Farmer organisations that have been on the warpath against the big changes being initiated in Indian agriculture walked out of their recent meeting with ministry officials in Delhi.
The prime minister also recently assured farmers that the minimum support price (MSP) regime is not being eliminated and that Agricultural Produce Market Committee mandis are only being made more competitive. But the gap between the farmer position and that of the government is not narrowing.
One thing both sides agree on is that the changes being introduced are game changers but from opposite ends.
The prime minister believes they are for the good of the farmers who will be able to obtain a better price for their crop. On the other hand, farmers believe the Bills are detrimental to their interests since they will corporatise agriculture.
Free markets and choice
It is claimed that the farmers will be freed from the clutches of the middlemen (arhtiyas and traders) who short-charge the farmers by pocketing a large part of the price of the produce. It is argued that APMC is the problem and the agriculturist will be freed from its hold.
Also read: Middlemen or Service Providers: What Role Do Arhtiyas Play in Market Yards?
But it is also stated that neither the APMC nor the MSP will be eliminated so that the farmers will have a greater choice. They can sell their produce wherever they get a higher price – in the APMC or outside it.
The key words here are ‘free markets’ and ‘choice’.
One needs to ask whether the markets for agricultural produce are currently ‘free’, whether they can be made free by changes in marketing laws and whether that will enable the farmers to have a ‘choice’?
Farmer protests in the last few years have highlighted their precarious economic situation. So, there were problems with the existing system but the question is whether the three new bills together will resolve them.
It needs to be clarified that farmers are not a homogenous lot and face diverse kinds of problems. It is said that only 6% of the farmers benefit from MSP and only 22 commodities are covered under it. For instance, it does not apply to those producing vegetables and fruits.
Structure of agricultural markets
The basic problem facing the farmers needs to be identified. They produce essentials seasonally and not through the year (like, factories do).
They produce wheat in the Rabi season and paddy mostly in the Kharif season. But wheat and rice are consumed right through the year. So, some agency has to stock the produce when it is harvested and supply it through the year. Further, it is produced in the rural areas and consumed everywhere, especially in the urban areas. Trade plays the role of stocking and supplying these items everywhere through the year. This ties the farmer to the traders.
Maize at a mandi in Madhya Pradesh. Photo: File
When the crop is harvested, most of the farmers come to the market in a short period of time to sell their crop. This is called the post-harvest time. Since there is a huge over-supply compared to demand, the prices fall. After most of the farmers have sold their crop, sales to consumers continue in what is referred to as the lean season and the price of the produce rises. The trader gets the benefit of buying cheaply post-harvest and selling at a higher price in the lean season.
Agriculture is also subject to annual fluctuations. When the rains fail and the heat is high, the crop fails. Prices of the produce rise and there is inflation. This benefits only some of the well-off farmers who have assured irrigation and whose production suffers little. Most of the farmers are not self-sufficient with 86% cultivating less than two hectares of land. They need to buy during the lean season as their own supplies get exhausted. So, most of the agriculturists suffer during a drought because their produce is less and because they have to buy their requirements at a high price.
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There are times when the rains are bountiful and there is a bumper crop. But then the post-harvest price crashes due to the glut in the market. Only the big farmers can sustain and benefit since they have the capacity to store and hold on to their crop. The small farmers again suffer.
The moot point is that the vast majority of the farmers suffer both during a drought and when there is a bumper crop; this is a consequence of the way the agricultural markets are structured. That is the reason that a majority of the farmers constantly need government help.
The markets for agricultural produce are unlike those for non-agricultural products. In the case of the latter, price is largely based on cost plus via what is called the ‘mark up on prime costs’. So, the non-agriculture producers recover the cost and have a profit margin on top of that. This is not the case with agriculturists. When the price they get crashes they are not even able to recover their cost. Even in normal times, they barely recover the cost of production.
Most farmers then have little surplus to tide over their bad times and are constantly in debt. They do not have the savings to invest in the crop cycle and also carry on the minimum necessary consumption of the family. They are caught in the vicious trap of borrowing to produce.
That is why the government introduced the procurement system and a minimum price (MSP) at which the government buys certain important crops. This prevents the prices of these agricultural commodities from crashing during a bumper crop year. It also results in the government holding stocks of food which can then be released during a drought year. Thus, there is a stabilisation of the prices of agricultural commodities.
Also read: Farm Bills, Small Farmers and Chasing the Agri-Dollar Dream
Even though the MSP does not cover the entire cost of production and the farmers always protest about it, a vast majority of the farmers do not even obtain this price in the market. Why is that the case when the government promises them this price? This is where the role of trade becomes the key.
Rashtriya Kisan Manch members protest against the farm laws in Odisha. Photo: By arrangement.
Markets are inter-linked, not free
The reason the vast majority of farmers are poor is that they do not get the price that they should get. They are often short of money to carry on consumption and plant their fields. One illness or a social occasion and they have to borrow more money, often from the local money lender who is also a trader or a bigger farmer; this comes at a cost.
The rate of interest charged is usurious and/or they have to sell the crop to the lender. The price they receive is less than the MSP or the market price. So, it is credit that ties them to the trader or lender. MSP is only the benchmark price to determine the price the farmer gets.
The traders are also layered from the farmer to the wholesale market to the towns. There are hundreds of mandis so that no trader has a monopoly over the produce in any mandi. The prices in the mandis get determined by the demand and supply in the national market.
But traders can hoard supplies in periods of shortages and aggravate the shortages. Further, they have an element of control over the farmers via the credit they advance to them. So, the farmers are not free but tied to specific traders in their areas who can squeeze them by paying a lower price called the farm gate price.
Also read: Interview | Farm Laws: ‘Price Based Support Makes More Sense in India Than Income Support’
Clearly, a vast majority of the farmers are not free agents who can exercise ‘choice’ to do what theoretically is best for them. Further, the market for agricultural produce is `not free’ but interlinked with other markets, like, the credit market. The traders or lenders who have the capital extract the surplus from the farmers so that they remain in their grip.
No wonder whatever the government has done in the last 70 years, the lot of the small and marginal farmers has barely improved. And, that is not only due to poor implementation of policies.
Promoting corporatisation
What will the new laws do?
Pass on the control of agricultural produce to even bigger owners of capital – the corporates. They are profit maximising entities which will extract whatever the traders were extracting from the farmers and go even further since they would not have any local social linkages. Further, they would not want to deal with a large number of small farmers with small surpluses to sell. They would use the existing traders as aggregators. So, there would be increased exploitation of the small farmers.
MSP will become irrelevant for a large number of farmers even though the new bills do not eliminate it. APMC will continue to exist but they will slowly become redundant when the big corporate buyers move in with their vast amounts of capital. The big corporates have been expanding over the last many years into retailing of agricultural produce and they want to expand further now that e-commerce is rapidly advancing in the coronavirus hit economy. The three Bills are for them and not the farmers.
Arun Kumar is the Malcolm Adiseshiah Chair Professor, Institute of Social Sciences and author of Indian Economy Since Independence: Persisting Colonial Disruption.
