What do the farm laws 2020 mean to the farmers? This is an attempt to examine the provisions of the three laws, and what they will mean, in addition to addressing legitimate criticism. Three bills have been passed in the Indian Parliament in September 2020 to reform the agricultural sector, which is under tremendous stress and hampered by a structure that is a mixture of feudal holdover from the Zamindari system and Cold War socialism.
Law 1: Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act 2020 introduces choice and freedom:
1. The new legislation would allow “a farmer to have the freedom to choose to buy and sell agricultural produce” – meaning that since farmers could only sell their produce through APMC (a state government agency) before the law came into force, they could now sell it to anyone including APMC (if they chose to do so). It would also allow farmers sell their products anywhere within the state, rather than a local mandi and also farmers can sell to APMCs or other states trade outside the physical buildings of markets that have been notified under state legislation APMC.
2. This removes the incredible draconian dictate that a farmer cannot sell his produce to whoever he wants, however he wants, at the price he wants. Nowhere in the modern world do governments dictate to farmers where they must sell their own harvest. Farmers are not charged for the sale of produce and they do not have to bear any transport costs. This means more money in the farmer’s pocket.
3. Freedom of Location – While farmers are currently only allowed to sell at Mandis, the law gives them the freedom to do business directly at a yard entrance, cold store, warehouse, process units, etc. The latest law removes any regulations that dictate how a farmer should sell his produce. The law proposes an improved platform for electronic trade transactions to regulate trade more efficiently and to fill management gaps and the curse of corruption. This already exists on the E-NAM platform where farmers physically or electronically sell to APMCs.
Some concerns and myths about Law 1:
The government is dumping MSP (minimum support price): Nowhere in the law the government said that it is taking away MSP. Purchases will continue in MSP with formal notification as earlier used to be. The new law allows farmers to sell outside of the APMC / Mandi system in addition to, not instead of, the Mandi. If the farmer so desires, he can continue to do business as usual without any change. From the first law, the government’s intention was clear that it wanted to remove the regulations and bottlenecks unfairly imposed on farms from the days of socialist central planning that dictated where, when, how and how much a farmer could sell his produce.
Law 2: The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020.
1 It is mainly about reforms in contract farming, offering fair prices to farmers for their produce, and measures that will ultimately increase a farmer’s profitability. The intent of the law is to introduce a regulation that offers legal protections to a farmer when entering into a contract with a buyer to mitigate the risk of corporate entities taking advantage of farmers who do not have the knowledge to guarantee the fair price of the harvest.
2. Farmers who engage with processors, wholesalers, aggregators, large retailers, exporters, etc. will be empowered as follows: when a buyer approaches a farmer to produce a crop; the farmer and the buyer must sign a legal contract where the price is clearly mentioned. This price is insured even before the crops are sown. Farmers save the cost of marketing the product because the contract provides a guaranteed buyer at a guaranteed price. The price guarantee principle says that if at the time of sale the market price of the crop is higher than that was initially negotiated; the farmer is entitled to this higher price above the minimum negotiated price. It will not be plucked in the end.
3. If at the time of sale the market price of the crop is lower than the initially negotiated one, the farmer is still entitled to the minimum negotiated price, so he will not lose if the market suddenly falls. The price guarantee is good for farmers and eliminates uncertainty and also transfers the risk of market unpredictability from the farmer to the sponsor. Thanks to the prior pricing, farmers will be protected from market fluctuations. Now as per new law, a farmer can set his own price for the products and must receive payment within three days maximum as per law.
4. After signing a contract, it is the buyer’s responsibility to collect the products directly from the farm, thereby eliminating the cost and logistics borne by the farmer in transporting and selling their products so that a farmer can have more money in his pocket. Another great idea is that 10,000 FPO (Farmer Producer Orgs) are being formed to bring small farmers together and work to ensure remunerative agriculture for agricultural products which is a great idea just like farmer unions.
5. The law also creates a local dispute resolution mechanism which means less court involvement in dispute resolution, which means no legal fees for farmers. Regulating contract farming not only reduces predatory practices, but makes farmers legal partners with buyers, where both parties benefit from increase in the yield. It is in the interest of the corporations to provide modern technology, better seed, and improve productivity. More education, knowledge and access to the system would help the farmer, not harm him.
Summary: This law provides farmers with legal guarantees that allow them to deal with treatment at an equal level while also focusing on improving the education of rural farmers.
Law 3: Essential Commodities (Amendment) Act 2020.
1. What is an essential good? This is an act from the 1950s / 1960s that made people queue for rations for decades like in poor communist countries. In 2020, we are producing surplus of all the crops that comes under ECA. In the earlier law, the government criminalized the possession of a certain amount for these crops. The ECA was a restriction to scale in agriculture that only hurt the farmer, the consumer and everyone involved.
2. The aim of the law is to remove restrictions on the amount of crop that can be bought in the market due to old wartime laws that were put in place to ensure that the government has a stock of “basic commodities” on hand; Restricting the quantity that can be sold in the market. Currently, 35 to 40 percent of produce is wasted due to lack of cold storage facilities and inefficient supply chain. Grains, pulses, oilseeds, edible oils, onions and potatoes will not be classified as commodities anymore – allowing economies of scale for important crops, which will allow for more production and an increase in supply, as a result of a lower market price for the final consumer. Economies of scale will reduce the costs of operations when the size of firms can increase by removing artificial bottlenecks. Furthermore, consumers’ interests are safeguarded through the foolproof provision that allows the government to regulate agricultural food products during war, famine, extraordinary price increase, natural disaster, etc.
Some facts and figures:
All these laws are big reforms, but let’s understand the state of the Indian agricultural economy and how bad it has become. These are some strong numbers. But this will also explain why the Modi government is pushing for these reforms. In 2015, Shanta Kumar’s committee found that only 14 percent of farmers were able to sell their produce to government purchasing agencies. The rest is sold outside of APMC, which means that most of the supply is sold outside of APMC with no Guarantee from MSP.
As per the agricultural census, 86% of farmers are classified as small and marginal farmers; 14% of farmers are medium/semi-medium/large farmers. The smallest & poorest in the country – are not able to get MSP; most farmers don’t even know it exists.
Almost 75 percent of rice farmers and over 65 percent of wheat farmers don’t even know the government is buying food grains, let alone the MSP. They are left entirely to the mercy of intermediaries. It is a continuation of the cruel zamindari system.
In a country where one farmer commits suicide every hour, reform is not just necessary for the economy, it’s a moral imperative.
For 2 decades, congress set up planning Commissions, formed Committees, wrote letters to seek support for similar farm reforms &even promised it in their manifesto. Congress doublespeak on Agricultural reforms is completely exposed now. Same applies to BKU (Bharat Kisan Union) who asked same and released the same as it’s before 2019 General elections.
To all those who oppose the new agricultural laws and want the status quo to be restored, I have a few questions to ask:
If the law that existed before the new laws came into force was good, so why did our farmers commit suicide day after day?
Why are agricultural loan waiver plans announced every year after providing free electricity, water, seeds and fertilizer at highly subsidized rates?
Why have our farmers always remained poor even after their products were bought by MSP?
Now returning to the main question regarding the new agricultural laws, it is clear that the old system was not working for the benefit of farmers. Why don’t we try a new system and look at its merits and demerits instead of besieging the capital?
Intellectuals and scholars from all party affiliations and ideologies should support this greatest reform that has taken place after 70 years of independence; otherwise history will not excuse us.