Farm reforms: Myths and realities

The Economic Times, January 12, 2022

By Pradeep S. Mehta, Ujjwal Kumar and Kuldeep Pawar

The repeal of the three newly enacted farm laws by the government has set back the whole reform process. Because, it could not explain the benefits to some farmers. It has also engendered a fresh thinking about the reform process. How to garner wider support on the reform agenda?

The three farm laws were enacted to bring reforms in agriculture markets, which are largely being controlled by the state Agriculture Produce Marketing Committees (APMCs). These APMCs, by default, act as regulatory barriers to competition in agriculture market. Thus, there had been a long pending demand, rather consensus across the political spectrum, for reforms to enhance competition among the buyers of agriculture produce so that farmers realise a better competitive market price. Several States have been reforming APMC laws, albeit very slowly, despite the presence of politically strong vested interest groups.

It seems that the repeal saga is sending a wrong political message against such necessary reforms, which can result not only in governments’ inaction, but also action in a wrong direction. Rajasthan, for instance, is reportedly planning to reverse its decision to allow trade outside of the APMC markets, though there are a few private mandis in existence. A few days back, Maharashtra issued notices to farmer producer companies for carrying out trade outside of the AMPC mandis.

In order to clear air on the wrong messaging against APMC reforms and in order to establish the right communication with the farming communities, it will be useful to separate the wheat from the chaff i.e. the differences between myths and realities about such reforms in a dispassionate manner.

Myth: Reforms are anti-farmer

Reality: No, reforms are not anti-farmer, but in the interest of farmers. The present APMC system is contributing to farmers’ apathy and must be reformed. The state APMC laws provide fertile breeding grounds for anti-competitive activities nurtured by local vested interests, which in turn retard competitive market price realisation by farmers. Therefore, pro-competition elements must be included by reforming the present, yet age-old, regulatory regime. Ideally states should lead such reforms, but failing which if the Centre intervenes the same should be taken in the right spirit. For example, the central government launched the Electronic National Agriculture Market (E-Nam) five years ago which networks all mandis and enables them to trade across borders and get better prices. It is proving to be a boon.

The three Central laws were meant to enlarge the freedoms of farmers and give them more choice. It not only paved the way for selling farm produce outside the APMC mandi system, but also promised freedom from arbitrary stocking limits and gave option for farmers to deal directly with buyers. Though repealed, the essence of such reform is still valid.

Myth: Legalising MSP will benefit all farmers

Reality: No, legalising the Minimum Support Price (MSP) scheme, as demanded by the protesting farmers, is not a silver bullet to boost farmers’ income. Though the Centre announces MSP for 23 crops, there is no legal mandate for it to buy all such crop outputs. In practice, the government mostly procures paddy and wheat in quantities that would meet its requirement for providing food security to the vulnerable population. Furthermore, these procurements largely happen in only two and a half states – Punjab, Haryana and Western Uttar Pradesh – thus benefiting only eight to ten percent of Indian farmers.

On the one hand, the Centre is not in a financial position to buy all crops of all farmers under MSP. On the other hand, it may also violate our commitments under the WTO agreements. It should be noted that the MSP mechanism was introduced to promote the green revolution in 1960s so that the country becomes self-sufficient in food. We have achieved that.

One of the downside effects of this MSP regime has been the propagation of mono-cropping culture, sowing mostly paddy and wheat, in the said region. This has resulted in severe soil degradation and water table deterioration fuelled by underground water extraction due to free or highly subsidised electricity. Added to this is the high use of pesticides which have adverse health problems and high air pollution due to burning of stubble. The present MSP regime, being beneficial only to a handful of farmers, is creating an income disparity among the farming community. Course correction is, therefore, highly desirable.

Myth: Alternative dispute resolution mechanism may be unfair to farmers

Reality: There were reservations with respect to a simple, quick and cost-effective dispute resolution mechanism prescribed by the repealed Central farm laws. The repealed laws provided a three tier dispute resolution – the conciliation board, Sub District Magistrate and Appellate Authority (Collector or Additional Collector) – and barred the jurisdiction of civil courts. This alternative process was provided so that farmers did not have to go through the cumbersome court process in cases of any dispute with traders. However, if there still remains any reservation against such dispute resolution mechanism, an appeal can be allowed to go to the specialised commercial courts, instead of the civil courts.

Myth: Reforms will establish corporate control over farming

Reality: There are apprehensions that with the unregulated entry of corporates into agriculture market they may influence market conditions and dictate terms of trade, in view of their asymmetric bargaining power. This may go against farmers’ interests. This fear, however, is more imaginary than practical considering the present highly fragmented agriculture market in India, which is particularly reflected in the difference between marketable and marketed surplus. It will take several years for the market to consolidate enough in order to make the said fear a reality.

In order to shed such fears, government can establish effective monitoring mechanism to keep an eye on the market dynamics, and intervene when needed. An active role of the Competition Commission of India can also help correct the market if such a situation arises. Maintaining competition in the buyers’ market is the key for farmers’ welfare in a liberalised set-up. Additionally, farmers can always indulge in organised protest against corporate malpractices as it has proven in this agitation.

Myth: Reforms cannot have safety nets

Reality: It is wrong to believe that there is no place for safety nets in a liberalised agriculture market. It is advisable for the government to devise suitable and least market restrictive safety net and present it as a part and parcel of the reform package for its wider acceptability. Not having suitable safety nets in the three Central farm laws and lack of a good communication strategy were perhaps the reasons that the government failed to get it accepted by the agitating farmers.

A committee has been announced by the Central government to recommend future steps on various issues related to agriculture, including making the minimum support price (MSP) more effective and transparent. It is hoped that the proposed committee will take a comprehensive look at the farm sector, including the demand to make the MSP regime legal, and recommend wisely.

Reforming the National Food Security Act, 2013, which benefits approximately 85 crore Indians, to link the volume of procurement with state-wide needs, would also be helpful. In this manner, not only that the procurement process will be decentralised, its benefit too. There can be real time monitoring of deficit states in particular and their procurement requirements can be met from surplus states under an agreed formula.

The government may also consider establishing a price stabilisation fund to deal with sudden increase or decrease in crop prices due to natural disasters and other factors. Instead of announcing specific MSPs for selected crops, the government may consider price bands and interventions in the market by utilising this fund once they are breached.

Such safety nets should also include the revival of agriculture extension services, which was one of the major factors for the success of our green revolution. In particular, such services are required for diversifying our agriculture from mono-cropping to multi-cropping including enhancing the knowledge of our farmers about the right use of fertilisers and pesticides, and other benefits such as access to crop insurance, and the use of solar pumps.

‘Reforms with safety-nets’ is the right narrative that could garner larger support from the farming community. This should be the mantra for all future reforms.

A Structural Adjustment Programme as a Way Forward

It may be better if a comprehensive India-specific sui generis Structural Adjustment Programme (SAP) is introduced to guide the implementation of various transitions needed to rectify the Indian agriculture sector. The proposed Committee to be appointed by the Government could look into this too. The SAP can be an umbrella programme to guide, among other things:

  • agriculture market reforms with safety nets;
  • disciplining the subsidy regime, including transition into direct benefit transfer to farmers;
  • curbing other market distortionary policies and practices;
  • discouraging mono-cropping and promoting multi-cropping culture;
  • safeguarding and restoring the deteriorating soil and ground water;
  • reduction of fertiliser and pesticide usage;
  • promotion of organic agriculture;
  • promotion of environmentally sustainable agriculture;
  • promoting digitalisation in Indian agriculture, including agriculture market such as eNAM.

The basic aim of the SAP could be to build a sustainable food and farm system through the Farm-to-Fork strategy, including by factoring-in the right biodiversity strategy and climate action plan to achieve the goal of net-zero emissions in India by 2070.

The authors work for CUTS International, a global public policy research and advocacy group.


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