Farm Law Controversy - Agriculture Reform 2020

India is mainly an agricultural society/ country. Agriculture is the most important occupation for most of the Indian families. Agriculture is the backbone of the Indian economy and will continue to remain so for a long time (as it seems now). Indian agriculture is characterised by agro-ecological diversities in soil, rainfall, temperature and cropping season. Agriculture and its allied sector employ more than half of the workforce in the country. However, it contributes only about 17% of the GDP.

Distribution of Farmland in India

86% of total farmers are small and marginal, and they only own 47% of the total agricultural land, medium farmers are 13%, and they own 44% of the land, and the rest belongs to large farmers (see figure 1). The average size of farm holdings gradually reduced from 2.58 ha to 1.57 ha (2017-18 data) due to fragmentation of landholding generations after generation. These small and marginal farmers have limited resources compared to medium and large farmers.

Fig 1: Distribution of farmland assets in India

Government's Role

As the majority of India's population is engaged in Agriculture and its allied services, the intervention of the government(s) - State and Central - is very much visible throughout the Agri-spectrum. 'Business' of agriculture in the Constitution is divided between the Centre and the State -

• The intra-state trading and Agri-Marketing System (APMC) come under State List,
• The inter-state trading comes under Union List,
• The trade and commerce in food items come under Concurrent List.

From time to time, all the State and the Central government(s) have made rules and regulations, passed bills and made acts to regulate the agricultural produce and its distribution (see figure 2). Some of these regulations, acts are outdated and are in dire need of reformation. For example, the Essential Commodity Act, 1955 was made when there was a scarcity of food grains in India. The successive government should have amended the law after the success of the Green Revolution in 1960-70s, but the law remained as it is.

Fig 2: Farm-to-Fork Chain

Central governments formed many committees/ commissions over the years to seek possible suggestions to change/ improve the agricultural production and distribution system in India. Few of the committees formed are Dr M.S. Swaminathan committee for National Commission on Farmers (2004) to address the nationwide calamity of farmer suicide, Shanta Kumar Committee on Food Corporation of India restructuring (2014) to suggest restructuring or unbundling of FCI with a view to improving its operational efficiency and financial management, Parliamentary Standing Committee on Agriculture (PSCA) (2019-20) etc. Some of them pointed out that, a) the APMCs are not working properly and drastic reforms are required, b) there has been cartelisation of buyers to drop the price intentionally, c) fees levied on farmers to register in APMC are very high, and, d) Associations outside the APMCs are making the entry difficult and thus making less competition etc.

The three Bill(s)

1. Farmer's Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 - (Free Trade across India) - The main provisions of this bill are:
   • The new legislation will create an ecosystem where the farmers and traders will enjoy the freedom of choice of sale and purchase of Agri-produce.
   • It will also promote barrier-free inter-state and intra-state trade and commerce outside the physical premises of markets notified under State Agricultural Produce Marketing legislations.
   • The farmers will not be charged any cess or levy for sale of their produce and will not have to bear transport costs.
   • The Bill also proposes electronic trading in transaction platform for ensuring a seamless trade electronically.
   • In addition to mandis, freedom to do trading at farmgate, cold storage, warehouse, processing units etc.
   • Farmers will be able to engage in direct marketing, thereby eliminating intermediaries resulting in full realisation of price.
2. Farmer's (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 (Contract Farming across India) - The main provisions of this bill are:
   • The new legislation will empower farmers for engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters, etc., on a level playing field—price assurance to farmers even before sowing of crops. In the case of higher market price, farmers will be entitled to this price over and above the minimum price.
   • It will transfer the risk of market unpredictability from the farmer to the sponsor. Due to prior price determination, farmers will be shielded from the rise and fall of market prices.
   • It will also enable the farmer to access modern technology, better seed and other inputs.
   • It will reduce the cost of marketing and improve the income of farmers.
   • Effective dispute resolution mechanism has been provided for with clear timelines for redressal.
   • The impetus to research and new technology in the agriculture sector.
3. Essential Commodities (Amendment) Bill, 2020 (Free Stocking of Agri-Produce, by anyone) - This bill amends the Essential Commodity Act, 1955 and removes the holding limit on Agri-produce. Since India has become surplus in most Agri-commodities, the farmers are unable to get better prices due to lack of investment in cold storage, warehouses, processing and export as holding capacity was imposed by the ECA. The government will interfere only when prices increase sharply.

Assumptions and Concerns

• Availability of Buyers: First and the foremost question will the private parties will blindly jump-in in the Agri-produce trade. We already know what happened in Bihar when the then state government decided to close the APMC and let the private player be the buyers in 2006. After 14 years, the condition of the farmers has not improved as it was envisaged at that time.
  The Mandi's infrastructure is also not improved as it was thought it would due to the entry of private players.
  Farmers/ Associations have a concern that it may turn into another Bihar situation, but this time on a Pan-India level.
• The framework of Contract Farming: Farmers/ Associations have a concern that farmers will be under pressure, and they will not be able to determine prices. In the case of dispute, big companies will be at advantage due to their sheer size. Although Dispute Resolution Mechanism System (DRM) is in place, still, this is no guarantee that the small farmers will win against the big companies.
• Export Policy is unreformed: The government has made many amendments in the bill and brought new bills, but the export policy on Agri-products in unreformed making it at the hands and wills of government itself. This also needs an amendment.
• Food Security: When the government is freeing itself from buying (through Food Corporation of India) and distribution what will happen to the Food Security of India. Nobody knows.
• Zero Tax outside the APMCs: The farmers/ associations fears that no tax outside the APMC will slowly diminished its role and will be withered out in due course of time.

Government's explanation

• The informal sector to be formalised: The biggest informal sector of India is finally going to formalised by incorporation of these bills. A new category of aggregator will rise in the market and will challenge the APMC and exiting traders, thereby increasing competition.
• APMCs will not close: Inter-state trading is relaxed under these new bills. Government has ensured that the Minimum Support Price (MSP) will continue (although there is no mention of MSP in the Bill).
• Outside APMCs no Mandi Tax: The farmer does not have to pay any tax outside the APMC, thereby increasing their disposable income. More income in hand means more prosperity.
• The investment will come: 21^st c. requires investment, opening the door to the private players will attract more investment, farming infrastructure will develop, transportation of Agri-goods will rise, thereby increasing the exports (exports will help the giants though)
• No construction is allowed of any kind by the private party on agricultural land (it is there in the bill).
• Arhatiyas monopoly to be reduced by creating an alternative parallel market.
• No other obstructionist law will be applied to the Agri-produce as part of the contract farming.

Summary

• When everything - Manufacturing and Services sectors - is contracting in the GDP, only the agriculture sector is rising. Agriculture is a great golden ray of hope.
• Farming in India will slowly become privatized now.
• APMC system may withered-out over the years.
• States' local revenue (taxes collected on APMC) will be affected very highly.
• Slowly and steadily Government of India will stop Food Subsidy and Fertilizer Subsidy.

Disclaimer: The views are personal and do not necessarily reflect the views of any other individual, institute or government body.