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What are the Pros and Cons of the Three Farm Bills Passed by the Lok Sabha?

Editor, TRANSFIN.
Sep 20, 2020 10:39 AM 6 min read
Editorial

On Thursday, Harsimrat Badal, the Union Minister for Food Processing Industries, stepped down from her Cabinet position to protest the Government’s recent farm legislations.

The legislations, which are actually three separate Bills that were passed by the Lok Sabha recently, primarily deal with agricultural marketing. They were introduced initially as emergency ordinances in June. They will now be introduced in the Rajya Sabha for discussion.

The ordinances themselves sparked widespread opposition since June, particularly in Punjab and Haryana. Now, with the three legislations poised to become laws, the agitations have gathered further momentum.

Which are the farm legislations in question?

The three ordinances that have generated so much controversy are:

  1. The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
  2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020
  3. The Essential Commodities (Amendment) Ordinance, 2020.

What are the Pros and Cons of the Three Farm Bills Passed by the Lok Sabha?

Before we discuss what each of these ordinances entail, it may be pertinent to revisit how exactly agricultural produce is bought and distributed in India. 

 

The food network for dummies

Basically, farmers grow crops, and these reach the buyers/consumers through a few middlemen.

But there are a few intricacies to keep in mind here...

Farmers end up selling their produce at the designated local marketplace (“mandi”) as buyers are permitted to purchase only from these centres. At these mandis, farmers sell their harvest to certain middlemen (ideally, to the one who quotes the highest price).

The mandis are designated by an Agricultural Produce Market Committee (APMC), which is established by the respective State Government (FYI: “Agriculture” comes under the State List in the Constitution).

If the middlemen try to dupe the farmer by quoting low rates, the farmer can also sell his produce to the State, through procurement agencies like the Food Corporation of India (FCI). These agencies are required by law to purchase from the farmer at a Minimum Support Price (MSP).

FYI: The MSP is a mechanism wherein the Government announces (at the beginning of the sowing season) the minimum price at which it will buy a farmer’s harvest. Fixing MSPs is seen as necessary to protect farmers from price fluctuations and give them an upper hand in mandi negotiations.

Intrigued enough?

Listen in to one of our earlier podcasts to know how the Indian agricultural value chain really works and how the Indian farmer is often caught between the devil and the deep blue sea.

Now that we’re clear about these mechanisms, let’s dig into the three legislations that have made so many people so angry. 

 

The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020

 

What This Does

- This ordinance essentially enables buyers to purchase produce outside designated mandis. How? It redefines “trade area”, dramatically expanding the places where farmer-buyer transactions can take place.

- It also redefines “trader” aka the middleman. Earlier, only State APMC-designated middlemen - the “commission agents” or the “arhatiyas” - could purchase crops from farmers. Now, anyone with a PAN card can become a trader.

- The ordinance also stipulates that “no market fee or cess or levy” shall be levied on farmers or traders in trade areas.

 

What Critics Say

- If farmers sell their produce outside APMC markets, States will lose mandi fees. This also takes the mandi-designated middlemen out of the picture (this is a major reason why the opposition has been particularly strong in Punjab and Haryana - these states have a robust and well-established arhatiya system).

- Furthermore, by bringing in more potential buyers, the changes may weaken the prevailing MSP system and favour “big farmers” and big corporates at the expense of smaller producers.

- The “no market fee” point is of particular dissension. Levies on mandi transactions tend to be around 8.5%, and this includes the state’s charges (3%), the middlemen commission (2.5%) and a “rural development charge” (3%). By eliminating this fee, the middle agents are affected + big companies stand to gain, since they can now offer better prices to farmers.

- The “One India, One Market” slogan touted by the Centre is actually a problem, protestors argue, since agriculture in India is staggeringly diverse (vis-a-vis State regulations and crop varieties) to be homogenised.

 

What the Centre Says

- The changes give the farmer more choice in where he can sell and who he can sell to.

- By eliminating the market fee structures in different state APMCs, the Government contends the cost of transactions will reduce, and that this will benefit both the farmer and the trader.

- Also, by ending the mandi-limited constrictions, electronic trading is expected to experience a boost.

- And the Agriculture Minister has asserted that "MSP was, MSP is, and MSP will continue in the future".

 

What are the Pros and Cons of the Three Farm Bills Passed by the Lok Sabha?

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020

 

What This Does

This ordinance facilitates “contract farming”, which is when farmers enter into direct contracts with those who wish to buy farm produce, doing away with the middlemen - State APMC-appointed or otherwise - altogether.

So, this can be a deal between a farmer and a small restaurant chain that needs a constant supply of tomatoes and mushrooms, or between a farmer and a big company like Coca-Cola, which may require a regular supply of certain fruits for its fruit drink products.

 

What Critics Say

- In a contract farming arrangement, the farmer will always be the weaker party both during deal-making and in dispute resolution. They would not be able to negotiate for the best prices when seated across a proverbial table from suited-up MBA grads dishing out market lingo and misleading contracts.

- Moreover, companies may also be loth to sponsor, since it would be much simpler for them to deal with an agent or farmers’ representative than to deal with a group of farmers face-to-face.

 

What the Centre Says

- By enabling farmers to enter into contracts with individual businesses directly, middlemen costs are done away with, leaving more money for the producer.

- The risk of market unpredictability, environmental variations, price fluctuations etc. Would be transferred from the farmer to the sponsor.

- And if a buyer is in direct contact with the farmer, he may be more inclined to help the latter invest in modern technological tools and apparatus to boost and improve his harvest.

Point to ponder: Coca-Cola would probably not deal with farmers directly still, considering their requirement won’t fit with the marginal holding of a single farmer. Middlemen are not going anywhere...

 

What are the Pros and Cons of the Three Farm Bills Passed by the Lok Sabha? 

The Essential Commodities (Amendment) Ordinance, 2020

 

What This Does

- Deregulates the production, storage and sale of several food items including cereals, pulses, edible oils and onions, except in the case of extraordinary circumstances.

- Under the new rules, stockpiling limits can only be imposed only if retail prices surge 50% above the average in the case of non-perishables and 100% in the case of perishables.

FYI: The Essential Commodities Act provides for the control of supply and distribution of any good deemed “essential”. The list of items under the Act includes drugs, fertilisers, edible oils and petroleum products. The Act prohibits hoarding or stockpiling of certain products so as to protect consumers from irrational spikes in prices. Case in point - face masks and hand sanitisers were brought under the purview of this Act after the onset of the COVID-19 pandemic.

 

What Critics Say

- This effectively legalises hoarding, which can be disastrous for the prices of critical items like vegetables and pulses.

- Here too, large corporates are better equipped to hoard and stockpile since they have better storage facilities, unlike the average farmer or NGO.

- The price limits that have been set are too high and thus likely to be triggered very rarely, if at all.

 

What the Centre Says

- The lockdown-induced supply pressures and logistics problems caused the prices of essential commodities to fall in April. But due to the strict anti-stockpiling rules, the investment made into storage infrastructure was meagre, leading to a lot of produce going waste. Such a situation would be avoided.

- The changes with usher in FDI and private-sector money, which can be used to set up cold storages and modernise food infrastructure.

- It will also deregulate the farm industry, decrease Government interference, and cut wastage of produce.

FIN.

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