Author : Renita Dsouza

Expert Speak India Matters
Published on Nov 25, 2020
The government cannot launch measures which tackle different dimensions of the agrarian crisis in isolation from each other.
The Three Farmers’ Bills: A wasted opportunity or a transformed reality? The three controversial bills viz. the Farmers’ Produce Trade and Commerce (Promotion and Facilitation), the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services and the Essential Commodities (Amendment) Act have acquired the status of laws after being passed by the Parliament and receiving the President’s assent. The government’s rationale for having proposed these bills is apparently to promote growth and development of the rural economy. These bills are supposed to attract investment by private entities for development of infrastructure and supply chains for agricultural output. The bill on the agricultural market allows farmers the freedom to sell their produce outside Agricultural Produce Market Committee (APMC) 'mandis' to customers of their choice. This, it is argued, will enable farmers to earn remunerative prices via competition and savings made on forgone transportation costs. The legislation on contract farming is expected to facilitate cultivators to enter into a contract with agri-business enterprises on pre-negotiated prices for their output.  The Essential Commodities (Amendment) Act will end the imposition of stock-holding limits on commodities such as edible oils, onion and potatoes by removing them from the list of essential commodities. These bills envision support for small and marginal farmers to access technology by collaborating with private entities to boost agricultural productivity. The question is whether these are empty arguments and tall claims, or do they have what it takes to end the misery of the agrarian economy? Do they have the ability to translate into doubling of farm incomes?

The legislation on contract farming is expected to facilitate cultivators to enter into a contract with agri-business enterprises on pre-negotiated prices for their output.

Before the introduction of the bill on agricultural markets, the APMCs were notorious for the  cartels between the traders and the commission agents ruling out competition and rendering the farmers weak in terms of their power to bargain. Studies have reported that lack of transparent price discovery, hoarding, tacit cartelisation, etc. have been responsible for inefficient markets. The significant variation in the manner in which the state-specific APMC Acts were operationalised precluded the emergence of a unified national market. This bill, also known as the “APMC Bypass Bill” for obvious reasons, aims at tackling these inefficiencies by “creating an ecosystem where farmers and traders enjoy freedom of choice” and a “facilitative framework for electronic trading.” Prior to the amendment of the Essential Commodities Act, stocking limits and restrictions on essential commodities were imposed in a somewhat random and abrupt manner, and on occasions not so infrequent they stifled private investment in post-harvest storage, warehousing and processing. The Essential Commodities (Amendment) Bill, 2020 attempts to eliminate the uncertainty around the way in which stocking limits are set by establishing a pre-determined mechanism based on price changes.

All these three bills present opportunities for farmers, but the pertinent question is whether these opportunities are really in alignment with the capacity of the farmers to explore them.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 or the Contract Farming Bill attempts to provide a blueprint for written agreements between farmers and sponsors without making such agreements compulsory. All these three bills present opportunities for farmers, but the pertinent question is whether these opportunities are really in alignment with the capacity of the farmers to explore them. For instance, the APMC Bypass Bill supposedly provides the farmers the choice to trade in spaces beyond the APMCs. But do the farmers have what it takes to utilise this freedom? The bill provides for the creation of several new trade areas and digital spaces but does not provide a mechanism for their integration. Given this scenario, what is to prevent players in the new trade areas and digital spaces from cartelising with each other? In the absence of a sound regulatory architecture which underwrites the bargaining power of the small and marginal farmers against cartelisation, the bill simply fails its purpose. The objective of all the bills is to boost transactions between private entities and farmers. However, private investment has demonstrated an inclination towards geographies with well-developed infrastructure, larger and consequently, more productive farmers to keep the cost of operations lower. Small and marginal farmers most likely trade with input dealers and other supply chain stakeholders rather than visiting the mandis. The small size of holdings and small volumes of output traded make it highly expensive for private players to engage in contract farming with a large number of smallholders. Therefore, the general preference is to deal with intermediaries, who transact with farmers, or acquire the output from the APMC mandis themselves. There is very low probability of these farmers enjoying a share of the expanded pool of buyers for their produce and collaborating with the private players for contract farming. As many as 87 percent of Indian farmers belong to the small and marginal category. This fact prompts us to question the impact of the bills on the betterment of the majority of the farmers.

There is very low probability of these farmers enjoying a share of the expanded pool of buyers for their produce and collaborating with the private players for contract farming.

The agricultural bills passed are characterised with a lot of uncertainty in terms of how their outcomes will look like. The chronic agrarian crisis in our country cannot afford such uncertainty. The agrarian crisis in the country needs better interventions. In principle, interventions need to empower the farmer. Interventions cannot end at being opportunities. They have to essentially guarantee improved productivity and underwrite increase in farm income. By far, interventions in the agrarian sectors have been of the same nature as the agricultural bills. The consequences are evident in the low agricultural growth since Independence. The fundamental reasons for the chronic agrarian crisis characterising the Indian economy do include anomalies and inefficiencies in the agricultural markets, but they include much more than that: monsoon-dependent agriculture with the lack of ability to confront the climatic uncertainties and vagaries of nature; lack of access to technology that can boost productivity; and lack of institutional finance at affordable terms. Several measures have been launched, for example, to tackle the last of these causes — concessional interest rates and priority sector lending being some of them. The impact of these have seldom been significant on enabling the poorest of the poor farmers to redeem themselves from the debt trap and improve their levels of income. This is again because these interventions left room for many possibilities to occur.

The agrarian crisis in the country needs better interventions. In principle, interventions need to empower the farmer. Interventions cannot end at being opportunities.

For the agricultural bills to work, they need to plug away the various adverse eventualities by supplementing them with other measures. There is a need to empower the farmers in a way that gives them enough bargaining power to fight the forces of cartelisation and negotiate with the large agrobusiness players. These bills should be supported by measures that enable farmers to tackle the uncertainties of nature. Insurance against crop failures is just a part of the answer. The government must enable the small and marginal farmers to connect with those who provide technological solutions to deal with natural vagaries and improve productivity. Given that the small and marginal farmers cannot afford the latest cutting-edge technology which, for instance enables precision farming, agricultural startups must be incentivised (not just created space for like the agricultural bills do) to design rental business models to provide access to them, and wherever possible even ownership models. Furthermore, the measures of financial inclusion such as credit and insurance must be accompanied with assigning an agent who can enable the small and marginal farmer to use the credit obtained to make guided choices in terms of inputs such as fertilisers and seeds. The underlying rationale is to guarantee maximum productivity. This has to be further accompanied by cost-effective and efficient irrigation facilities. The guiding principle is to guarantee support during crop failure and a decent level of income during normal conditions while ruling out any other eventuality. This is to prevent the poor and vulnerable farmer from falling into a debt trap during the worst and to enable him/her to reap maximum dividends during the best of times. If one deliberates on this guiding principle, one realises that the government cannot launch measures which tackle different dimensions of the agrarian crisis in isolation from each other. By launching the agricultural market bills in isolation from solutions to tackle the monsoon dependence of agriculture and lack of adequate institutional credit, the government has short-changed the ability of the small and marginal farmer to leverage the opportunities for gain made available by these laws. Hence, a multi-pronged approach suggested above to support these laws becomes imperative. Otherwise, the onus of ensuring that the benefits from these laws reach the small and marginal farmers depends upon the private players who generally do not have much incentive to do so, at least in the conventional sense.
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Author

Renita Dsouza

Renita Dsouza

Renita DSouza is a PhD in Economics and a Fellow at Observer Research Foundation Mumbai under the Inclusive Growth and SDGs programme. Her research focus ...

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