apmc mandis

Here’s One Policy Path That Makes it Viable to Promise a Legal Guarantee of MSP

The solution we propose is a storage-linked price deficiency payment mechanism that compensates producers for the difference between notified MSP and the actual realised price.

The issue of a legal minimum support price (MSP) guarantee has divided not just political parties and governments but also the large community of farm experts and leaders, economists as well as commentators.

The debate is being conducted between seemingly irreconcilable camps: passionate, often angry, arguments are advanced either for or against the idea of ensuring universal coverage of MSP to all farmers.

Staggering figures of the outlays required by the government are calculated by some, warning against the foolhardiness of a legal MSP guarantee. Others offer more modest estimates with toned down numbers, as if a bargain price would somehow melt the hearts of policy makers.

The Union government, having agreed to set up an expert committee to examine the modalities of extending a legal MSP guarantee, has bought time to think through its next moves.

However, we are of the view that, even as the government comes out with its preferred solution, farmers’ bodies, experts, independent institutions and others must continue to explore options to provide an assurance to farmers that they will be able to realise MSP for their produce. While the legalese will be examined by the expert committee, such options need to be placed in the public domain for wider discussion with all stakeholders.

It is in this spirit that we offer the gist of a possible way forward in this note. We are not suggesting that this is the only way to achieve the objective, but certainly one of the possible pathways which appears shorter and requires minimal dislocation.

A bit of history is in order here. Those familiar with the story of how India travelled from a severely food deficit country, which produced barely 50 million million tonnes of food grains in 1950, to a situation of plenty, where the tentative estimate of last year’s food output is over 300 million MTs, know that this is one of most remarkable achievements of independent India. An agricultural sector which had been completely devastated by over a century of British policies was revived over barely three decades, with the adoption of far-sighted policies by the Union and state governments, the dedication of agricultural scientists, hard work by field administrators and of course the willing and eager participation of the farming community across the country.

Also read: Why the Farmers’ Demand to Legalise MSP is Justified

An elaborate ecosystem of research institutions, extension machinery, credit and input supply mechanisms, marketing and procurement infrastructure and a nation-wide public distribution system were created to permanently eradicate chronic food shortages and the spectre of famines. Much of the heavy lifting for this ambitious project was undertaken by the government. In fact, lack of ownership and pride in the fantastic achievement of national food security among many of the current generation of political leaders, policy makers and administrators remains one of the abiding puzzles of our times.

It is important to recall this history to emphasise that the buy-back of produce at minimum support prices (MSP) was a key pillar in the national effort to achieve self-sufficiency in food. It lay at the heart of the incentive structure offered to farmers to adopt new varieties of seed, learn the associated package of practices to nurture the crop, deal with unfamiliar pests and plant diseases and finally deliver the crop to procurement centres. From that point, the second aspect of the food security architecture took over, ensuring storage, transportation and distribution of food stocks throughout the country.

Critics of the current MSP regime make several valid points: procurement is largely limited to paddy and wheat (with small volumes of pulses and oilseeds) being added to the procurement list in the past few years); the geographical coverage of MSP is limited to only some states and even the most generous estimates suggest that only 10%-12% farm households in the country benefit from MSP directly.

Representative image of a farmer spraying fertilizer. Photo: IFPRI/Flickr CC BY NC ND 2.0

We now have a historic opportunity to address these issues and create the template for a pan-Indian and inclusive mechanism to ensure assured returns to all producers who offer surplus produce for sale. And this can be done without the government having to procure the produce directly and wreck budgets. Rather, by intelligently leveraging the huge demand for food within the country and using the existing ecosystem of food marketing, we can achieve the objective of guaranteeing MSP to all farmers. We will call the suggested new arrangement, to be taken up in phases, the universal MSP or UMSP for the purposes of this write-up.

The proposal

UMSP is based on three premises:

Production of all major commodities currently in the MSP regime is stable and will continue to be so in the medium term.
Demand for food grains is also stable in the medium term (whether in the form of government needs under the food security law and welfare programmes such as MDM, ICDS, etc.), as well as private sector demand for manufacture of consumer food products).
We accept current food security goals and the need for government agencies to procure food grains for welfare schemes and to hold buffer stock, hence UMSP does not propose to disturb the current direct procurement of wheat and paddy by government agencies; our proposal addresses the produce which is sold by farmers to private buyers (through the mandi or other systems prevalent in different states).

The solution we propose is a storage-linked price deficiency payment (SLPDP) mechanism that compensates producers for the difference between notified MSP and the actual realised price. Our proposal is fundamentally different from the ‘price deficiency payment model’ tried in Madhya Pradesh under the Bhavantar scheme.

A farmer harvests wheat at a village in Ghaziabad district, Saturday, April 10, 2021. Photo: PTI/Arun Sharma

The one-season price deficiency payment (PDP) experiment covering a few crops in Madhya Pradesh was shut down in 2018 by the State Government citing no reasons whatsoever. However, several commentators who followed the interesting trial concluded that the PDP had failed for the following three reasons:

Price discovery in the mandis was not transparent and trader cartels seem to have forced down prices, leaving the government to bear higher compensation claims.
The short window of the PDP scheme brought too much produce to the market yards and created a glut situation and distress sales.
The compensation mechanism was complicated as it was based on market prices in APMCs. Moreover, many farmers could not benefit from the same due to their inability to file the required documentation.

In our view, any successful PDP must meet the test of being accessible to all farmers, be completely transparent in its functioning and implementation should be simple and cost-effective. A broad overview of the proposed UMSP solution below provides the outline of the scheme and makes an argument for its trial on a pilot basis covering a limited number of crops in a few States. If it meets the three objectives of inclusivity, transparency and ease of implementation, a gradual expansion to cover additional crops can be attempted.

The proposed architecture of UMSP would have four categories of actors:

Producers (basically farmers);
Aggregators (those who will virtually bundle produce into marketable lots);
Buyers;
Government (both the Central and state governments would have to be part of this solution as the entire architecture will be sponsored and regulated by designated authorities at each stage).

Producers will be registered on the UMSP system as a one-time on-boarding exercise. After the harvest, they can bring their produce to any UMSP-registered warehouse nearest to their village and deposit the same. These warehouses could belong to individuals, cooperatives, farmer producer organisations (FPOs), APMC market yards, corporates, public agencies etc. Basic norms such as quality of structure, capacity, accessibility etc. would be laid down in the registration norms. The objective should be to offer producers a choice of registered warehouses within 5-7 km radius of their village. Suitable norms, including standard pan-India storage costs, can be decided for these warehouses by the designated authority.

At the warehouse, the farmer’s produce would be checked for weight and quality and he will be issued an electronic, negotiable warehouse receipt (e-NWR). This instrument already exists and enables the farmer to raise up to 70% of the value of his deposited stock as a loan from a bank (for which standard rates and procedure can be offered), thus taking care of his immediate liquidity requirements. He can now afford to wait a few weeks or even months before selling off his deposited stock in small lots (or as he prefers) and benefit from any upside movement in prices.

To sell his produce, the farmer relies on the second set of actors, the aggregators. Like the farmers, aggregators would also be registered in the UMSP system through a one-time verification process. They can be individuals, cooperatives, FPOs, corporates, storage entrepreneurs, start-ups, mandi traders, commission agents, etc. Their fees would be uniform across the country and the list of services would be well defined. Moreover, since they only function online, there will be a complete audit trail of their activities.

‘Competitive bidding would be ensured by the system through screen-based trading for each lot, with full visibility to all players in real time.’ Pipariya mandi in Hoshangabad district. Photo: Kashif Kakvi

Aggregators would bundle e-NWRs into saleable lots so that buyers are able to choose volumes, quality etc. Competitive bidding would be ensured by the system through screen-based trading for each lot, with full visibility to all players in real time. The price discovered would thus be a market-determined price. The model largely follows the practices of the well-established online trading of stocks which has worked for several decades. The only difference is that the securities (i.e. e-NWR) being traded in this case are backed by physical stocks instead of demat shares.

The third set of players on UMSP are the buyers. These can be individual traders, food processors, agribusiness companies, exporters, retailers, start-ups or even cooperatives and FPOs. As a matter of policy, mandi traders and commission agents should be included in UMSP. They are ones who will offer quotes for the e-NWR bundles being offered for sale and complete the transaction. Suitable arrangements can be made to build in transportation solutions on the UMSP portal to physically ensure the delivery of purchased stocks from the stored location to the buyer’s warehouse. All payments would be routed through the UMSP portal to the farmer’s bank account, leaving a clear audit trail of the actual realisation for the produce which passes through the system.

We now move to the final piece of the suggested UMSP architecture, the deficit payment mechanism. As is evident from the arrangement proposed above, the actual price realised by the farmer will be visible in his online account with the repository. The deposited stock x MSP/sale proceeds realised x100 will reveal the percentage of the farmer’s realisation which is either more or less than the MSP value. This deficit payment can be transferred into the farmer’s account by the designated authority of the Government. There should be no need for additional paperwork or filing of claims, thus saving both farmers and government agencies extra cost and effort. Of course, in case the realisation of the farmer for a particular crop is more than 100% of the MSP value, no payment would be released.

Two additional steps could reduce the potential cost of PDP for the government under this scenario:

One major move that can significantly strengthen the UMSP ecosystem is a vigorous futures market. All commodities for which MSP is notified should be on the futures trading platform and with full transparency of the harvested stocks, this market will be ideally placed to give price signals. With all trades backed by physical stocks, farmers or their FPOs or cooperatives can participate in futures options to lock in desired prices and de-risk themselves. This could help to reduce the payout by the government as PDP over a period of time as the futures market matures.

If the Government mandates compulsory registration of all warehouses with a designated authority, the private sector will come forward and register its warehouses, most of which are currently not registered. Many APMC-run mandis have surplus land which can also be utilised by them for construction of warehouses. These warehouses can provide competition to privately owned ones by offering better services. Cooperatives, FPOs and other rural entrepreneurs will also be incentivised to invest in warehousing space if the UMSP system is gradually expanded to cover more areas and crops.

It is noteworthy that this model does not disturb the normal market functioning in any way. In fact, it introduces complete transparency and rule-based trading for all produce where PDP is sought by the farmer. We also visualize that the traditional mandi system can co-exist with USMP, as there is a large volume of non-MSP crops (such as fruits and vegetables), as well as below FAQ (fair average quality) food grains which will continue to be traded in the mandis.

The outline provided in the foregoing paragraphs represents the kernel of the UMSP idea. Indeed, all its aspects require further debate and discussion, most importantly with stakeholders such as farmer unions, state governments, APMCs, banks, financial institutions, corporates and WDRA. We are of the view that a well-designed price deficiency payment system can be an effective pathway to deliver the promise of a universal MSP. Indeed, both the US and China follow their own models of PDP to give price support to producers.

Of course, it is neither desirable nor practical to switch suddenly to any new arrangement. Pilots covering a few crops like soybean, tur, urad, etc. can be initiated in a few states which have a wide enough network of WDRA registered warehouses (e.g. Madhya Pradesh). The results of such pilots can be subjected to independent concurrent evaluation for efficacy, efficiency and farmer experience etc. Given the unquestioned need to transit to a modern agricultural marketing system, which is both farmer and budget friendly, we submit that this idea needs to be widely debated.

Pravesh Sharma is former Agriculture Secretary, Madhya Pradesh and currently Director, Samunnati, an agritech company. Siraj Hussain is former Union Agriculture Secretary and presently Senior Visiting Fellow at ICRIER. Views expressed here are personal.

‘No Mandi Has Shut, MSP Has Remained After Farm Laws’: PM Modi

The prime minister also said the government has offered to discuss clause by clause the three farm laws, and if there are any shortcomings, it was ready to make changes.

New Delhi: Prime Minister Narendra Modi on Wednesday said that the government and parliament have great respect for farmers who are voicing their views on the three farm bills. He said that neither any agriculture ‘mandi’ (market) has shut down after the three laws were enacted nor has the minimum support price (MSP) stopped. Rather the MSP has only increased which no one can deny, he added.

“After the laws relating to agriculture were passed by parliament, no ‘mandi’ has shut. Likewise, MSP has remained. Procurement on MSP has remained. These facts can’t be ignored,” he said.

Modi further added that those who want to continue with the old agriculture marketing system can continue doing so. The prime minister also said the government has offered to discuss clause by clause the three farm laws, and if there are any shortcomings, it was ready to make changes.

Opposition leaders including Congress leader Rahul Gandhi staged a walk out as Modi explained the government’s stand on the three farm laws.

Also read: Farmers Denied Rs 1,900 Crore Due to Sales Below MSP in Last Two Months

Replying in Lok Sabha to the discussion on the motion of thanks to the president’s address to the joint sitting of parliament, Modi staunchly defended the three contentious farms laws and attacked the Opposition for “misleading” farmers, saying those who are disrupting the House are doing so as per a “well-planned strategy” as they are unable to digest that people can see the truth.

“Through their games, the trust of the people can never be won,” he said, amidst protests by the Opposition members.

The prime minister said the NDA government has tried everything to bring changes in the country and asserted that “if the intention is good, then the results will also be good”.

For over two months, farmers in India have been protesting at the Delhi borders against the agriculture laws, which, they allege, are anti-farmer and pro-corporate. Following the January 26 violence during the tractor parade, the government resorted to stringent measures against the farmers, by barricading the borders with nails, barbed wires and concrete boulders. Over the last few weeks, the protests have also garnered international attention on social media.

(With inputs from PTI)

Why People in Himachal and Uttarakhand Need to Know More on the Farm Laws and Protests

Measures like MSPs are key to the survival of the mountain populace at present. However, mainstream media and remoteness has made it impossible for people in the hills to mobilise over this.

Shimla: “When someone is in pain,” Harpreet Singh panted as he was whisked away by the Shimla police just a week before the famers’ parade on Republic day, “they go to their own people for support.”

He, along with two other farmers from Singhu border, had come to Shimla to spread awareness about their ongoing struggle.

Even before they could unfurl their banner at the famous Ridge Maidan in the capital of Himachal Pradesh, the police arrested them and shoved them down the Mall Road to the police station. Harpreet Singh said, “This is a government that does not want people’s voices to be heard – a government that curbs the right to speech”.

Media persons present at the spot asked why Singh and two other farmers were being treated like a “security threat”. In the context of the western Himalayan region though, the more compelling inquiry that regional media has not made so far is, “What have pahari or hill farmers on tiny terrace-fields got to do with mainland farmers’ cause?”

The BJP-led Himachal and Uttarakhand governments have vehemently supported the three new farm laws, which the farmers’ agitation is demanding be repealed. The media has created the narrative that the lack of Minimum Support Price for certain commodities concerns neither the subsistence mountain farmers nor the ‘progressive’ fruit growers in the region.

Food production a challenge for the subsistence mountain farmers. Photo: Manshi Asher

The dominant narrative that this movement is limited to a few large landholders from Punjab and Haryana, has been challenged on multiple fronts since the agitation began.

One of the key arguments in favour of MSP zeroes in on the critical question of food security – that secure MSPs enable the government to procure food grains directly from sarkari mandis and then distribute them at subsidised rates through the universal Public Distribution System (PDS). This is a fact that Himachal Pradesh, and its neighbouring mountainous regions, cannot afford to overlook.

Also read: India’s Farm Protests: A Basic Guide to the Issues at Stake

Himachal Pradesh is not only one of the states with the highest percentage of PDS using households (90%) in the country, but according to the India Human Development Survey, the percentage of heavily dependent households (who get more than 70% of their grains from PDS) is greatest here, comprising 33.2% of the state’s population.

Another study indicates that in Uttarakhand, the percentage of ‘Below Poverty line’ cardholders among ration cardholders is 45%.

Himachal’s population depends heavily on the PDS in both urban and rural areas. Photo: Manshi Asher

A large number of almost landless or small landholders belong to Dalit communities in Uttarakhand and Himachal. Even for the ‘Above Poverty Line’ cardholders in Himachal, with a well-functioning PDS, ration items like rice, wheat flour, pulses, sugar, kerosene and oil are comparatively more affordable than buying from the open market and are commonly used to supplement food supplies through the year. The imminent threat, with the end of MSPs and the government’s simultaneous push for direct cash transfers, to replace distribution of food, is of consumers being forced to purchase food at market rates.

A ‘State of Himalayan Farming and Farmers’ report published by the Integrated Mountain Initiative in 2018 highlights that “only 15% of the farmers in the north-west Himalayas are producing enough food for themselves”.

Mountain terrains are mostly covered with forests, pastures and rocky outcrops. The nature of the soil and low landholding size (averaging at one hectare or less per family) has always been a limitation for adequate grain production.

In the post-Independence era, land reform measures in states like Himachal, as well as the policy push to develop horticulture, supported the farm-based economy.

But conditions for subsistence, mountain, forest and farm-based livelihoods only became more unfavourable. Fragmentation of land into small farms has affected yields. In addition, transition from traditional crops like millets and barley to cash crops (like apple and vegetables), younger generations moving out of non-remunerative subsistence farming, along with the weakening of a livestock rearing economy – these are trends that have emerged with state-driven, and in recent decades, neoliberal market interventions.

Apple Economy supporting Himachal farmers Photo: Prakash Bhandari

The availability of subsidised food grains from the plains facilitated the move to commercial fruit and vegetable production and continued to keep the farming sector at the centre of the mountain economy.

However, horticulturists too are vulnerable today. They are left to the vagaries of the market and, in recent years, the weather.

Increased warming, erratic rainfall patterns, hailstorms and floods due to the climate crisis makes even commercial farming a precarious livelihood option with dwindling profit margins. In Himachal, the primary sector’s contribution to the state gross domestic produce has seen a sharp decline in the last few years, going from 14% in 2012 to 9.40% in 2017. The policy thrust on tourism and service sectors has meant that farming became even less lucrative.

Also read: Three Farm Bills and India’s Rural Economy

In the year of the pandemic and resultant lock-down, access to labour and markets was compromised. As a result, horticulturalists in the mountains suffered immensely.

In the wake of the crisis, Himachal’s fruit and vegetable producer unions and organisations stressed time and again for the need for MSP for their produce. While the present system is already in disarray due to market pressures and lack of protection for farmers, the current regime’s ‘reforms’ which promise relief from ‘middlemen exploitation’ will ultimately expose them to bigger risks. At present, procurement of fruit produce includes APMC mandis, private vendors and even big companies like Adani and ITC.

Fruit growers are well aware that weakening of the APMC mandis would mean a corporate monopoly, and thus an adverse impact on prices.

Solidarity protest at Dharamsala Collectorate in Himachal. Photo: Sumit Mahar

Environmentalists are often critical of the trajectory of the mountain states’ dependence on the state and markets for food and livelihoods. In the long run, given the concerns around ecology and sustainability, we argue that ‘food sovereignty’ and not just ‘security’ needs to be the goal. This requires strengthening of agroforestry, pastoralism and revival of traditional crops apart from several structural changes.

Having said this, protective measures like PDS and MSPs remain the key for survival of the mountain populace at present.

Yet, barring protests led by Left-leaning farmer’s organisations, opposition parties and few social activists, there is a lull on this issue in the hills.

The reasons could be multiple: the direct implications of the three new laws are difficult to comprehend for common people, especially when the mainstream media reportage is pro-government and against the farmers’ agitation. Plus, the difficult conditions of the mountain regions marked by remoteness as well as the harshness of day-to-day life makes organising more tedious. Most importantly, critical voices tend to be drowned out because the actual numbers of mountain farmers (population) is smaller. In the larger scheme of things, it is the vast population concentrated in the ‘bread-basket’, the northern plains, who were bound to be the front-liners in this battle. This does not mean, though, that this struggle is theirs alone.

The ‘food bowl’ of the country runs parallel to the Himalayas with deep geographical, ecological and cultural connections. The Indus and Ganga rivers – originating in the Himalayas – gave birth to and nurtured the fertile Indo-Gangetic plains with their rich sediments and perennial waters.

On the Indus river-powered plains arose diverse cultures, religions, agrarian and semi-industrial economies and trade. From the ancient to the feudal, from the colonial to the modern nation state, each era has contributed to the evolution of shared social and political vulnerabilities of these two distinct but interconnected landscapes and the people who inhabit them.

Fields submerged in the backwaters of Tehri Dam in Uttarakhand Photo: Sumit Mahar

Let us remember that the green revolution was ushered in by building large dams like Bhakra, Pong and Tehri on the Himalayas rivers.

Thousands of families in Himachal Pradesh and Uttarakhand were displaced by these mega projects which swallowed precious farms and forests. Resistance was silenced in the name of national interest. Their ‘sacrifice’ was sought on the promise of a ‘greater common good’ for generations to come.

Also read: How Could the New Farm Laws Bring Agricultural Income Under the Tax Net?

Be it the mountain farmers, who gave up their homes for this good, or those in the plains who were forced to take their lives over the recent decades of the agrarian crisis – their families are living testaments of a shared deception by the failed promise of ‘development’. A development that, inch by inch, is privatising resources and wealth in the hands of a few. Delhi’s borders are reverberating with voices against a blatant takeover, calling the state to account for many shared sacrifices.

The farmers from the Singhu border were in Shimla to bring home this message. To their own people.

Manshi Asher is a researcher-activist associated with Himdhara Collective based in Himachal Pradesh.

Punjab’s New Farm Laws: High on Rhetoric, Short on Ideas?

While the move is no doubt a political gambit, there are a number of questions surrounding its implementation and whether it will improve the current livelihoods of the state’s farmers.

The Congress government in Punjab has taken steps to try and quell farmer anger in the state, by passing three legislations which it claims will nullify the new agriculture laws passed by the Centre which, farmers and farmer organisations have argued, move in the direction of either ending the minimum support price regime or curtailing government procurement at MSP.

The argument for having new state level laws is provided in the text of the bills –

“…To restore the agricultural safeguards for the farmers through the regulatory framework of Punjab Agricultural Produce Markets Act, 1961 to secure and protect the interests and livelihoods of farmers and farm labourers as also all others engaged in agriculture and related activities.”

Although the Punjab state assembly has passed the new bills, they still need the assent of the Governor of the state and the President of India as the bills seek not only to amend state law but also central law.

Leaving aside the legal tussle that is bound to ensue, the Punjab farm laws seem to deliver to farmers something that has been their long-standing demand – MSP as legal right. The Congress in the state has said that now farmers will not have to sell crops at less than MSP.

This is the key point in the context of the new central farm laws too as most of the anger of farmers stems from the fear that the Centre is moving in the direction of procuring less at MSP.

The crucial part in the bill reads:

“No sale or purchase of wheat or paddy shall be valid unless the price paid for such agricultural produce is equal to, or greater than, the Minimum Support Price announced by the Central Government for that crop.”

So, the bill only covers two crops – paddy and wheat – while the Centre declares MSP for 23 crops. And for paddy and wheat, most of the produce in Punjab and Haryana is in any case procured by government agencies at MSP.

In fact, a recent analysis by Indian Express suggests that Punjab could actually be procuring more paddy than it produces as farmers from Uttar Pradesh and Bihar bring their produce to Punjab, attracted by the prospect of being able to sell at MSP. Bear in mind, this is prior to state laws outlawing sale of paddy and wheat below MSP.

The bill also mentions that ‘MSP’ is the MSP announced by the Central government. Some farmer organisations have criticised the Punjab government for not being ambitious enough – while the Amarinder Singh government has been quick to circumvent the Centre’s reform, it hasn’t raised the bar in terms of increasing the MSP.

The MSP as announced by the Centre – as several farmer organisations have pointed out for years – falls well short of what was recommended by the Swaminathan commission on farmers in 2007.

What about non-paddy and non-wheat farmers?

By leaving out other crops from its ambit, the new Punjab farm laws also imply that farmers in the state who also produce oilseeds, maize and cotton in large quantities will not benefit from these new laws.

As Balkar Singh, a maize growing farmer from Pathankot told The Indian Express, “How does this new law make a difference, when the entire wheat and parmal (non-basmati) of our state is anyway being bought by the government at MSP? What will happen to my maize? Who will pay MSP for it?”

The prices for maize, cotton and oilseeds have been below MSP for most states in India, including Punjab, for a long period now and the Punjab farm laws, which seek to address the fear of farmers – that government procurement at MSP will be curtailed – stemming from the central farm laws, stop way short of actually addressing those fears, even if they were to be passed and if passed prove implementable.

That brings us to the point of how this will be implemented.

The Punjab laws say that those transacting in wheat and paddy at rates below MSP will be punished by jail time and fine.

Women from the farming community raise slogans as they take part in the ongoing farmers agitation, against the central governments newly introduced agri-bills, in Amritsar, October 23, 2020. Photo: PTI

The relevant portion of the bill reads “Notwithstanding anything contained in any other law for the time being in force, if any person or company or corporate house or any other association or body of persons, whether incorporated or not, compels or exerts pressure on a farmer or any person associated with agriculture or agro-produce to enter into a contract or sell agricultural produce in his possession, at a price below the Minimum Support Price (MSP), then such person shall be deemed to have committed an offence which shall be punishable with a term of imprisonment of not less than three years and fine”.

This begs the question of how and who will determine whether a farmer has been ‘compelled’ or whether pressure was exerted on the farmer to sell her produce below MSP. So far the Punjab state government has not provided any clarity on this question.

Also it is not likely that when farmers do sell at below MSP (bear in mind, this happens very rarely in Punjab for paddy and wheat which the laws influence) that they have been compelled.

When farmers bring their produce to the mandi, more often than not, they are price takers. The structure of the market and their relative bargaining position in that structure compels them to sell at whatever price is being offered. In most cases, it is not an individual or a company which has compelled the farmers.

Also read: Interview | Farm Laws: ‘Price Based Support Makes More Sense in India Than Income Support’

The farmer who has paid for loading her produce on a truck, for transport to the mandi and then to unload the produce at the mandi, has already incurred significant costs. This implies that the farmer doesn’t really have the option of rejecting the price offered at the mandi and to take her produce back only to bring it back another day or to another mandi once again incurring the costs.

So, even if the laws were to clear all the legal hurdles they face, it remains to be seen how the Punjab government seeks to implement the crucial part about ensuring MSP for paddy and wheat.

Farm activist Ramandeep Singh Mann has also said that the laws seek to convert the entire state of Punjab into a “principal market yard”. He contends that that’s what the Punjab state government is trying to do by giving itself the power to levy a fee on transactions that take place outside the mandis.

“So, the entire state becomes a market yard if they can levy a fee both inside and outside a mandi. Tax can now levied even outside the mandi,” Mann told The Wire.

The Congress party has also hinted that the same laws will be implemented by all its state governments. But, it’s not clear what – if any – benefit these laws will bring to the farmers.

Indeed, once again, like in the case of NYAY announced last year, the Grand Old Party appears to be high on rhetoric and short on ideas.

Turning the Fantasy of ‘Free-Markets’ and ‘Choice’ in Indian Agriculture Into Reality

Just talking of mandis is not enough, a closer look must be paid to the interlinking of other factors like the role that credit plays.

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.

Also read: After Farmer Dies at Pro-Farm Laws Rally, Family, BJP Blame Protesting Unions, ‘Lie’ Say Latter

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.

Interview | Farm Laws: ‘Price Based Support Makes More Sense in India Than Income Support’

Sudha Narayanan tells The Wire that the MSP regime makes more sense for farmers in India due to the problem of targeting.

In a wide-ranging interview to The Wire, Sudha Narayanan of the Indira Gandhi Institute for Development Research (IGIDR) said that in her view, price support mechanisms – such as the minimum support (MSP) regime – make more sense than income based support mechanisms for farmers in India due to the problem of targeting.

“Theoretically, you can argue that income support is better and price support is bad,” she said. Narayanan is an associate professor of economics at the IGIDR and her work for decades has revolved around agricultural markets and trade.

The question of price support vs income support has become important as farmers fear that through the new farm laws, the government is sending a signal that it is moving in the direction of procuring less from farmers at the MSP.

The government has said that the fear is unfounded and that the MSP regime is going to continue. Narayanan, however, believes that the farmers’ fears are not without reason. “I am of the view that if the farmers have fears, they have to be real. Many people say that farmers have misunderstood the acts, but I’d rather say that we have misunderstood the farmers or not adequately appreciated their concerns,” she said.

Narayanan explained that while the acts themselves do not state that the MSP regime will be dismantled, but the direction in which the government’s reforms are moving tend to suggest that the government intends to curtail procurement. “One thing that worries them is the Shanta Kumar committee report, which had explicitly suggested that the direction of reform in public procurement must take the form of a dismantling of physical procurement and it explicitly proposes a direction to move towards cash transfers in the PDS and also a reform of the procurement system such that the FCI [Food Corporation of India] itself is repurposed,” she said.

Several economists and commentators have also argued for less procurement at MSP. Most economists across the world are uncomfortable with the idea of price supports due to their distortionary effects on the market. On the other hand, income support mechanisms are considered to be less distortionary, and hence better, in theory, Narayanan said.

“But in practical terms, the price-based intervention makes sense for India because you don’t have to identify who a farmer is,” she said and elaborated that there is a lack of clarity in India on who a farmer is and several different definitions prevail.

“There is the statistical concept of a farmer – what is collected in surveys and called as cultivators or farmers. The legal definition is different, the way government programmes define ‘farmer’ is different. So, in some sense, India is now at a stage where this transition cannot be easily made,” she said.

This problem has already reared its head in the PM Kisan programme – an income support scheme – where the government initially estimated that 14.5 crore farmers will benefit from the scheme, while the actual number who have benefitted is much less.

Farmers block a railway track as they participate in ‘Rail Roko Andolan’ during a protest against the farm Bills at village Devi Dass Pura, September 24, 2020. Photo: PTI

“The fear of farmers also is that if you try to go to income-based support then who is left out, who is going to get it and who won’t. So, there is a lack of clarity on who the winners and losers are going to be,” she said.

Narayanan also said that she understands that the question of MSP is a ‘complicated one’. “In the green revolution, it was almost like we had a social contract with farmers because at that stage we were food scarce and we needed to ramp up supplies of rice and wheat. They did that very efficiently, so in some sense, there is this idea of fairness – about when you wanted us, you gave us all the support and we got the country to a position that we are now able to export grain and now that we are not needed, you are going to dismantle that structure.”

On the other hand, she said, she understands the inefficiency and sustainability concerns about MSP. “See, economists who worry about the sustainability of MSP are right. You can’t have the government buy all commodities at MSP. There are also environmental concerns, change in cropping patterns – all kinds of consequences.”

Instead, she suggested that a different bidding mechanism could have been tried out in the Agriculture Produce Market Committee (APMC) mandis. “One interesting suggestion is that in the APMC, the MSP should be the bidding price flow. So that no one can bid below. But, now with these Acts, we have lost the opportunity to test that,” she said.