Agri laws: An alternative model of farmer capitalism

On May 26, it will be six months of the farmers’ agitation. The key question now is: Can farmers create an opportunity from what they perceive an existential threat of takeover by corporate traders of the entire agri-economy chain?

The farmers’ argument is that, in essence, the farm laws are traders’ laws meant to facilitate corporate entities to replace the traditional role and responsibility of the government in the production, storage, transportation and price fixation of foodgrains. Corporate entities will acquire control over grain production through the lease/contract farming provisions of the farm laws. It will not be through coercion, but inducement. Farmers will be offered attractive, interest-free loans/advances and inveigled into signing legally binding contracts from which there will be no escape.

The crucial clauses of the contract will relate to purchase price, quantity and, most importantly, quality. The clause relating to the prescribed quality specifications to which the grains must conform is the most vital as it gives the corporate trader the discretion to purchase whole or part of the farmers’ produce at the contracted price or below the contracted price.

Redress imbalance between farmers, corporates

For farmers to not only survive but also thrive in the new corporate ecosystem, far-reaching structural, financial, infrastructural changes and a new legal framework are required.

The first step to redress the imbalance between farmers and corporates is to do away with the Farmer Producer Organisations (FPOs) envisaged in the farm laws. The FPO is a toothless wonder. The government exercises veto power over FPOs through the registrar of cooperatives. To provide a level-playing field, the FPOs have to be replaced by district-level companies, registered under the Companies Act as Farmers Agro Trading Corporation Ltd (FATCO) with objectives, including production, procurement, storage, sale and transportation of foodgrains. A single state-level monolith board will be detrimental to farmers’ interests and open to manipulation and proxy control.

It will be mandatory for all farmers to be stakeholders in the company and sell their produce only to the FATCO of their jurisdiction, which will be the sole procurement and selling agency for all produce within the district. Buyers will sign contract/lease agreements with FATCO and not with individual farmers. This means individual property and land of farmers will not be under any threat in case of a dispute or default by FATCO.

Create a strong mandi network

To create a strong mandi network, the state government will transfer at book value to the FATCOs all mandis at present with the Mandi Board and PSUs. These mandis were created out of land acquired from farmers at pittance compensation. The mandi network will empower the FATCOs to create strong infrastructure for farmers to sell their produce.

Farmers have land and labour. But they lack capital to undertake procurement. The corporate traders have neither land, nor labour nor capital. The corporates access capital from banks and financial institutions to buy foodgrain stocks, store it in silos, export when international prices are high, depleting grain stocks and allowing domestic prices to skyrocket to make a financial killing from consumers in the home market.

Give farmers access to capital, storage facility

If FATCOs have access to capital, they can play this game better. To get the farmers started, the Centre should give a one-time corpus equivalent to average 25% of the value of produce to enable farmers to procure and store 25% of the produce. This will be about Rs 15,000 crore for Punjab. For the procurement of the remaining stock, the FATCOs will get finance from the Reserve Bank of India on the same terms given to the state government at present for procurement. To enable farmers to create sufficient storage capacity, the Punjab government will transfer the entire storage assets with the state and state PSUs to FATCOs. To build silos, the Centre will give a grant of Rs 5,000 crore to the FATCOs. Control over storage and stocks will give farmers the financial muscle to dictate market price.

To ensure that speculators and foodgrain mafia do not enter the field, only end-users of grains can purchase in the mandi.

Laws mum on fair average quality standards

The farm laws are silent about reforms in the core problem of the entire procurement process, namely, fair average quality (FAQ) standards. The FAQ standard specifies only basic quality indicators related to moisture content and grain impurities. Since quality testing and sampling are arbitrary and based on visual inspection, the farmer risks rejection of his produce if it is below prescribed quality specifications. It is of utmost importance to introduce a systematic third party or internationally recognised laboratory testing and certification scheme to verify the quality parameters. Further, criteria based on test weight, protein, gluten content, falling number and other parameters need to be added in the FAQ. Since there is a premium for high-quality grains, a differential price mechanism can be introduced, based on grain quality.

Farmers unwise in opposing SDM-led board clause

The farm unions are unwise in opposing the clause relating to SDMs as head of conciliation boards and preferring the judicial process, where justice is not only expensive and elusive but sometimes illusory. SDMs dispense justice speedily, without cost. Moreover, in case of miscarriage of justice, the SDM can be gheraoed, but the judge cannot be.

The Centre should keep in mind that foodgrains are a strategic commodity and leaving them entirely to the interplay of market forces can prove disastrous.. Pakistan in 2020 faced a serious wheat crisis as the politically powerful wheat lobby exported huge quantities of wheat. It took the government two months to ban exports, but not before retail flour prices had skyrocketed by 50%.

FOR FARMERS TO NOT ONLY SURVIVE BUT ALSO THRIVE IN THE NEW CORPORATE ECOSYSTEM, FAR REACHING STRUCTURAL, FINANCIAL, INFRASTRUCTURAL CHANGES AND A NEW LEGAL FRAMEWORK ARE REQUIRED