FARM LAWS: Agricultural reforms - 2020

 

FINITIATIVE’s Monthly Blog

FARM LAWS

Agricultural reforms-2020

by Praval Jain on December 20, 2020

Agriculture and allied services have been the livelihood of 50% or more of our population since the 1950s. That's why any reform in this sector has its own importance for the economy and also for you and me.

In this blog, I will try to explain the 3 reforms in simpler words, concerns and criticisms, and the government’s explanation and viewpoint with the help of facts so that it remains authentic.

 First thing first it is necessary to understand one the fact that in the total population of our farmers 86% are small and marginal farmers and have less than 50% of total agricultural land owned by them.

To understand these reforms let’s see how the agriculture sector actually works.

Farm produce goes to APMC from APMC to wholesale then to retail and finally reaches to consumers as shown in the diagram

Now, keeping control over urban Inflation was a priority for every government and while doing so many laws were created to keep a check on agricultural activities to make sure that the end product is available at a lesser price to the end consumer because urban inflation is a very sensitive political nerve.

The biggest system APMC(Agricultural Produce Marketing Committee) in Agri-Marketing comes under state list every state creates their own set of rules of APMC they also know as MANDIS one single rule cannot be applied to every state because of different

agro-agricultural zones. Today one APMC covers the area of approx 200-250 villages. According to the rule, the farm produces - “First Sale” has to be to respective APMC but unofficially many farmers have been selling their produce to other parties also.

What does APMC do?

The biggest authority APMCs have is the right to issue licenses for the buyer, commission agents, private players and that issuing results in license fees which is a considerable revenue for the state. One of the reasons behind the protest in Punjab and Haryana is that reforms will drastically reduce the earnings of the state from APMC.

They also provide trade transparency, extension services, Same day payment, processing activities, and all these activities are funded through a market tax that is levied on sale. According to the reforms outside the area of APMCs market tax will be 0% as we know that other private players are fundamentally more competitive so the withering of APMC is a real risk and more importantly the fact that MSPs are connected with APMCs.

Now little more on Agri-marketing - Intra-state trade i.e within state comes under state list but Intra-State trading i.e within two state comes under Union list. The Indian government has been trying to standardize the APMC across India since 2003. Whereas trade and commerce in food items comes under the concurrent list.

So these reforms are not repealing any APMCs act but their boundaries will be restricted sharply.

Leaving this part till here lets understand what are the reforms in simpler word

Reforms:

Basically, the government is saying that by these reforms the following will happen

1.           Increase the no. of buyers for farm produce i.e Contract farming (FAPAFS Bill) - Farmers Agreement on Price Assurance and Farm services Bill. Buyer and farmers can establish a contract before crop season so that buyers get assured supply and farmers get assured rates. The farming agreement can be between 1yr to 5 yrs, 1 crop cycle, 1 livestock cycle. Pricing has to be mentioned in the contact and variation has      to be specified and if there is variation minimum guarantee price has to be    mentioned and the process of arriving at MGP has to be mentioned. A 3-tier Dispute settlement process will be followed.

2.           Farmer will have freedom of free trade - Farmer produce Trade and commerce promotion & facilitation bill gives buyers the freedom to buy outside the APMC without taxes. Inter-state or Intra-state whatever be the case states cannot levy tax outside APMC. In this, they have also given the definition of who is a farmer- Any individual who produces commodities either self or hired labour or FPOs ( Farmer Producer Organisations) but they are not farmers they are aggregations of farmers who only do storage so it's all about definitions. Who is a trader - Anyone who has a pan card can be a trader. Trade can happen outside the boundaries of the physical premises of APMCs.

3.           Remove all the stock limits under the essential commodities act (ECA(A)A) - It amends the Essential commodity act that was made keeping the time of scarcity in the nation. No stock limit on exporters or value chain participants and stock limits will be imposed only when the prices of any commodity rise sharply. The government will only intervene when prices for horticulture products and agriculture commodities rise 2x and 50% respectively.

 Concerns:

1.          Availability of buyers - We are assuming that there will be enough buyers outside APMCs are the buyers ready ? because in 2006 Bihar repealed APMC act assuming that the private sector will handle the situation but the private contribution was negligible which resulted in an unregulated market with lacking infrastructure. These new reforms are not repealing the APMCs but are restricting their role. Even today the marginal and small farmers 86% are not involved with APMCs as they don't have a marketable surplus. On the positive side, it can result in more competitive APMCs.

 2.          Deregulation of food items- Cereals, pulses, oilseed, onion, potato, edible oil has been removed from the essential commodity list. What if the private sector starts hoarding and supply-side management gets broken down prices can shoot up within days.

What farmers are saying?

The biggest fear of farmers is that today they are farmers. It should not so happen that tomorrow they turn into labourers in our own fields.

1.           It will be of end FCI (Food corporation India) procurement FCI purchases at MSP from APMCs and this will lead the farmers to fall in the trap of corporates

2.           Zero Tax trade outside APMCs will lead to the withering of APMCs

3.           Can we trust giant corporates?

4.           Outside traders already existed then why imposing bills.

5.           Experience of states with GST has not been great.

6.           Government is looking to eliminate the middleman in the process to which farmers are saying that they have created a decade long relationship with farmers and families regulate them and don't eliminate them because they also perform many other tasks that will not be taken care off by corporations.

Official stand of Government:

1.           Finally, the largest informal sector is set to be formalized

2.         APMCs will not be closed but the government is not making it documented that MSP will be continued.

3.           Outside APMC no tax.

4.           Investment will increase in this sector.

5.           No construction is allowed on the farmers' land by private entities.

6.           No other laws will apply to the produce.

 

 

Xavier Institute of Management and Entrepreneurship, Bangalore