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The Farmers Act- A leeway for midway

Updated: Feb 26, 2021

In India, 70% of the population are directly or indirectly depending upon agriculture. Since independence, India has become one of the largest producers of wheat, edible oil, potato, spices, rubber, tea, fishing, fruits, and vegetables in the world. Post-independence, the five-year plans of India had given due allocation and importance to the agricultural reforms in India and as part of that movement several progressive measures such as land reclamation, mechanization, electrification, use of chemicals and fertilizers were embarked under the government supervision. The green revolution, which marked its dawn in early 1960’s , had converted the agriculture into an industrial system by adopting modern methods and technology such as high yielding seeds, irrigation systems, advent of pesticides and fertilizers etc. The adoption of novel ideas into the farming culture of India had resulted in increase in food grain productivity, especially in states like Punjab, Haryana and Uttar Pradesh. The liberalization of the economy in 1991 had increased the purchasing power of the middle class of India and the same had spurred the demand for the agricultural products. Similarly, the export market of the agricultural produce continued to grow well over 19.1% annually through 1990’s. In 2019-20, total food grain production in the country is estimated at 296.65 million tonnes which is higher by 11.44 million tonnes than the production of food grain of 285.21 million tonnes during 2018-19. Rice production during 2019-20 is estimated at 118.4 million tonnes as compared to 116.5 million tonnes in 2018-19. Wheat production during 2019-20 is estimated at 107.6 million tonnes as compared to 103.6million tonnes during 2018-19. Government has increased Minimum Support Prices (MSP) for all mandated kharif, rabi and other commercial crops. The enhanced MSP ensures a return of 1.5 times overall India weighted average cost of production for the season 2020-21.

Farmers’ suicide amidst sectoral growth

In contrast to the prosperity in the agricultural sector, most strikingly, the suicide among the farmers had shown a sharp increase during the said period. In the ten year period between 1997 and 2006 as many as 166,304 farmers committed suicide in India. The National Crime Records Bureau of India reported in its 2012 annual report, that 135,445 people committed suicide in India, of which 13,755 were farmers (11.2%) Of these, 5 out of 29 states accounted for 10,486 farmers suicides (76%) – Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Kerala. According to a report by the National Crime Records Bureau (NCRB) the states with the highest incidence of farmer suicide in 2015 were Maharashtra (3,030), Telangana (1,358), Karnataka (1,197), Madhya Pradesh (581), Andhra Pradesh (516), and Chattisgarh(854). National Crime Records Bureau of India reported that a total 296,438 Indian farmers had committed suicide since 1995[4]. Out of these, 60,750 farmer suicides were in the state of Maharashtra since 1995 and the remaining in Odisha, Telangana , Andhra Pradesh Madhya Pradesh , Gujarat and Chattisgarh, the states with loose financial and entry regulations. As per the Annual report- 2019 of the NCRB , total of 10,281 persons involved in farming sector (consisting of 5,957 farmers/cultivators and 4,324 agricultural labourers) have committed suicides during 2019, accounting for 7.4% of total suicides victims (1,39,123) in the country. Out of 5,957 farmer/cultivator suicides, a total of 5,563 were male and 394 were female. As per the said report, Certain States/UTs namely, West Bengal, Bihar, Odisha, Uttarakhand, Manipur, Chandigarh, Daman & Diu, Delhi UT, Lakshadweep and Puducherry reported zero suicides of Farmers/Cultivators as well as Agricultural Labourers during the year 2019.

Though the states had announced several packages to reduce the suicide among the farmers, the results were bleak. So, inspite of continuous growth rate in the agricultural sector, the real beneficiaries are still in dire state. What will be the real reason for the same?. Though there are various theories such as floods, drought, debt, use of genetically modified seeds etc as reasons for the farmers suicide there is no consensus on the same. The most relevant reason is “debt”. With amble legislations in place, why the farmers are still debt laden and are more vulnerable to suicide?

India- A food surplus nation

The economic barriers of India had opened up to the rest of the world in 1991 by adopting the liberalisation policy and the effect the same is now reflecting in our economy in a very visible and evident manner. Due to the said policy change, the Indian manufacturers are now able to export their products outside their local markets and thereby ensure more competitive price for their products. Similarly the Indian consumers are able to experience the best quality products and services from across the world at an affordable price. The Indian companies also gained the strength to fight the competition from global counterparts and some even went ahead with making many landmark acquisitions in foreign soil. However, one section of the society, the farmers, were deprived of the said opportunity as they got confined to local markets to trade their produce and often got dictated by local agents, due to the non-marketability of their surplus production.

Before Independence, the agricultural policies of India were shaped to keep the price of raw materials and consumer products low, to manage the distribution of the scare products resulted from low productivity. Continuous droughts and famines had affected the productivity of the India and the agriculture sector was unable to meet the market requirement. But post-Independence the government policies had given adequate focus on augmenting the production and the Green Revolution in 60’s and 70’s had increased the productivity of the agricultural sector in an enormous manner. The green revolution and other agricultural reforms had shifted the status of nation to food surplus one from the food deficit one. The said surplus production had mooted the requirement for a regulated market where the farmers could trade their produce through open auctions. Agriculture, being a state subject, had prompted the state governments to roll out Agriculture Produce Markets Regulation (APMR) Acts during the 60s and the 70s.

In order to avoid the exploitation of the farmers and to ensure the Minimum Support Price (“MSP”), the Agriculture Produce and Marketing Regulation (APMR) Act were introduced by various State Governments. The said APMR had empowered the State Governments to establish Agriculture Produce and Marketing Committee (APMC). Till 2020, the said APMC’s were regulating the first sale of agriculture products which will happen only within the limits of the designated Mandis(Market places). The primary intent of the APMC was to protect the farmers from exploitation of the local money lenders and other market hawks, who offer undue low prices to the farmers for their produce. The APMR had brought the entire wholesale markets under the ambit of it, where only State governments have right to set up the markets. The objective of the establish of such markets was to establish a fair and transparent system in the agriculture produce marketing, trade and commerce.

The flipside of the AMPCs

The objective behind these legislations were to ensure that the agriculture trade are being carried out in a fair and transparent manner. However, under APMC, each Mandis are functioning as separate units / entities and thereby hampered the opportunity to the farmers to tap the markets outside their designated areas. The prevailing legal framework implied that agriculture produce could only be bought by the traders registered in the market area, which had restricted the farmers from selling their produce outside the designated market yards. This had resulted in a fragmented market which does not have a proper price discovery mechanism. The APMC regulated mandis are having only limited infrastructure, where the farmers are being offered with a bare minimum price for their produce. Though the said markets are regulated by the APMCs, those are ‘rigged’ by agents and the farmers often ended up in paying fees, levies and commissions for selling their products. The APMC governed mandis lack adequate infrastructure such as supply chains, warehouses and cold storages which often resulting in the post-harvest losses. The fragmented system led to high intermediation costs, raising costs for consumers, while depressing prices received by farmers. The monopolistic nature of the APMC led Mandis and the restrictions to carry out free trade are depriving the farmers from getting proper market and thereby giving a freehand to the traders and commission agents. Due to the dominance of the traders and commission agents the informal credit channels are prevalent in the said economy and many of the farmers are now in deeply caught in their cobwebs.

Hunger for reforms

As mentioned earlier, the surplus production and the non-availability of the adequate market for unrestricted trade of the said produce is pointing towards the requirement of an overhaul of the existing marketing and trading system. The producers will get the benefit for their efforts only if they are able to sell their products in an open and unrestricted market. The APMC Market yards are isolated and independent from rest of the market places and are fully dependent on agents, where entries of new agents are restricted. The present market structure is not adequate enough to deal with the huge production capacity of the nation. The traders and commission agents are having substantial influence over the farmers and often leave them to the mercy of dictators. The present market system is not enabling a price discovery mechanism due to the trade restrictions imposed under APMC market yards and thereby lacks a transparent pricing pattern. The mandi fees charged by the AMPC Market yards is burdening the farmers and helps only the middle men. Despite the charging of the fees, the infrastructure of the market yards remains outdated and poor. Due to the inadequate infrastructure, around Rs. 90000 crores worth of the agriculture produce per annum are being damaged. Even though there is a huge demand for the produce, the small farmers who are standing at the end of the funnel are getting only the droplets of the actual price that are being offered by the end consumers. All these are clearly indicating a requirement of a huge reform in the said sector and hence the Narendra Modi government had promulgated the controversial Farmers Acts which had erupted huge wave of protest from farmers themselves, ironically the intended beneficiaries of the said legislative reforms.

The intention of the new legislations.

It was observed by the Multiple Expert Committees, Inter-Ministerial Task Forces, Commissions, Groups of State Agriculture Ministers and Chief Ministers in their various meeting that the present system of agriculture marketing was proving to be a disincentive to farmers, trade & industries. The standing committee on agriculture of the 17th Lok Sabha noted in its report that the existing APMC markets were “not working in the best interest of the farmers”. All the expert groups and committees were on consensus of the fact that the anti-competitive system prevailing in the AMPC led market yards need an overhaul and the provisions of the Essential Commodities Act, 1955 which is creating obstruction in storage of the agriculture produce, is to be amended suitably.

The laws which were made initially to protect the farmers are now redundant and stagnating the growth of the sector. Though the nation had turned into a food surplus one from a food deficit one, the laws were not revamped to equip the marketing and distribution of the said surplus. In order to effectively market the surplus production across the nation, proper and efficient storage and transportation system is a mandatory requirement. The present AMPC Acts discourages the private investment in the agriculture cold chain. Despite of having huge production capacity, the contribution of the agriculture towards the global export is only 2.3% and the country produces only 10% of the global production. When all other economic sectors are flourishing, the agriculture segment is still in dilapidated mode and the farmers are struggling below the poverty line. As the Constitution of India marked the agriculture as a state subject, with an intention to standardize the regulations across the nation, the APMC model acts were released in 2003 and the rules were published in 2007. Even though the efforts to revamp the agricultural sectors had started in 2001 and in 2005 the State governments were advised to amend the state laws dealing with agriculture to enable a competitive marketing environment but the slow pace at State level had drastically affected the reforms.

Agriculture remained a state subject, however, Inter-State Commerce and Trade remained on the Union List. The attempts to amend the State laws had no turned to be successful and the projects like electronic national market for agriculture (eNAM) were being sabotaged by the prevailing legal provisions. In order to unlock the real value of the agriculture segment and thereby double the income of the farmers requires major amendment in the existing legislations and thereby paved way to new piece of legislations. The said legislations envisages for the deregulation of the agriculture marketing by enabling the farmers to sell their produce outside the physical area of notified markets and also to promote contract farming and amend the Essential Commodities Act.

Had not gone down well

Though the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 and The Essential Commodities (Amendment) Act, 2020, were promulgated with an intention to revamp the much required agriculture produce marketing and distribution system of the country, the message had not reached its beneficiaries in proper manner. Though the said Acts does not disrupt or abolish the existing market system and also does not provide to the replace the prevailing system of public procurement of Minimum Support Price (MSP), the Farmers all over India, especially in Punjab and Haryana are staging protest, which had invited even international attention, in an unprecedented manner. The level of protest are getting intensified day by day and the Government also continues to hold on to its original propositions, which makes it a hard nut to break. The basic intention of the new piece of legislations are to create a competitive atmosphere and thereby double the farmers income, it is quite an irony that the intended beneficiaries are staging protest for withdrawing the said law.

It is wise to learn from others mistakes

The United States of America is a front runner in the implementation of the concept of private investment in the farming sector. The farm laws implemented in the US since 1970 with the proclamation of "get big or get out" had resulted in the consolidation of the large firms. The said large firms are highly capital intensive in their operations and eaten up the subsidies of the small and medium-sized family farms. As a result of farm consolidations, the percentage of Americans who live on a farm diminished from nearly 25% during the Great Depression to about 2% now, and only 0.1% of the United States population works full-time on a farm. As the agribusiness lobby grows to near $60 million per year, the interests of agricultural corporations remain highly represented. In recent years, farm subsidies have remained high even in times of record farm profits. The consolidation is happening in every segment of the agriculture industry- from farm equipment to chemical and seed and technology and the larger farms are strong enough to dictate the terms and decide on the number of farms and manufacturers to remain in the industry. Despite the number of farms decreasing, the total number of acres has not declined at the same rate. In 1982 there were 986 million acres, while as of 2012 it was down to 915 million. According to the USDA’s March 2018 ERS report “Three Decades of Consolidation in U.S. Agriculture,” 51% of the value of U.S. farm production came from farms with at least $1 million in sales in 2015 — a 20 percentage-point jump from 31% in 1991.

On carefully analysing the present situation of USA, it can be seen that, the smaller and medium sized farms are struggling to survive whereas the larger farms are thriving with opportunities. The consolidation happened among larger firms such as Dow and DuPont, Monsanto and Bayer, John Deere and Blue River Technology, AGCO and Precision Planting were at the cost of small farms. The exponential growth and consolidation of the large firms had created monopolies and dictators in the market and they started dictating of what to cultivate and what to market. The huge farms and supply chains have profit as their prime motive in contrast to the welfare concept of the state. The profit motive will tempt the large farms to avoid crop rotation and give more concentration on high yielding crops. The said move had destroyed the conventional farming system of the USA and people had ended up in buying the products as per the decision of the board of directors of large corporate farms. The US Governmental system is now fighting hard to bust the agribusiness monopolies as they are growing stronger economically as well as politically. Over the past several decades, rapid consolidation—facilitated by recent mergers—has created near-monopolies, crowding out small farmers in the process. In the year 2015, more than 50% of the farm production came from farm houses which is against 31% in 1991. The consolidation of big farm houses had affected the buying habit of the people and the share of biggest four companies had increased to 76% by 2015, which was nearly 51% in 2000.

The replacement of APMC Act and eradication of middlemen are the main goal of the new farmers legislations introduced by the Parliament. However, the blind over dependence on the private investment shall create monopolies in agrarian sector and thereby affect the farming eco-system and food habits of the country. Once the monopolies started getting control on the affairs, they shall decide on what to cultivate, where to cultivate and how to cultivate. In the absence of a clear mechanism, they can even dictate the production and supply of the farm produce by creating artificial scarcity. The conglomerates shall decide on the sequence of cultivation based on the profitability aspect and shall fix the price of the commodities based on the breadth of the market.

A midway

Presently, the government and the protesting formers are on a war-path by holding and pulling each sides of the tug. Though several rounds of discussions had happened between the parties to ease the tensions and worries, the farmers are vehemently demanding for withdrawal of the new legislations and amendments whereas the Government is not ready to heed to the said demands. The main cause of concern of the farmers are ambiguity on the continuation of MSP whereas Mr Modi had categorically mentioned that “MSP was there, is there and will be there”.

The Farmers are continuing their protest while the Government hold on its original stand. It is a fact that the present situation had put the Modi Government into an unparalleled fix. Instead of demanding for the withdrawal of the new legislations, the Farmers unions should think about aligning their demands considering the positive impacts the said laws can create in the agrarian ecosystem of the country. The government should empathetically consider the demand for MSP and also alleviate the fear of being suppressed by larger farms by inserting proper enabling clauses in the new legislations. By aligning the demands in a realistic manner and alleviating the fears, the new legislations can bring the farmers into the forefront of the economic growth of the nation.

*Bijoy P Pulipra, is qualified as a lawyer, Accredited Commercial Arbitrator, Insolvency Professional (ICSI IIP N00607), Company Secretary (FCS 7575 /CP 7144), Registered Valuer of Financial Assets(IBBI/RV/05/2019/12173) and an Accredited Independent Director.

Picture courtesy: Internet

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