to farmers, the committee takes note and tries to
resolve it.
In states like Karnataka, Gujarat and Maharashtra, there are
elections for office bearers of the APMCs. Representatives of traders,
commission agents, farmers, cooperatives and the government stand for
elections. So, the argument that mandis are a monopoly and exploitative is not
entirely true. At the same time, Punjab has not had an election for APMCs in
nearly 40 years. They only nominate chairpersons and members.
Now, in the new trade area [that the law will create], there is no
authority to provide counterparty risk. Anybody with a PAN card can buy
agricultural produce, which seems to be a free-for-all situation.
I think the government must go back to the 2003 Model APMC Act,
which had a model contract agreement with mandatory and optional provisions in
a contract. The way production agreement is defined in the new Act is leading
to fear among farmers about contract farming being more about corporate
farming. This is despite the Act clearly saying that farmland cannot be leased,
mortgaged or bought by the contracting agency. Farmers are also worried because
the law does not discuss what happens when companies cancel contracts or there
is delay in deliveries by farmers, etc.
The other problematic aspect of the Farmers (Empowerment And
Protection) Agreement on Price Assurance and Farm Services Act is that it says
the sponsor would also pay, besides the minimum guaranteed price, a premium or
bonus which will be linked to the APMC or e-trading price. This goes against
the very concept of contract farming. The contract price should be left to the
contracting parties to decide. Further, if the understanding is that mandis are
not discovering prices well, then why peg contract price to such a price? The
contract farming Act leaves out many sophisticated aspects of contract farming.
How would
these new “liberalisation” laws affect the small and marginal farmer?
Unfortunately they are not part of contract farming as contracting
agencies do not find them attractive enough to be engaged. The policy should
have created a provision for group contracts and incentivised it. Further, the
Act has defined FPOs [Farmer Producer Organisations] as farmers, which
restricts them to supply side only. This has given a rudimentary treatment to
FPOs instead of ensuring that they can also take up contract farming (which
some FPOs are doing in any case). Hardly any FPO is into farm production. So,
treating them as farmers is not a good aspect of this Act.
For small and marginal farmers, the mandi was the last resort for
sale. If APMCs are reduced in importance, they will lose more rather than gain
unless more of them are organised into FPOs and become attractive to private
agencies for contract farming or direct purchase.
A 2019
study by the National Council of Applied Economic
Research in Bihar noted that despite abolishing the APMC Act in 2006, there was
lack of private investment in the creation of new markets, and strengthening of
facilities in the existing ones, “leading to low market density”. What happened
there?
Investments do not come due to a change in law, but due to
incentives. Bihar only deregulated the market instead of reforming. Incentives
are about infrastructure and supporting policies, which did not happen [in
Bihar]. There could have been more investments in APMC and private markets even
in public-private mode and better governance of APMCs to allow new buyers to
procure directly. The APMC structure has collapsed in the state with
procurement and purchase centres falling. Farmers are paying a commission in
privately held mandis unlike in a regulated market. Farmers have not benefited
from it other than the fact that the new local, private, informal markets are
closer to farmers but not necessarily likely to stick around for long.
The prime
minister has said that “new rights have begun to ameliorate the woes of our
farmers”, but the farmers are agitating against the three laws. What revisions
would you suggest to improve the farm laws? How can India achieve better
incomes for farmers?
There are many provisions in both the acts [the FPTC and FAPAFS]
like the definition of a trader and an FPO, dispute resolution and creation of
temporary structures on farmer land, additional contract price linkage to APMC
price and such other provisions which need to be reconsidered to protect farmer
interest in the Contract Farming Act so that both parties find it smooth to
transact and deal with each other as per rules.
To double farmers' income, farmers need to be collectivised (like
in FPOs). This is the only way small and marginal farmers can deal with modern,
large buyers. We do not need to meddle with production aspects as small farmers
are quite efficient. We need pre-production (like seeds, fertilisers, credit,
machinery) and post-production aggregation [marketing and selling through FPOs,
etc]. The government needs to invest in warehousing and cold storage to reduce
distress sale as we have warehouse receipts Act under which they can get loans
against stored produce.
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