What are the Farm Acts and why are farmers protesting?

The Indian Parliament passed three agricultural acts during the monsoon session which are the reason of much debate across the country. This has also led to a nationwide protest and farmers mainly from Punjab and Haryana led by various farmer’s organization is in talks with the government at the time of writing. This article intends to explain the three agricultural acts and the various concerns associated with them.

The three agricultural acts are – Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and the Essential Commodities (Amendment) Act, 2020.

The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 allows the farmers to engage in trade of their agricultural produce (that is selling their produced crops) outside the physical space of the market notified under various Agricultural Produce Marketing Committee laws (APMC acts). The APMCs are government-controlled marketing yards also known as mandis. In these marketing yards or mandis the prices are fixed by a price floor also known as MSP and the products are sold by various middle-persons to the various licensed buyers of the produce.

In other words, this law will allow farmers to sell their produce directly to cold storages, warehouses, food processing plants, online retailers and even directly to the consumers. The state government has allowed market fee or cess or any other levy from the trade done in the physical space of the mandis but are not allowed collecting any kind of such levies from outside the mandis. This law essentially allows the farmer to engage intra-state and inter-state trade without any restrictions. It seems that this particular act gives a certain kind of freedom to the Indian farmers because they can engage in free trade. However, the provisions of the APMC acts are not implemented in the most efficient way. For instance, commission charges and market fee are legally to be levied from the traders but the Sixty Second Report of the Standing Committee on Agriculture (2018-19) stated that sometimes the farmers end up paying the fee because the amount is deducted from the farmers’ net proceeds.  This report also found that the market fee is collected in some States even when the original transaction didn’t take place and, in some states, trade outside the domain of these APMC mandis are sometimes restricted. This report actually proves that there are grave problems with the existing mechanism but why are farmers still unhappy about it? In order to answer that question the context and a bit of history comes into play.

The Green Revolution of the 1960s started mainly in parts of the Indian states of Punjab, Haryana and parts of Western Uttar Pradesh and led to the development of the government procurement structure. New types of high yielding variety of wheat are (were) a hallmark of this revolution along with other high yielding variety of crops. The government needed to encourage the farmers to use a new variety of wheat and therefore decided to offer procurement through the Food Corporation of India with a minimum support price (MSP) to farmers which was decided and announced at the beginning of every agricultural season. Presently, the government declares an MSP for 23 agricultural crops but buys mainly wheat and rice. In this way the government incentivizes the process which has various repercussions. Farmers fear that the next step of the government is to do away with the procurement process through the FCI and the MSP which is available in the developed APMC Mandis of these three states (Punjab, Haryana and Western Uttar Pradesh) which will be a huge loss for them.

Price Policy for Rabi Season – The Marketing Season for 2020-21 published by the Commission for Agricultural Costs and Prices (2020-21) found that a major share in total procurement is occupied by medium and large farmers as indicated by data from some states. Only a minor portion of the procurement share is occupied by small farmers which has been on the rise but is low when compared to large and medium farmers. Even when the government assured these big farmers that the procurement process along with the MSP will not go away but will exist alongside the new regulations brought by the Act; the farmers are not willing to listen. These fears are not totally unfounded.

An occasional paper titled Raising Agricultural Productivity and Making Farming Remunerative for Farmers published by NITI Aayog stresses on the reorientation of price policy. It also states that it is not possible for the government to buy each agricultural produce in each market in all region since it is neither feasible nor desirable. If the government rolls back MSP and the procurement process then there are further fears of reduction in subsidy on materials like fertilisers and free power.

The MSP policy also has led to excess production by farmers and excess procurement of rice and wheat by the government. As of September 2020, the FCI has a total of 700.27 lakh tonnes rice and wheat while stocking norms states that the FCI needs to have an operational strategic reserve of 411.2 lakh tonnes of July and 307.70 lakh tonnes as of October. Even after the free distribution of food grains during the lockdown by the government leaves these massive stocks. The same NITI Aayog paper states that per capita consumption of pulses in the country have declined by two-thirds along with the per capita production which declined from 25 Kg in 1964-65 to 13.6 Kg in 2014-15. This point to the problem that the farmers decided to produce rice and wheat in place of other crops since it is a much safer option as they have a safe buyer – the government who will buy at a good price (the MSP). Punjab is a low consumer of rice but the strong procurement process has led to the high supply of rice from this area. Even when it comes to wheat, Punjab and Haryana are again the major beneficiaries. Only 11-12% of the wheat is procured by the government in Uttar Pradesh even though it is the largest producer of wheat in the country. The NITI Aayog paper also mentions that because of the procurement of wheat and rice in record amount from these states, the price of wheat and rice in other states are much less than what would be in absence of government procurement. This has created a regional inequality across the country. The government procurement process has also ensured that the semi-arid regions of Haryana and Punjab keep the production of wheat and rice high thus requiring vast amount of underground water. This has caused its own set of problems like lowering of the underground water table, possible desertification and air pollution caused by stubble burning.

If government procurement is lowered even when MSP is present with the introduction of private markets, the prices of this commodities will drastically fall which will affect these big farmers of Punjab, Haryana and western Uttar Pradesh. This has led to the widespread discontent among the farmers especially belonging to these three states.

Establishing an alternative market with no intervention from the State governments is also not a viable option. The Agricultural Census of 2015-16 points that India’s 86.2% operational holdings are small and marginal which is less than 2 acres in size. For these small farmers who do not produce much, competing in any type of market is not an easy task. A good amount of basic infrastructure is needed like cold storages, metalled roads to villages, good power supply for the operation of cold storages are needed so that these farmers can compete in the market. An interesting case emerges when the state of Bihar discontinued its APMC Act in 2006 but failed to generate higher income for the farmers since the basic infrastructure for markets were not in place. Therefore, for building this basic infrastructure the need for State governments to get involved in the private markets promised by the new Act is very important. To build a regulated market (provided with the basic infrastructure) outside the APMC mandis, a good amount of communication is needed between the Central government and the State governments in this issue. As evident from the above discussion much work is needed on the Act itself to actually generate any good things for all stakeholders and especially the farmers.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 provides for a farming agreement framework between a farmer and a buyer prior to the production or rearing of any farm produce. In other words, this act creates a framework for contract farming in which an agreement is created between the buyer and the producer (in this case the farmer) prior to the production or rearing of any farm produce. Along with it provides for a dispute settlement mechanism comprised of three levels – the conciliation board formed by equal number of representatives from both sides of the agreement (the buyer and the farmer), the Sub-Divisional Magistrate and the Appellate Authority.

The primary fear among the farmers against this law is the fear of big corporates taking over contract farming. The farmers cannot trust the big corporates since the environment of fear of big businesses taking over other small businesses are still there. Furthermore, if the argument for the efficiency of the market process is taken into account then all this is happening at a time when the government banned the export of onion seeds. The question one may ask, is if the government doesn’t believe in the forces of the free market to operate at times then why it is telling the farmers to trust the market?

Another reason for this fear is that over the last decade, agricultural input markets have seen a rise in corporatisation along with high input cost. The data provided from the Ministry of Agriculture shows that a rising cost of immediate goods like machinery, fuel, human labour, etc. is the real cause behind the inflation of Agri-input costs. The fear is that the increasing corporatisation is behind the rise in costs of these immediate goods.

The Essential Commodities Act (1955) empowers the central government to mark certain commodities as essential commodities. Essential commodities’ supply, distribution, trade, commerce, production can be regulated or prohibited. This law also prohibited the hoarding of these essential items. The Essential Commodities (Amendment) Act, 2020 amends the 1955 act and empowers the central government to regulate the supply of certain food items only under extraordinary circumstances like, war, famine, extraordinary price rise or natural calamity of grave nature. The primary concern with this amendment is that edibles like onion, pulses and edible oils are a common food in the country and if the government doesn’t regulate such food items then the chances of hoarding are high which can lead to a price rise.

Manish Dutta

Intern, Asia in Global Affairs