The sun sets on another day of the protest: Farmers in front of their tents on a blocked highway in Ghazipur on December 24. Photo: Prakash SINGH/AFP
WHEN the government decided to open agricultural markets to agribusinesses and large traders as part of the economic package it came out with in May 2020, some commentators said that this was the “1991 moment” for agriculture, thus drawing a parallel with the market-oriented economic reforms the P.V. Narasimha Rao government introduced in the early 1990s. Two pieces of legislation were enacted in 2020: the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act (better known as the Contract Farming Act) and the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act. And the existing Essential Commodities Act was amended to give effect to the policy shift the government announced.
However, a closer look at the three farm laws and the 1991 economic reforms tells us that the comparison is not apt. While the economic reforms began the process of deregulating the Indian economy by ending the so-called licence-control raj, or lifting of government controls over private enterprises, the two new farm laws are intended to facilitate the entry into Indian agriculture of agribusinesses and large traders who will now be able to exercise their influence over it, much in the same way that large grain traders do in many countries around the world. In addition, the Essential Commodities (Amendment) Act will allow large traders to stockpile agricultural commodities, which they were earlier restrained from doing in order to curb speculative tendencies and keep food inflation in check.
Also read: Agricultural reform or battering ram?
The most dominant among the arguments advanced in support of the farm laws has been that it is a major step towards introducing a free market in agriculture. The tacit assumption is that the laws liberate the market from the stranglehold of the government and allow farmers to “freely” negotiate the best deals with large agribusinesses and traders. There are two counterpoints to this argument. The first is that the government never had an overwhelming presence in agricultural markets, so a remedy of the kind that the government has proposed was not needed. This fact was alluded to in the 2006 report of the National Commission on Farmers (better known as the Swaminathan Commission), which pointed out that “the markets of agriculture commodities have been largely dominated by individual traders in the private sector” and that “private trade handles about 80% of the marketed surplus of agriculture commodities”. The commission also said that the “market for fruits, vegetables, meat, poultry products etc. is also dominated by the private sector”.
The second counterpoint is that a free market in agriculture is a myth that has frequently been sold both in the context of domestic and international trade. The reality is that agricultural markets are influenced by oligopsonies, or a small number of buyers, whose control has increased manifold with the increasing market-orientation of economies. Thus, in keeping with the times, the Indian government has introduced the three laws, which are nothing but an ensemble of instrumentalities for handing regulatory control over agriculture to agribusinesses and large traders. It is not difficult to understand that these laws have created conditions that can best be described as “regulatory capture”, meaning that the government, whose role it is to regulate in the public interest, has been “captured” by the dominant market forces.
The key objectives
The objective of the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act is to make contract farming the model for Indian agriculture: The stated objective of the Contract Farming Act is to “provide for a national framework on farming agreements that protects and empowers farmers to engage with agribusiness firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner and for matters connected therewith or incidental thereto” (emphasis added). There are, therefore, two operative parts to the objective: one, empowerment and protection of farmers to deal with large agribusinesses, and two, enabling farmers to negotiate remunerative prices for their produce. The legislation does not provide for any means of effectively protecting and/or empowering farmers; all it does is state that the government may, at the most, issue “necessary guidelines along with model farming agreements”, thereby facilitating farmers to enter into written farming agreements. But even after the legislation came into force, the model farming agreements are yet to be notified.
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act complements the first Act through its stated objective: “to provide for the creation of an ecosystem where the farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels; to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside the physical premises of markets or deemed markets notified under various State agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto”. The main purpose of this Act is to allow traders to carry out inter-State movement of agricultural products, which had been under restrictions. Although granting farmers operational freedom is the stated purpose of both laws, their substantive provisions speak otherwise.
The government’s contention is that farmers will now be able to maximise their returns by negotiating with agribusinesses and traders. However, the question is, can farmers benefit, given their vastly unequal bargaining powers vis-à-vis large businesses? The economic condition of India’s farmers is well documented in the government’s submissions to the World Trade Organisation (WTO). According to the government, 99.43 per cent of the country’s farmers are “low income or resource poor”, a figure sourced from the Agricultural Census for 2015-16. The census informs us that this figure corresponds to the share of farmers who operate marginal, small and medium holdings, that is, agricultural holdings up to 10 hectares are “low income or resource poor”. Thus, in the government’s view, only 0.57 per cent of the farmers in the country are well-to-do. There cannot be a better indicator to describe the vastly disparate bargaining powers between India’s farmers and agribusinesses. And when have negotiations between vastly unequal entities ever benefited the weaker party?
Studies conducted on contract farming in India and other countries have shown that this form of farming is at best a mixed blessing. The studies have underlined several challenges associated with it. For instance, contracting agencies generally deal with relatively large producers and their contracts are often biased against small farmers. Also contract farming can perpetuate the problems farmers face instead of solving them. Finally, several studies have concluded that contract farming has been somewhat successful only in countries where the government and social organisations were active participants, with the former playing the role of enforcer of the rules of the game. These observations make it clear that in contract farming the relative bargaining power is skewed against farmers, which occurs, among other things, because of asymmetric information between the two parties.
Also read: How farmers’ freedoms are at stake
Besides the inherent problems with contract farming, the piece of legislation enacted to promote it has several provisions that could potentially put farmers in an even worse bargaining position. For instance, agribusinesses have been allowed to impose a slew of conditions in their agreements with farmers, including those relating to compliance with quality, grade and standards of the marketed products. The Contract Farming Act stipulates that the standards may be “formulated by any agency of the Central government or the State governments, or any agency authorised by such government for this purpose”. This implies that besides the standards introduced by government agencies, which are adopted through transparent processes, the Contract Farming Act allows agribusinesses to introduce private standards, which are often imposed in a non-transparent manner and can be quite arbitrary, implying that they can be used to impose unfair conditions on farmers.
The Act further provides that “quality, grade and standards shall be monitored and certified during the process of cultivation or rearing [of animals], or at the time of delivery, by third party qualified assayers to ensure impartiality and fairness”. This provision highlights the deeply intrusive nature of contract farming and the curbs it could impose on the freedom of farmers to carry out their activities, leave alone get “remunerative prices”.
What is worse, the Contract Farming Act has provisions that introduce in the farming agreements a number of contentious conditions such as good farming practices and labour and social development standards. “Good farming practices” have not been defined in the Act, but if these are seen in conjunction with attempts to impose labour and social standards, farmers’ interests could be seriously impacted. Labour and social standards have frequently been discussed in the context of international trade rules and hark back to the core conventions of the International Labour Organisation relating to minimum wages and the use of child labour. India has consistently resisted the pressures of industrialised countries to incorporate these discriminatory standards in global trade rules as they are instruments that militate against the rights of developing countries in global markets.
It is ironical that such standards have been introduced in laws that can be used to undermine the interests of India’s farmers. Two questions arise in this context. One, how can a government that speaks of helping farmers double their incomes introduce these grossly unfair instruments that can only increase the exploitation of farmers by agribusinesses? And two, when the government expresses its commitment to improving the ease of doing business, how can it increase transaction costs for farmers and make it difficult for them to do business?
Also read: High costs hurt farmers in lockdown year
The most controversial aspects of both law are some of the procedures they lay down for the settlement of disputes between farmers and large agribusinesses and traders. First, disputes between the parties are to be settled by a Conciliation Board, which will be appointed by a Sub-Divisional Magistrate (SDM). However, the jurisdiction of the concerned SDM has not been stipulated. This raises the possibility that the agribusiness/trader could approach an SDM in a jurisdiction at a considerable distance away from a farmer’s fields, leaving him/her at a disadvantage while contesting a dispute.
Secondly, the decision of the Conciliation Board can be appealed before an Appellate Authority (Collector or Additional Collector nominated by the Collector), but no civil court has been given the jurisdiction to entertain any suit or proceedings in respect of any dispute. The plain meaning of this provision is that in respect of any dispute, civil courts cannot entertain complaints against the decision of the SDM or the Appellate Authority. In other words, the decisions taken by government officials will be binding on the parties to a dispute and there is no scope for judicial review.
And, finally, the Contract Farming Act stipulates that legal proceedings cannot be initiated “against the Central Government, the State Government, the Registration Authority, the Sub-Divisional Authority, the Appellate Authority or any other person for anything which is in good faith done or intended to be done under the provisions of this Act or any rule made thereunder” (emphasis added). A clarification needs to be sought from the government as to whom it intends to protect using the above-mentioned “good faith” provision, which almost reads like a carte blanche. Surely, not the farming communities?
Implications of denying MSP
It is fairly obvious that the farm laws will carry out re-regulation of agriculture through two simultaneous processes. First, agribusinesses/traders whose entry is being facilitated would not only control the marketing channels but, more importantly, control the production processes as well. Secondly, the laws will diminish and eventually eliminate the government agencies that have been playing a critical role by offering farmers support prices for major products and thus cushioning farm incomes when commodity prices reduce, as they are wont to do immediately after the harvest. The absence of any mention of minimum support prices (MSPs) in the laws should, therefore, be interpreted as a quiet withdrawal of the government from the public procurement system. Ironically, these steps are being taken by a government that won the popular mandate in 2014 after promising farmers a “minimum of 50% profits over the cost of production” and then claimed in its 2019 election manifesto that by “increasing the Minimum Support Price of crops by 1.5 times the cost” it had ensured farmers a fair value for their yield.
Large foodgrain stocks
Since its significant involvement in agricultural markets from the mid1960s onwards, the government has facilitated India’s transformation from an import-dependent country to one that has large foodgrain stocks. What also needs to be understood is that for decades, government agencies such as the Food Corporation of India were mandated to intervene in markets and prevent market failures from overrunning the largest private sector in the country, namely, agriculture. Had this not been the case, the production surges that the country saw following the adoption of Green Revolution technologies could not have been sustained as the uncertainties of the marketplace would have acted as serious disincentives that dissuaded farmers from remaining engaged in agriculture. The National Commission on Farmers commented in its second report that the “MSP system, which has contributed towards diversification and commercialisation of Indian agriculture and also in achieving the present level of production, needs to be continued in near foreseeable future and its implementation should be improved”. The commission was alluding to the ineffective spread of the procurement system as it has remained mostly confined to the northern States. The Swaminathan Commission noted further that the price behaviour of sensitive commodities not covered by MSP must be “closely monitored particularly during the glut season for need based support under the Market Intervention Scheme”.
Public procurement through the MSP system has had three advantages: one, providing farmers with incentives in the form of assured returns; two, dampening price volatilities of the major agricultural commodities in India, which is a common occurrence in global markets; and finally, helping build foodgrain stocks to sustain the public distribution system (PDS). It is a no-brainer that if the government stops procuring foodgrains by offering MSP, the PDS will collapse.
The government can ill afford to withdraw the PDS as there is a high incidence of undernourishment among a sizeable section of Indians and dealing with it remains one of the government’s most formidable challenges. The Global Hunger Index for 2020 gave a grim reminder of this reality: India was ranked 94 out of the 107 countries for which the numbers were provided. Further, the United Nations Food and Agriculture Organisation’s The State of Food Insecurity in the World showed that during 2017-19 the “prevalence of undernourishment in the total population” in India was 14 per cent, the second highest among South Asian countries. At the same time, it must also be remembered that India is home to the largest number of undernourished people in the world.
It is a dismal augury that while hunger and undernourishment remain major problems in the country, which have only worsened in the pandemic-induced economic crisis, the government is planning to transform India into an agricultural export hub. This is one of the oft-mentioned objectives of the new farm laws. A NITI Aayog member recently argued that given the emerging demand-supply scenario in the country, India will be required to sell 20-25 per cent of the incremental agri-food production in overseas markets in the coming years. However, this argument refuses to accept that given the scale of undernourishment among the country’s population, food stocks are a manifestation of inadequate implementation of the National Food Security Act (NFSA). In fact, over the past few years, budgetary allocation for the implementation of the NFSA has been falling in real terms. Thus, while its citizens go to bed hungry, the government is unable to find a market for its growing food stocks.
Also read: Political impact of the farmers’ Delhi siege
Since it initiated economic liberalisation policies three decades ago, India has consistently submitted in the WTO that its agricultural policies are designed to ensure food security and protect farmers from the uncertainties of market forces. India could therefore justify its imposition of high import tariffs by saying they were needed to protect its agriculture from the heavily subsidised products that were traded in international markets. How consistent or compatible would the government’s stand of protecting Indian farmers be with its new-found aspiration of turning the country into an agricultural export hub?
Biswajit Dhar is at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.