The demand for repeal of the Central laws is unwarranted. They open up multiple options that farmers can leverage for increasing price realisation
While staying the implementation of the three farm laws enacted by the Union Government in January 2021, the Supreme Court had hoped that this would create a congenial atmosphere for the protesting farmers to come to the negotiating table and arrive at an amicable settlement. However, the purpose is far from achieved as certain farmers’ bodies are insisting on ‘repeal’ of the laws. This is overshadowed by yet any other demand that the Union Government should guarantee a minimum support price (MSP) backed by a law enacted by parliament.
As the wording suggests, MSP is the minimum price that a farmer is supposed to get from the sale of his produce. This price is determined by the Commission on Agricultural Costs and Prices (CACP) – a body in the Ministry of Agriculture. The determination is based on the cost of production, the imputed value of land, and the imputed value of farmers’ capital. The Centre notifies the MSP for 23 crops every year before the commencement of the relevant season — Kharif (April – September) and Rabi (October – March).
The MSP applies to purchases – mainly paddy and wheat – made by State agencies such as the Food Corporation of India (FCI), for meeting the requirements of the Public Distribution System (PDS) and making available to the beneficiaries at subsidized prices under the National Food Security Act (NFSA).
These agencies do not buy all of the produce offered by the farmers for sale. Only about 33 per cent of the total produce of wheat and paddy is bought. For other items, it is much less (as for the number of farmers, out of about 150 million, a mere eight per cent get to sell their produce to the agencies).
The balance quantity (67 per cent for wheat and paddy and a much higher percentage for others) is picked up by private traders. This is done at a price lower (in many cases, substantially lower) than the MSP. Therein lies the rub.
It indeed is the most important reason behind resentment among farmers and their clamor for a law that mandates all purchases – including by the private trade — at MSP.
Before looking for a way out (enactment of a law guaranteeing MSP or any other), we need to understand why farmers get less from private traders?
At present, farmers are required to bring their produce to the mandi (a commonly used term for marketplace) notified by the State Governments under their respective APMC (Agricultural Produce Market Committee) Acts. They cannot take it to any other place (if any farmer does this, she or he runs the risk of the vehicle being impounded for violating the law); nor any buyer can pick up the produce from their doorsteps or the field.
With such excruciating controls, the majority of the farmers (except for a few rich who wield influence) are at the mercy of the arthiyas — local term for commission agents who arrange for the auction and delivery of the produce to the buyers. An orchestrated game plan of these agents executed in collusion with the buyers ensures that hapless farmers get the least possible price. Levies such as arthiyas’ commission of 2.5 per cent, the market fee of three per cent, and rural development cess (RDC) of three per cent (as in Punjab) further add to their woes.
The only way farmers can get out of this vicious circle and realize a good price from the sale of their produce is by having more options to sell other than in APMC mandis. This is precisely what The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 seeks to achieve. They can go to a private market for selling; or enter into a contract for selling to an entity (processor, aggregator, large retailer, exporter, and so on) at their doorsteps or form farmer producers’ organizations (FPO) for garnering strength and sell under the FPO banner.
Any fear that big firms will take them for a ride is misplaced. Under the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 on contract farming, the farmer can walk away from the contract anytime but the firm cannot. It protects the minimum guaranteed price (not to be mixed with MSP, this price is mutually decided by the farmer and the firm) in the event of a drastic fall in the open market rate even as the farmer gets a share of the post-contract price surge after the agreement is signed.
Moreover, the farmer can switch sides. If he feels that the firm is not offering him a good price, the option of selling on the APMC/mandis platform can be exercised and vice versa. Under this dispensation, almost all farmers (including the majority of small and marginal farmers) will be much better off than they are today. They could even receive a price higher than MSP depending on the market dynamics. Yet, to insist that whoever buys from them must pay only MSP and that the Government should guarantee it by law is bizarre.
There are three major reasons why it will not work. First, a law that forces a private entity to buy at a particular price (read MSP) will scare it away. Which trader or firm will dare get into a commodity trade that can send him to jail?
In August 2018, an amendment approved by the then Devendra Fadnavis Government to the Maharashtra Agricultural Produce Marketing (Development and Regulation) Act, 1963, made the purchase of farm commodity below the official MSP a punishable offence. Following strong protests, it had to be dropped (its resurrection under the proposed amendments to Central laws by the present MVA Government is sheer posturing merely for political gains).
Second, under the guarantee clause, the Centre will be obliged to buy the entire farmers’ produce on sale. Even at the current procurement level, FCI et al do not have space to store and capacity to handle. Think of the nightmare if the agencies were to buy, handle, and store all that the farmers offer. Also, look at the food subsidy. At current purchases, during 2020-21,the government spent over Rs 500,000 crore. Under the proposed scenario, the Centre might end up spending all of its revenue – tax plus non-tax – on supporting farmers only.
Third, the mammoth subsidy resulting from MSP for all of farmers’ produce will be treated as ‘actionable’ subsidies at the World Trade Organization (WTO). The Indian subsidy will be substantially higher than the 10 per cent threshold, resulting in the violation of our commitment under the Agreement on Agriculture (AoA) of WTO and invite retaliatory action by other member nations.
Given its horrendous implications, a guarantee on MSP is like aiming at the impossible. Farmers should not insist on it. The demand for repeal of the Central laws is also unwarranted. These laws open up multiple options that they can leverage for increasing price realization. They may not immediately reach MSP but will be better than where they stand today. As market dynamics evolve, in a few years, they could hit this threshold and go even beyond. The ball lies in the farmers’ court.
(The writer is a policy analyst. The views expressed are personal.)
https://www.dailypioneer.com/2021/columnists/the-ball-lies-in–the-farmers–court.html
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