Quick Question - What is MSP? MSP refers to a Minimum Support Price mandated by the government to act as the price below which buying the farmers’ produce is illegal. MSP is valid for selected crops including wheat and rice.
Why are so many of these farmers from Punjab?
Punjab farmers grow mostly wheat and rice. In fact, Punjab is one of top three states in India in terms of volume of wheat and rice produced. Wheat and rice are MSP crops. So farmers of Punjab and Haryana benefit from the MSP and government regulated system. They also stand to lose the most if the government regulations are revoked or weakened in the future.
What are the three pertinent laws to remember here?
- The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.
- Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020.
- Essential Commodities (Amendment) Act, 2020.
What do these laws say?
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, offers a buyer the right to engage in trading of a farmer’s produce across India. This means a farmer has the freedom to engage in intra-state and inter-state trade with buyers, expanding their choices beyond those offered by traditional markets.
Farmers can now sell directly to the private sector outside of the government controlled mandis. They allow the private sector to enter into contracts with farmers and place an order on what they want the farmers to grow so that they can buy it when the farmer is done growing.
The laws remove all of the regulations on hoarding so the private sector is now allowed to stockpile food. Why may hoarding be of concern? Hoarding means collecting and storing large quantities of a commodity, often secretly. This reduces supply of the commodity, thereby making it expensive. Then the hoarders sell the commodity at higher prices and earn higher profits.
Proponents vs Opponents of the Law - What are the arguments on both sides?
I) Argument Around APMCs and Market Access - What are APMCs? Why did they exist?
After independence, local money lenders throughout India started threatening farmers and obtaining high amounts of food grains from them at very low prices, as interest. Left without any choice but to sell to these lenders, farmers faced exploitation and consistent losses.
Therefore, the Indian government introduced APMCs or state government related mandis for buying and selling produce with the aim to safeguard farmers from exploitation and to increase the consumption and prices of agricultural produce.##
Until now, farm produce was bought and sold primarily in APMCs and only licensed traders could buy produce in the APMCs. The APMCs physically require farmers to bring their produce to the market. This was a problem because a lot of times farmers couldn't afford to bring it and once they did, they couldn’t afford to take it back. There aren't too many APMCs in India - a little over 60 and that does not cover most of the country. So farmers who couldn't afford to go to the APMCs, usually farmers with small holdings, would then sell their produce to a trader at whatever price they could get.
On paper, the APMCs offer protection to small farmers because it's a regulated space, there are licensed traders, there's someone to complain to if the farmer has a problem but in reality, APMCs have become a den of monopoly and corruption and the middlemen or the traders are ruling the roost. The Swaminathan Commission established in the wake of the agrarian crisis of 2004 made numerous recommendations, arguing for a revamp of the current agricultural system.
What does market access imply?
A large market access means a large number of individuals or retailers farmers can sell their produce to. A large market offers choice. Farmers can sell to whoever gives them the highest price among the many potential buyers they have in the large market.
A small market access means limited individuals available for selling the produce to. A small market restricts choice. Farmers only have selected individuals to sell their produce to, and those individuals may not be willing to pay the farmers a price that generates a profit for the farmers. That may leave the farmers at the mercy of those individuals. Farmers may have to sell the produce at whatever is the highest price among the limited buyers and this may lead to consistent losses or even a debt trap for the farmers.
Argument(s) By Proponents:
The new proposed Act talks of doing away with the concept of mandis which will enable farmers to sell their produce anywhere. The entire state will be treated as one market. This move will make contract farming easier and farmers will get better remunerative returns, said Ashok Dalwai, additional secretary at the Agriculture Ministry.
The Ministry of External Affairs said: "These reforms will give expanded market access and provide greater flexibility to farmers. They also pave the way for economically and ecologically sustainable farming."
Argument(s) By Opponents:
The majority of farmers in India find transportation costs high. So even though they ‘can’ sell their produce anywhere, they most likely won’t be able to.
This means that they would be at the mercy of private players who are likely to expand once these laws are enacted. In that case, if all merchants collectively decide to not offer a price higher than x (and x may be lower than MSP) the farmer would be coerced into selling at the price highest among the merchants, and that would amount to no or meagre profits for the farmers, making it unsustainable for them to continue farming.
Essentially, farmers of Haryana and Punjab who enjoy respectable incomes and sustained agriculture production fear losing their land and becoming "slaves" to the corporates as a result of The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020.
Most fundamentally, the laws offer them choice - to sell at the APMCs or to private players. And choice seems harmless. However, choice can lead to market failures and manipulations in the economy. Choice, in this case, has the potential to make APMCs redundant over a period of time due to competition with private mandis which may have more resources, more reach, lower costs, and lesser regulations.
While they may make agriculture efficient as a whole, reaching that efficiency at the cost of farmers’ welfare is unacceptable to the farmers.
II) Argument Around Selling Price - MSP or Not?
Minimum Support Price is a safety net given to the farmers by the government to ensure guaranteed prices and assured markets. The aim is to save the crops from price fluctuations due to factors such as bad monsoons, information asymmetry, lack of market integration and others.
For instance, when a farmer has a bumper crop - a huge harvest - and he brings it to the market where everybody has had a bumper crop at that time and there's a lot of wheat coming to the market, the price of wheat will come down and the farmer may not recover the money he invested into growing the crop. What the MSP does is that the government offers a minimum price at which the government itself will buy the crop if no one else does.
However, the three new farm laws also do not have any provision for legally establishing MSP.
The prices of agricultural commodities often vary due to various factors. If a crop has seen a good harvest season during a particular year, it may see a sharp reduction in its prices. This will demotivate farmers from sowing the crop next year, reducing supply. To counter this, MSP is fixed by the government to encourage sustained production of crops.
The MSP is fixed biannually on the recommendations of the Commission for Agricultural Costs and Prices.
Argument(s) By Proponents:
Farmers argue that if the private sector starts to set up mandis which don't have to pay their tax or dues to the government, over a period of time the private sector mandis because of competition will wipe out the APMCs, which is where farmers get the MSP. Then the farmers will effectively be left only at the mercy of the private sector which will then begin to drive down prices and the farmers will have nowhere else to go.
Farmers argue that if the APMCs are weakened by this law over a period of time, the MSP will go with them because technically a private sector mandi is under no obligation to offer the MSP and so there's no guarantee in the new law of the MSP and that's what the protest is about.
Argument(s) By Opponents:
According to a 2013 report of the National Sample Survey Office, less than 10 per cent farmers sell their produce at the MSP fixed by the government. An analysis of 10 crops sold shows that in 68% of cases, crops were sold below the MSP.
The problem with the MSP is a lack of government machinery for procurement for all crops except wheat and rice, which the Food Corporation of India actively procures under the PDS.
As a result, farmers of states where grain is procured completely by the government benefit more while those in states that procure less are often affected.
For example, in Punjab, more than 95% of paddy growers benefit from MSP while in Uttar Pradesh only 3.6% of the farmers benefit.
The MSP-based system is also dependent on middlemen, commission agents and APMC officials, which are infamous for exploiting small farmers. The new laws eliminate those inefficiencies and offer farmers direct access to the buyers of their produce.
III) Argument around dispute resolution
The farm laws provide for a dispute resolution mechanism in Chapter 3 Section 8 of the Act. it states that “in case of any dispute arising out of a transaction between the farmer and a trader”, a Conciliation Board appointed by the Sub- Divisional Magistrate is to settle the dispute within 30 days, the settlement being binding on the parties. If the dispute is not settled within 30 days of being brought in the purview of the Board, the SDM will hear and settle the dispute.
Argument(s) By Proponents:
Justice delayed is justice denied. Many citizens suffer as a result of the time needed for the legal system to arrive at a conclusion to their issue. The dispute settlement framework introduced by the laws ensures timely settlement of disputes, thereby providing immediate relief to the aggrieved.
Argument(s) By Opponents:
This special dispute resolution mechanism stops the jurisdiction of the civil court from entertaining any suit or proceedings. Section 15 of the Act says “no civil court shall have jurisdiction to entertain any suit or proceedings in respect of any matter, the cognisance of which can be taken and disposed of by any authority empowered by or under this Act or the rules made thereunder.”
The law is, in essence, replacing the jurisdiction of civil courts with a highly bureaucratic process under the authority of the SDM, who is a government employee. This may make it difficult to deliver justice to the aggrieved farmers, especially given that corporations often have enormous resources that allow them to present stellar legal cases.
IV) Argument around safety from fraud
Before the farm laws were introduced, APMCs were the primary mode of agricultural transactions. And they mandate a license for traders to be able to trade in mandis. The farm laws remove this mandate for traders trading outside the APMCs.
Argument(s) By Proponents:
There will be no need for any kind of license for traders to purchase agricultural produce outside the APMC mandi. This will facilitate trade in agricultural products without restrictions and the increased volume will benefit the farmers.
In the many talks held between the government and farmer unions, the government has shown willingness to give states the power to register trades and make rules keeping in mind the situation of local farmers.
Argument(s) By Opponents:
Farmers will be exposed to the risk of fraud due to the entry of people without license or registration outside the mandis. This could show up in the form of financial losses by sharing produce and not obtaining remuneration in exchange, or receiving meagre price for their crops, or their produce not reaching the mandi they intended for it to reach, or other type of frauds.
Summary - Position of Proponents
Most economists and experts agree that Indian agriculture needs serious reform and that the farm laws and a step in that direction. The International Monetary Fund said India's new farm laws have the "potential to represent a significant step forward" for agricultural reforms. “The measures will enable farmers to directly contract with sellers, allow farmers to retain a greater share of the surplus by reducing the role of middlemen, enhance efficiency and support rural growth.” The United States has also welcomed steps to improve the efficiency of India's markets and attract private sector investment.
Summary - Position of Opponents
The farmers are arguing effectively that these laws all together are throwing them to the wolves which is the private sector. The private sector has no obligation to look after the welfare of the farmers. The private sector's obligation fundamentally is to its shareholders and to its profits. Experts say that the government failed to consult farmers before passing the laws. They point out that the reforms fail to consider that agriculture still remains a centerpiece in the Indian economy.
What has the farmer's protest been like? What has happened in the talks between the government and the protestors? What claims has the media made so far? Find out in the second part of this explainer.
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