Farm Bills: who gains and who loses
Will States and their Agricultural Produce Market Committees be impacted? What does it mean for government procurement?
The story so far: Farmers have taken to the streets, protesting against three Bills on agriculture market reforms that were passed by Parliament last week and will become laws once they are signed by the President. In Punjab and Haryana, bandhs were observed, with blocked roads and mass rallies. Opposition parties and farmers groups across the political spectrum have expressed concern that the laws could corporatise agriculture, threaten the current mandi network and State revenues and dilute the system of government procurement at guaranteed prices.
What are the three Bills?
The Bills which aim to change the way agricultural produce is marketed, sold and stored across the country were initially issued in the form of ordinances in June. They were then passed by voice-vote in both the Lok Sabha and the Rajya Sabha during the delayed monsoon session this month, despite vociferous Opposition protest. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, allows farmers to sell their harvest outside the notified Agricultural Produce Market Committee (APMC) mandis without paying any State taxes or fees. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, facilitates contract farming and direct marketing. The Essential Commodities (Amendment) Bill, 2020, deregulates the production, storage, movement and sale of several major foodstuffs, including cereals, pulses, edible oils and onion, except in the case of extraordinary circumstances. The government hopes the new laws will provide farmers with more choice, with competition leading to better prices, as well as ushering in a surge of private investment in agricultural marketing, processing and infrastructure.
Will farmers get minimum support price?
Most of the slogans at the farmers’ protests revolve around the need to protect MSPs, or minimum support prices, which they feel are threatened by the new laws. These are the pre-set rates at which the Central government purchases produce from farmers, regardless of market rates, and are declared for 23 crops at the beginning of each sowing season. However, the Centre only purchases paddy, wheat and select pulses in large quantities, and only 6% of farmers actually sell their crops at MSP rates, according to the 2015 Shanta Kumar Committee’s report using National Sample Survey data. None of the laws directly impinges upon the MSP regime. However, most government procurement centres in Punjab, Haryana and a few other States are located within the notified APMC mandis. Farmers fear that encouraging tax-free private trade outside the APMC mandis will make these notified markets unviable, which could lead to a reduction in government procurement itself. Farmers are also demanding that MSPs be made universal, within mandis and outside, so that all buyers — government or private — will have to use these rates as a floor price below which sales cannot be made.
Why are protests vociferous in some States?
More than half of all government procurement of wheat and paddy in the last five years has taken place in Punjab and Haryana, according to Agriculture Ministry data. More than 85% of wheat and paddy grown in Punjab, and 75% in Haryana, is bought by the government at MSP rates. Farmers in these States fear that without MSPs, market prices will fall. These States are also most invested in the APMC system, with a strong mandi network, a well-oiled system of arthiyas or commission agents facilitating procurement, and link roads connecting most villages to the notified markets and allowing farmers to easily bring their produce for procurement. The Punjab government charges a 6% mandi tax (along with a 2.5% fee for handling central procurement) and earns an annual revenue of about ₹3,500 crore from these charges.
What are some other concerns?
- One of the major concerns raised by regional political parties and non-BJP State governments is that agriculture falls in the State list, arguing that the Centre should not be making legislation on this subject at all. They are concerned about the loss of revenue from mandi taxes and fees, which currently range from 8.5% in Punjab to less than 1% in some States.
- Some economists and activists say both Punjab and Rajasthan are considering legal measures to expand the bounds of their APMC mandi yards to ensure that they can continue collecting taxes on all agricultural trade within their State’s borders. States such as Chhattisgarh and Odisha have only seen procurement increase over the last five years, after the implementation of decentralised procurement. Paddy farming has received a major boost with procurement at MSPs and farmers fear their newly assured incomes are at stake.
- The majority of agricultural marketing already happens outside the mandi network, with only 7,000 APMC markets operating across the country. Bihar, Kerala and Manipur do not follow the APMC system at all. However, most private buyers are currently small traders at local mandis. The removal of stock limits and facilitation of bulk purchase and storage through the amendment to the Essential Commodities Act could bring large corporate players into the agriculture space. Although they will bring much-needed investment, they could also skew the playing field, with small farmers unlikely to match them in bargaining power.