The trinity of farm laws: Sowing seeds of conflict

As a nation, we can’t be accused of lacking the capacity to create conflict. The Centre brought three farm bills, saying these are for the good of farmers. But agriculturalists say we don’t need this goodness. Why then add enforce the measures that the targeted beneficiaries don’t want?

It’s not that there are no positives in the new proposals; the issue, however, is the acceptability. Illustratively, a non-controversial measure is amendment of the Essential Commodities Act to remove upper limits on stock-holdings of agricultural produce. It would ease the agro-supply chain, facilitate businesses and remove trade barriers.

The stated objective of the other two bills is to allow contract farming and enable farmers to sell wherever and to whosoever they like, treating the country as a single market. Farmers, thus, will turn entrepreneurs to realise optimum price for farm produce, while at the same time retaining the option to revert to the existing regulated mandis, which are not being abolished. This certainly sounds alluring.

The fact, however, is these measures disrupt the market mechanism that has served well over the years, and the new reforms, where ever implemented, have not really delivered. Bihar had abolished the agricultural produce market (APM) regime in 2006 and its experience, by any yardstick, is not encouraging.

Fair system already in place

The APM Act, 1961, now being debunked and bypassed , was all along championed as a saviour of farmers. It had established a competitive market infrastructure and all transactions are conducted through open auction; farmers sell to the highest bidder. What could be fairer? The distributional efficiency of the marketing chain was ensured by regulating costs of each transaction in mandis.

Thus, arhtiya or commission agents get 2.5% (in Punjab) on the transaction value for rendering basic services such as cleaning the produce, packaging, and weighing. However, this share is now being debunked by reformists, projecting arhtiyas as middlemen, while actually they are facilitators. Arhtiyas don’t buy the produce; they only render mandi services integral to any marketing chain and in the new regime will have to be created afresh, by whatever name.

States will face resource crunch

Secondly, the reformists disparage market fee and rural development cess at the rate of 3% each on commodities sold/ bought in mandis. These levies are projected anti-consumer as they add to the end cost of the commodities. However, they ignore the fact that the revenue so generated is used to build rural infrastructure, including village link roads that in Punjab have a total length of 64,878 km, apart from building storage godowns, marketing yards, and even for funding farm research projects.

The new law prohibits states from charging any market fee, cess or levy on agricultural transactions, depriving them of a source of income, which in the case of Punjab is Rs 1,800 crore annually from rural development cess and an equal amount from market fee.

The power of the state governments to impose sales tax was earlier absorbed by GST, which had also reduced the mandi transaction costs from about 14% to the present 8.5%. In the absence of alternative sources of revenue, which neither the trinity of the new laws offer nor the GST assures, more than the farmers, it is the state governments that will be under resource crunch. My fear is that rural infrastructure would crumble for want of funds.

What’s being attempted by the new bills can be achieved even under existing mandi laws without disrupting revenue streams. The present law permits setting up private markets owned where the entire infrastructure is developed by such private entities. The law also allows contract farming and Punjab has experimented with it. In any case, there is no bar on farmers to sell their produce outside a notified marketing yard.

Farmers fear end of MSP

The real bug bear of farmers is that the Centre will reduce, if not altogether withdraw from the minimum support price (MSP) mechanism. Though 33 commodities have been notified, de facto, however, MSP operations cover wheat and paddy crops, and a few other crops such as cotton and oilseeds. Procurement for the other notified 33 commodities is symbolic, and virtually nonexistent.

The farmers apprehend that the projected reforms are an outcome of the agricultural surpluses. Given the current stock of wheat and paddy, which is three times more than 21 million tonnes of the buffer norm for food security, the central government, they fear, may slowly move out of the procurement business, leaving it to market forces to determine both the price and transaction costs. The government agencies find the burden of the buffer stock prohibitive due to the huge amount of funds blocked and interest and establishment costs. Besides, spoilage, waste and pilferage of the stocks add to the cost.

The state governments have reasons to suspect that even if the MSP operations are retained, central agencies may just shift these operations outside the regulated mandis to other locations under the new laws. That will deprive states of their income from fee and cess.

Tilted in favour of big businesses

The farmers, however, may be satisfied if a clause is incorporated in the new law, declaring all sale/purchase transactions shall be valid only if conducted above the notified MSP.

The other issues such as the complex legal mechanism for dispute resolution under the proposed contract farming, or building farmer’s capacity to make use of e-trading and to access far-flung markets, would require determined efforts over a long period.

The farmers are mostly uneducated or semi-literate. With dwindling land holdings that reduce their capacity to bargain and lacking the economy of scale, the terms of trade are certainly tilted in favour of big businesses under the new dispensation. (The writer is former Punjab chief secretary and chief information commissioner )

THE FARMERS, HOWEVER, MAY BE SATISFIED IF A CLAUSE IS INCORPORATED IN THE NEW LAW, DECLARING ALL SALE/PURCHASE TRANSACTIONS SHALL BE VALID ONLY IF CONDUCTED ABOVE THE NOTIFIED MSP