SHOULD FARM LAWS BE REPEALED OR NOT?

By S. Aditya (2K18/CO/305)

The farm laws have been a source of continuous debate and discussion with tensions rising
high recently leading to protests by farmers predominantly from Punjab and Haryana in Delhi.
Hence a deep dive into this topic is surely going to provide us some insights into the scenario
and help us form a self-assessment and make us more informed while expressing our opinion.

But before going into the depth of arguing for or against the topic, it is imperative to establish a
common ground, i.e., we need to fundamentally understand what the farm laws are and the
scope and ambit in the current agricultural system. Followed by which we will investigate their
implications to India's agricultural sector and the pros and cons that either side of the debate
has portrayed. I shall conclude by providing my two cents on this issue and leaning towards this
particular matter.

WHAT THE LAWS ARE

Starting, what are the farm laws? A common misconception is that this is a single law. However,
the farm reforms are a set of 3 acts. The first act is called the Farmers' Produce Trade and
Commerce (Promotion and Facilitation) Act, 20201. This law intends to "create an ecosystem
where the farmer will enjoy the freedom of choice of sale and purchase of agricultural goods.
This has a significant implication. Unlike earlier, where the farmers were supposed to sell their
produce to APMC (run by state governments), now they have been bestowed with the freedom
to choose to sell to the trader they deem fit. Further, no cess or levy will be charged on the sale
of produce. In line with the Modi government's drive for technology, the bill proposes an
electronic trading platform for farmers to access the market seamlessly. However, this is pre-
existing in the status-quo where there exists a system called e-Nam2 to monitor/conduct such
trade, which questions the novelty of said point. Summarising the purpose and motives of this
bill, it aims to

a) ease trade for farmer produces

1
THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) ACT, 2020
2
National Agriculture Market (eNAM)
 b) provide alternatives to intermediaries in the agricultural supply chain
c) remove taxes/levy on the farmer sales

The second act is called the Farmers (Empowerment and Protection) Agreement on Price
Assurance and Farm Services Act, 20203. A brief background before we dive into the bill. India
is home to multitudes of FMCG Companies that rely on agriculture to procure raw materials.
E.g., If Pepsico India wants to produce a pack of Lays, it only engages with the producers of
potato and asks them to sow and harvest the given quantity and in return get the remuneration
for their produce. How does this bill link to this practice of high-activity engagement between
FMCGs and farmers? The bill assures that it will empower farmers to engage with processors,
wholesalers, aggregators, large retailers, etc., on a level playing field.

Further, price assurance will be provided to farmers before the sowing of crops, and in case of a
higher market price, farmers will be entitled to this price over and above the minimum price.
What is the rationale behind this, one might ask? This aims to transfer the risk of market
unpredictability from the farmers to the sponsors (FMCGs); since the determination of prices
occurs before the sowing of crops, farmers are shielded from the effects of change in demand
and price. (We know from the Law of Demand how the effect of price affects the quantity
demanded). Apart from that, due to the large capitals available with the FMCGs, it potentially
acts as a method to provide the farmers' access to modern technology, better seeds, etc. and
possibly reduce the cost of marketing and improve the income of the farmers since the burden
to find a market has been eliminated due to a guaranteed buyer. Few additional points to note;
the farmer also is bestowed with the power to fix a sale price of their choice, and they shall
receive their payment within three days! To bring the small farmers together and ensure fair
pricing of the produce, Farmer Producer Organisations will be set up across the country. In case
of disputes, they will simultaneously establish a local dispute redressal mechanism.

They are coming to the third and final bill, The Essential Commodities (Amendment) Act, 2020 4.
This bill is, in my opinion, the most objective and transparent bill of the three. It aims to remove
commodities like cereal, pulses, oilseeds, edible oils, onions, and potatoes from essential
commodities. What are essential commodities, and how are they different from the other
crops/foodstuff? These are commodities on which the government can impose caps and

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The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
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Essential Commodities (Amendment) Act, 2020
regulations on preventing hoarding and black-marketing, failure to do, which will lead to
significant harm to the citizens' everyday lives.

The act aims to remove fears of private investors of excessive regulatory interference in their
business operations. The freedom to produce, hold, move, distribute, and supply will lead to
harnessing economies of scale and attracting FDI into the agricultural sectors. Plus, it will help
drive up investment in cold storage and the streamlining of the supply chains. In case of
emergencies affecting supply, these commodities will be put back into the essentials list.
However, cold storage will be exempted from this provision.

BREAKING DOWN THE PROBLEM AND ASSESSING IMPACTS

Now that we have context for the entirety of the discussion let us move forward with identifying
stakeholders, analyzing actor incentives, and impacting the bills on India as a whole.

Firstly, by latest accounts, how is Minimum Support Price or MSP determined? As per the
Swaminathan Commission Report5 (headed by the Father of Green Revolution, MS
Swaminathan), the MSP is determined by considering a 50% profit over the weighted average
cost of production. The cost of production can be classified into three classes: A2 (paid out
expenses of the farmer considered), A2+FL (including expenses and opportunity costs if the
family member works at an alternative workplace), C2 (amount invested and the interest on the
capital is added to A2+FL to compute this cost). Hence, Swaminathan Commission
recommended C2+50% MSP in 2004, which was implemented in 2018 (2 years back). Keeping
this report and findings in mind, it was found out that out of all the crops in India, there is only
ONE crop that gets the C2+50% production cost MSP, and that is Bajra. This shows a gaping
hole in the implementation of schemes at the grassroots level to ensure a minimum price.

In another governmental commission Shanta Kumar Committee6 to look into the food
procurement supply chain, it was observed that just 14% of paddy and wheat farmers were able
to sell to existing government procurement agencies. Even in the best cases, the farmers who
sold to government agencies were able to get the declared MSP for only 25-35% of their
products, and only the wealthy farmers were able to get the intended price for their produce.
This hints at a case of systemic corruption in this agricultural supply chain. What was even more

5
Report of The National Commission on Farmers (NCF), 2006
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Recommendations of High Level Committee on restructuring of FCI
surprising to observe was that nearly 75% of the paddy growers and 65% of the wheat growers
were not even aware that the government procures food grain from farmers, and 64% of the
total wheat paddy farmers had not even heard of MSPs. This then allows for large
intermediaries to capitalize on the knowledge asymmetry and take advantage of the farmers.

This begets a grave question. Do we need more reforms in India in the agricultural sector,
knowing that these reforms' implementation and impact do not even reach the farmers? The
more pertinent question is, knowing that impacts do not reach the people, is it fair for the
governments (irrespective of who is in power) to come up with new reforms without improving
the situation for the farmers?

An example to support my argument is the increase in the farmer suicides in Maharashtra  , of

which the root cause has been identified as the non-fulfillment of MSP prices by the actors
involved due to a general complacency among the bureaucracy concerning this systemic harm.

CONCLUSION

Ideally, in any economy, the stakeholders identified in the agricultural sector are the farmers, the
processors, the retailers, and the consumers. In pursuit of improving the sector's economic
conditions, it is pertinent first to improve the condition of all the players and thereby implement
new approaches to the supply chain. However, the only stakeholders benefitting from the
agricultural reforms are the same as before – the private players and the retailers. The farm
laws completely discredit the fact that the knowledge asymmetry exists and that their "reforms"
are no better than the existing supply chains. In order to improve the agricultural situation, they
need to start conducting public outreach, irrespective of the costs involved, aimed at
dissemination of information to the farmers (especially the small-scale farmers) post which a
second assessment of the sector needs to be conducted and the judicial mechanism for
agricultural redressals need to be set up.

Only after the aforementioned criteria have been met can we hope to move forward. Hence, in
my opinion, the Farm Bills, regardless of the political motives and intentions of the current and
previous governments and bureaucracy in general, if implemented in the current system, pose
more harm than good to the farmers as well as the economy as a whole.