Farm Legislations, Farmers Indignation, MSP Affinity & Universal PDS
Lakhs of farmers joined the country-wide protest on May 26, 2021, marking six months of their peaceful protest demanding to repel the farm laws/reforms calling them anti-farmer. The farmers of India have always stood united, challenged themselves, and have progressively pursued to deliver effectively when called to stand for a purpose. Their ability to see the purpose, strategic and operational advantages has been the key to unlocking their success and the results are the Green, White, Yellow & Silver Revolution. Six months is a long time to demonstrate commitment, grit, and determination. Had their demands been imaginative and not based on a principle it would not have guided them this long.
The multiple rounds of talks between the GoI and the farmers union not failed just out of fear of adjusting to the new system, lack of institutional conditions that support farm production, lack of support mechanisms that free the farmers from the Arhatiya, and lower price realization due to open market conditions but also because of their ambition that impelled them to solve systemic problems and the desire to contribute to overall value creation.
The farmers have sat in protest on the outskirts of Delhi, for now, six months. If this isn't long enough to respect their sentiment and resolve the issue on a priority maybe then it is apt to call it a "Black Day." At the same time, to keep the issue active, it is also irresponsible on the part of the opposition parties to support the agitation by the farmers as they are unable to confront the government directly while the Supreme Court has already put an impasse on its implementation.
But what are these laws, and is there merit in the farmers' demand to revoke all the 3 laws and demand MSP? Have there been consultations with the farmers' unions to allay any fears, explain the vision, benefits of transparency in prices, and reduction of exploitation? Or is the government arrogant and adamant about the implementation of the law/policy as in the previous instances where it had caused controversies, "OROP, Demonitisation, GST roll-out, CAA, COVID management?" What is Swaminathan Commission and what were its recommendations? Why Is there an apprehension on the removal of MSP? What is the role of the Arhatiya/middlemen in this protest? Why do we see most of the farmers' participation from Punjab & Haryana?
1. Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act: The salient provisions/features of the act are as given below:
a) Offers freedom to farmers or traders or electronic trading and transaction platform to carry on the inter-State or intra-State trade in farmers' produce outside the premises of APMC market.
b) Make payment for the farmers' produce traded on the same day or within the maximum of three working days.
c) The state government is prohibited from levying any market fee or cess, or by whatever name called, under any State APMC Act or any other State law, on any farmer or trader or electronic trading and transaction platform for trade and commerce.
The trade areas mean the place of production, collection, and aggregation which includes; farm gates, factory premises, warehouses, silos, and cold storage.
2. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act: This allows the farmers to enter into an agreement with the buyer before production or rearing of any farm product at a mutually agreed price, quality, and time of supply.
Both the 1st and the 2nd bill aims to build a better ecosystem that frees the agricultural market from the APMC Act and frees the farmers from the clutches of the Arhatiya's to sell their produce outside the state government-controlled APMC markets directly to buyers at better prices and increases the availability of buyers which would reduce cartelization.
Both the bills are revolutionary in their approach that it is explicitly set to influence & impact the status-quo of the socio-economic fabric and is set to transform the trade & commerce practices in the farming sector.
The insecurities of the Arhatiya are genuine as by linking farmers account with Public Finance Management System (PFMS) portal, allowing trading outside the APMC market yards and the start of electronic online trading it belittles their role and they can be eventually delinked from the process of trading farm produce.
The apprehensions of the farmers are also genuine as the laws are restrictive due to lack of familiarity, fear of lower price realization apart from that the Arhatiya's are the money lenders for the farmers. It is easier to borrow from them due to their long relationship compared to the bank's unfamiliar officials and procedures. They also fear losing their landholding entirely due to unsympathetic/impersonal services offered by banks which are amplified due to the various uncertainties like crop yield, produce quality & price, input costs, and natural factors like the monsoon, intensities of summer and winter. The suicide rate in the farming sector is 7.4% (10,281) of the total suicides in the country according to NCRB 2019 report.
Selling outside the mandis could mean loss of mandi taxes and rural development cess to the states, this also means loss of a revenue generation avenue and infringement of state powers which is enough motivation for the opposition parties to join the farmers.
3. Essential Commodities (Amendment) Act. impose stock limits on agricultural produce only if there is a sharp increase in retail prices. It removes commodities like "cereals, pulses, potato, onions, edible oilseeds, and oils."
As a country, we are still deficient, inadequate value chain participants that improve efficiency in procurement, storage, processing, packaging, and distribution inadequate to absorb the surplus. Also, most processing units adopt a JIT approach which can further increase the risk of wastage. It is perhaps over-optimistic to assume this bill will accelerate private sector investment in building infrastructure and supply chain in the entire value chain for farm produce.
We today are self-sufficient in food grain production hence may seem logical to remove certain commodities to reduce regulatory interference. However, this may turn out to be detrimental in the interest of the common man as inflation can skyrocket. It is not unusual to have seen farmers suffer huge losses and wastage of perishable harvests as traders have bought less than available capacity in storage facilities (cold storage, warehouses & processing units) to either harass or for rent-seeking. This bill has the potential to destabilize price with the threat of resorting to importing substitutions which can impact the local farming economy at just about the time for us to focus on increasing average yield and to contribute for exports to achieve global food security. An idealistic way forward to create a positive impact and a lasting difference is by revitalizing and enabling local communities to intensify their relationship with agriculture & food and this can be done by increasing coverage under National Food Security Act (NFSA) to expand the procurement program under MSP this would make agriculture financially sustainable, encourage & attract investments and strengthen the foundation and pave the road for universal PDS. It is also incorrect to expect agriculture as a segment to bite the bullets of subsidies and have a non-profit approach forever. However, if the GoI intention is to reduce the coverage under (NFSA) as recommended by Shanta Kumar Committee from 70% to 40% this could be a hidden signal and the 1st step towards that vision.
That there is so much resistance to the implementation of the new reforms is understandable that the GoI is reluctant to continuing discussions with the farmers union to avoid more opposition as state elections are scheduled in 2022 for Punjab and Uttar Pradesh accounts for two of the largest beneficiaries of MSP.
Minimum Support Price (MSP):
Agriculture is a very risky business, unfavorable climatic conditions, lack of adequate irrigation facilities, and the ever-increasing cost of agriculture inputs like human labour, seeds, chemical fertilizers, and land & machine rentals, fuel & electricity often leaves framers under severe distress to repay the loans. Hence MSP was introduced to make agriculture more sustainable and equitable. The MSP revisions have more often been marginal hikes that created discontent among the farmers as the increase in the actual cost of cultivation has not been considered hence it does not provide them fair prices to rescue them from their plight. The decontrol of fuel prices & its frequent price revisions and the sharp increase in costs of chemical fertilizers and pesticides also increase the input cost adversely impacting the CIC.
The actual cost incurred in cultivation (CIC) has increased many folds due to the transition in the adoption of improved methods of farming and increase in prices of a high yielding variety of seeds, fertilizers, pesticides, excessive dependence on diesel pump sets for irrigation, increase in the cost of human and animal labour, machine & land rentals, and interest costs on loans. The steady increase in CIC without a proportionate increase in the yield leads to a decline in profitability and net returns which is impelled by the inability of the marginal, small, and medium farmers owing to their small landholdings, and poor socio-economic status to adopt new technologies and farm mechanization (tractors, power tillers, harvesters, etc.) which can improve efficiency and crop yield. The CIC is different in different states and for different crops, this has also resulted in several states not approving the MSP announced by GoI for the season 2020-21 as it does not align with the higher CIC and several states have appealed which includes, Jharkhand, Uttar Pradesh, Bihar, Chhattisgarh, etc. The overdependence of the small and medium farmers on the Arhatiya for credit, transportation, and storage also reduces the bargaining power of small & medium farmers apart from their lack of access to government procurement at MSP and APMC market which further stresses the farmers.
MSP offers a guaranteed floor pricing mechanism, which prevents wholesale prices from dropping. It offers psychological support to farmers to encourage investments to implement improved methods of farming to achieve higher yields. And it insulates farmers from the possibility of lower price realization, which is usually the case in the years of bumper harvest which witnesses the price of the commodity take a steep fall below the announced MSP. At the same time, it also deters farmers from overexploitation or allocating more land area to crops that offer lower productivity despite causing massive environmental impacts on soil and water.
At the outset, it seems fair for the farmers to demand MSP on their yield. It ensures avoidance of exploitative practices by traders and mandi functionaries who collude to manipulate and lower the wholesale price unduly to take advantage. MSP also indirectly safeguards the consumers' interest from major price increase as the overall demand and supply balance is ensured and is prone to fewer distortions.
However, the cost+ model of MSP which aims to protect the farmers & consumers completely ignores the demand side, distorts open market functioning & trends and leaves most of the farmers disillusioned, and is not economically rational, as in the absence of a proportionate demand, it may result in large scale procurement by the government at MSP rates and dumping them through PDS / Welfare Schemes of Central or State Governments / Institutional Sales / Open Markets Sales. This approach is also required to ensure the availability of the food commodities as FCI would centrally procure most of the produce, "grains, pulses, and cereals" which might also help ease the CPI as the weightage of food is higher and would provide some relief to the consumers.
The economic impact of the COVID crisis has exposed the vulnerability of the low- & middle-income group, "hunger, unemployment, part or full loss of income, reduction & erosion of savings and the lost income has left many families left with huge consumer debts due to out-of-pocket medical expenses, mortgages, auto, and student loans and credit cards." What is worrisome is this has pushed many to abject levels of poverty, recovery from which is a long haul due to inadequate levels of social security system to which a great deal of the working population has no access. Even more depressing has been hoarding, black marketing, and profiteering despite the existence of laws to desist it, and when the interventions came in it was too little too late. It felt like there was a lack of an all-out effort to curb it, yes, a few raids & arrests happened but felt like random sampling done for Quality Control which can largely be considered ineffective.
The COVID crisis, unemployment, skyrocketing inflation, and the gradual withdrawal of various tax benefits available to the middle class have jolted it out of its momentum assumption. The damage is significant and its ramifications inevitable on the economic recovery due to reduction in consumer spending and future access to credit for those having trouble repaying their existing loans which becomes another risk factor that could further harm the economic recovery. Hence coverage under PDS may be a desirable interim policy to balance, maintain, protect the interest, enhance the motivation of this class of taxpayers to avoid political recrimination. The policymakers and economic advisors should stay connected with the masses to tap into their deeply held values and beliefs to recognize the symptoms and solve systemic issues systematically but with a sense of urgency.
While the corporate sector has received major benefits like tax rate reduction, abolition of dividend distribution tax (DDT), fiscal relief, moratoriums extending the time to become current on their loan obligations, etc. Then in all fairness to ensure equity to the farming sector it is justifiable to legalise MSP and punish buyers who buy below the MSP in moral terms. This would not only make a difference in farmers' lives and allow them to make outsized contributions additionally it would also help add to the overall value creation by the farming industry and protect consumers in their current hardships.
The Way Forward
The need of the hour perhaps is to have a practical orientation toward agriculture as a segment. Continuous engagement with farmers to establish and enforce guidelines on "governance, community, and the environment" apart from supporting them through sustained heavy investment in building infrastructures like storage, the supply chain for farm produce, and food processing units. We must immediately stall programs that are skeptical like Direct Benefit Transfers (DBT) on agricultural inputs as it might not actually help overcome market distortions because by design it is meant to an extent not to accentuate the distortion, which defeats the real purpose. Likewise reducing the monopoly of big mandis by creating alternate mandis where farmers can sell directly to processing units and big retail closer to the production areas, and contract farming, are ideas that are perhaps too farfetched requires deep thinking to address the risks of uncertainty and might take several years perhaps decades to realize as it questions state federalism and threatens the livelihood of thousands of mandi functionaries who operate as middlemen/commission agents.
There is no denying that the government needs money and more money to commit itself to advance societal goals driven by welfare schemes, & create infrastructure and this beyond question is an immense challenge. And to do this the bureaucrats need to play their role, display their resourcefulness by reinventing themselves fast in recommending and rolling out comprehensive measures rooted in big ideas and grand ideals to meet the need of the common man "increased income, its sustainability, and equality & equity." The existing systems were created with hope & promise of progress, and with time shortcomings creeps-in in every system in the form of "scarcity, corruption, & system decay", therefore the need to constantly review, update, validate & revise it by linking and implementing strategies that deliver both short and long-term benefits to ensure it transitions moving in the right direction to become more efficient and achieves its goals. Identify, acknowledge, and fix the issues first before recommending something new. It is easier to prepare for and encounter a problematic situation in a familiar ground than face unforeseen obstacles in unexplored turf.
An idea may be enough to impress a businessman, but it is the idea with the ideals those that are virtuous creates the recipe that appeals to both emotion and logic, which makes it a more compelling pitch to inject purpose, inspire, motivate, drive tens of thousands to comply and become socially, commercially & financially successful. Hence, policymakers and economic advisors in governments should be pragmatic in their choices and only roll out schemes that bring sunshine into the lives of citizens. And this is possible only if they reflect on the decisions made and apply a moral compass at work to fulfill their humanistic potential.
For our farmers' agriculture is not their job, it is their purpose that inspires them hence their spirit is intense, and have stood firm as a cohesive community against the diktats that do not serve them, the common man, or the national cause. It is in our founding culture that says, "If an individual does not have food, we will destroy this world," ??? ??? ?????????? ???????? ????? ???? ???????? ????????????? (as said by a freedom fighter and a great poet Subramania Bharathi) and as a nation, we cannot allow diffusing this spirit & strategic focus.