Farm laws

· Recently, there have been strong protests from farmers, especially from the states of Punjab and
Haryana, against three farm bills that seek to replace ordinances issued in june 2020.

· These bills envisage to bring change in some of the key aspects of the farm economy — trade in
agricultural commodities, price assurance, farm services including contracts, and stock limits
for essential commodities.

· These bills sought to bring much needed reforms in the agricultural marketing system such as
removing restrictions of private stock holding of agricultural produce or creating trading areas
free of middlemen and take the market to the farmer.

Why farmers are protesting?

However, farmers are apprehensive that the free market philosophy supported by these bills could
undermine the Minimum Support Price (MSP) system and make farmers vulnerable to market
forces.

There is an apprehension among the farmers that allowing outside-APMC trade of farm produces
would lead to lesser buying by the government agencies in the approved mandis. And there will be
no assured income from their farming

Right now, the government announces fixed MSP for around 23 crops. However, paddy, wheat and
some pulses are the ones that are procured by the government agencies at the APMC mandis.

The working of the MSP system has been such over the years that it benefits only a handful of
farmers at all-India level. The Shanta Kumar committee set up by the Narendra Modi government in
2015 said only six per cent farmers benefit from the MSP regime.

The catch here is that for farmers of some states such as Punjab and Haryana, the MSP system has
worked well. In these two states procurement of paddy and wheat range around 75-80 per cent.

So, the fear that the MSP system may crumble and get dismantled after the new farm laws are
implement has become a very emotive issue for the farmers of Punjab and Haryana. And, that is
why they are the ones who are most vocal in their protest against the farm laws and demanding that
repeal of law and MSP should be made mandatory

Why is the government reluctant?

· The MSP system is politically sensitive and financially unviable for the government. There are
around 7,000 APMC mandis across the country from where the government agencies including
the Food Corporation of India (FCI) purchase farm produces. However, in a practical sense, only
the paddy and wheat are procured by the FCI and other agencies for the want of fund. The FCI
sells these foodgrains to the Below Poverty Line (BPL) families through the Public Distribution
 System (PDS) at a concessionary rate. This is loss-making or welfare-oriented practice.

· The MSPs have seen consistent increase making the FCI pay more for the farm produces and
bear more losses as the PDS rates remain almost the same. Rising procurement by means the FCI
godowns are overflowing, and rising MSP means that the FCI cannot sell its stocks in the
international market at a profit. The government compensates the FCI for its losses, and at times
sells foodgrains to some countries under an agreement.

· Some states are unhappy with the new farm laws as it denies them the right to collect fees from
outside-mandi trade of farm produces. The fee varies from 1-2 per cent to about 8-9 per cent in
different states, which argue that they already have limited sources of revenue collection and are
heavily dependent on the Centre for meeting their expenditure needs. This explains why states,
particularly those ruled by the Opposition parties are supporter farmers’ protest over the new
farm laws.

Intended Benefits Associated with These Bills

· The Bills aim to do away with government interference in agricultural trade by creating trading
areas free of middlemen and government taxes outside the structure of Agricultural Produce
Market Committees (APMCs).

· It will allow farmers an option to sell their produce directly to these new zones, without going
through the middlemen and paying levies such as mandi fees.

· It sought to remove stock holding limits as well as curbs on inter-State and intra-State trade, and
create a framework for contract farming.

· Also, these bills promote the creation of Farmer Producer Organisations (FPO) on a large scale
and will help in creating a farmer-friendly environment for contract farming where small players
can benefit.

· These bills may enable private players to invest in warehousing, grading and other marketing
infrastructure.

· A combined effect of these bills will help in creating a ‘One Nation, One Market’ for agricultural
produce.

Way forward

Improve Agricultural Infrastructure to Strengthen Competition: Government should massively fund the
expansion of the APMC market system, make efforts to remove trade cartels, and provide farmers good
roads, logistics of scale and real time information.
Consensus Building: The Centre should reach out to those opposing the Bills, including farmers, explain
to them the need for reform, and get them on board.

Without strong institutional arrangements, the free market may harm lakhs of unorganized small
farmers, who have been remarkably productive and shored up the economy even during a pandemic.