INDIAS FARM LAWS

ARE GLOBAL PROBLEM

India’s three new farm laws, enacted in September 2020 with little public or
parliamentary debate, have attracted enormous global interest. Prime Minister
Narendra Modi’s government described the measures as a gift to farmers, but
farmers in several Indian states, led by smallholders in Punjab and Haryana, have
refused to accept them. Sustained and highly polarizing protests have followed.
The situation in India is unfortunate, but it is not unique. Agriculture is an intricate
issue that raises important questions not just for India but for all economies
struggling to strike a balance between the market and the state.

I had long felt that India’s existing farm laws needed changing, and that the
country’s food grain market needed to be more open. The new laws, among other
things, permit farmers to sell grain outside designated state-regulated areas
called mandis in states where they previously were not allowed to do so. The
government appears to be giving farmers more choice. Why should anyone object
to that?

Then I read the fine print of the legislation. With their uncanny grassroots intuition,
the farmers had realized something that many economists, including me, had
missed.

Agriculture is an intricate issue that

raises important questions not just for
India but for all economies struggling
to strike a balance between the market
and the state.
If the government permitted farmers to sell their products outside the mandi, the
farmers would surely benefit, even if the market outside the mandi was
unregulated. With all else remaining constant, they would simply be gaining an
additional option. But belief in the ceteris paribus condition—that all other
conditions will remain unchanged—requires farmers to trust the government. They
clearly don’t—and, on closer examination, with good reason.
Farmers the world over receive government subsidies. In 2019, China spent an
estimated $185.9 billion on farm subsidies, followed by the European Union
($101.3 billion), the United States ($48.9 billion), and India ($11 billion). But
different countries give these subsidies in different ways.
Indian farmers currently have the right to sell their products, mainly wheat and
rice, to the government for a guaranteed minimum support price (MSP) that is set
periodically each year. The MSP system runs largely on trust. Policymakers can
effectively dismantle it by setting the price so low that no farmer will want to sell,
or by not providing accessible product collection centers. In many parts of India
today, for example, farmers are told they can sell their grain at a certain price, but
there is nowhere in their vicinity to sell it.

If the government dismantles the MSP system instead of reforming it, millions of
farmers will be forced to sell their products to four or five big agribusiness
corporations. And this is precisely what the fine print of the new laws reveals.

If a corporation violates a contract with a farmer, the new laws prohibit the farmer
from seeking redress in a regular court. The legislation further helps big business
by removing restrictions on stockpiling food grain that were put in place to
discourage firms from artificially raising prices.

I believe big corporations are needed in agricultural markets. And I think the
Indian government’s new laws would have been more acceptable had policymakers
shown sensitivity to the need for antitrust enforcement to level the playing field for
the millions of farmers who would be pitted against a few large firms. Even in the
supposed free-market bastion of the U.S., prominent legal scholars such as Eric
Posner, Suresh Naidu, Glen Weyl, and Cass Sunstein have expressed
concern about the need for antitrust laws to regulate monopsonies, like big
corporate buyers.