How the Centre can resolve the deadlock over new farm laws

Govt could mandate that procurement be done at traditional mkts; pay difference of MSP, market prices, say experts

NEW DELHI: Protests by thousands of farmers against a set of farm-reform laws they say will hurt their interests simmered for the seventh straight day, with talks deadlocked.

While farmers want the three laws revoked, and the passage of a new law guaranteeing minimum state-set prices, the government has said the laws will lead to better price discovery and bring investments to the sector.

On Thursday, the government is set to meet farmers for the fourth time. The endgame looks tricky but there are several fixes that the government can deploy to resolve the crisis without necessarily withdrawing the laws.

Markets

In free markets proposed under the laws, traders don’t have to pay any fees. Farmers worry that the move to open free markets in competition to notified markets controlled by state governments could lead to a collapse of traditional markets.

Traditional markets serve as a big source of state revenue. In Punjab, they charge 6% fee (3% each as market fee and rural development fee) on wheat purchases. A 4.25% fee was also payable on basmati paddy. After the Centre’s new laws came into force, Punjab was forced to reduce the market fee and rural development fee on basmati rice from 2% to 1% each.

Set up in 1960s, these markets initially served as critical infrastructure for farmers to sell produce and discover prices under the government’s supervision, to help avoid distress sale. Over time, these markets have grown opaque and monopolistic, with prices rigged to the advantage of middlemen, according to a 2010 probe by the Competition Commission of India.

These markets are also interlocked meaning traders often lend money to farmers, but assure them of purchases, albeit below fixed minimum prices, creating a dependence that is entrenched. Since 90% of wheat and paddy in Punjab are bought and sold in these markets, the state government, farmers and middlemen are threatened alike.

“The government can come up with rules under the new laws to say that government procurement will mandatorily be done from traditional markets, while other private trade can simultaneously happen in free markets,” said RS Mani, an economist with the Tamil Nadu Agricultural University.

Minimum prices

Farmers have demanded a law guaranteeing minimum support prices (MSPs) for all major farm produce. The aim is to make the sale of any farm produce below its MSP threshold illegal. There are economic constraints to such a law, such as its impact on inflation. Experts say there are several ways to assure returns, such as a price-deficiency mechanism, which the government could lay down during the negotiations. “Price deficiency (mechanism)...needs to be refined, but it can be a way to compensate when markets are down,” said Rohini Mali, an independent consultant, who was formerly advisor of food systems, FAO in Rome. Under price deficiency system, the government pays the difference between market price and MSP to farmers.

Stubble burning

In October, the government brought an ordinance to set up the Commission for Air Quality Management in the National Capital Region and Adjoining Areas. The new law aims to cut pollution in New Delhi, of which crop-residue burning is a major cause for a month or so.

This ordinance has angered farmers because it provides for steep penalties for polluters, including farmers. “This ordinance reinforces the fears that the Central Government is more interested in adopting coercive measures instead of finding real solutions, despite court directions to provide alternatives to farmers to manage the paddy straw,” said Kiran Kumar Vissa of the All India Kisan Sangharsh Coordination Committee.

Given that paddy covers six million hectares in three states, Punjab, Haryana and Utter Pradesh, a “production subsidy” as direct cash transfer per quintal of paddy to stop stubble burning will allow government to take farmers out of the purview of the new law, said Kavitha Kuruganti of Alliance for Sustainable and Holistic Agriculture.