India's Three Farm Bills: Why are Farmers Agitated?

With eight parliament members being suspended, a union minister resigning, and farmer protests being carried out all over the country, India's farm bills have emerged as a controversial issue. As protests become more intense in Punjab and Haryana, which are major centers of farm trade, it has become increasingly important to evaluate the implications of a free market-run agricultural sector versus a regulated one.

The Three Farm Bills: Farmer Exploitation or Empowerment?

Prime Minister Narendra Modi's government recently passed three new farm bills in the Indian parliament, as part of his agricultural reform policy, with hopes of opening up India's tightly-regulated agricultural sector to the free market forces.

Essential Commodities Amendment

The Essential Commodity Act was first introduced in 1955 to control the production, supply, and distribution of certain essential commodities. This act prevents supermarkets, companies, and retail chains from hoarding and artificially increasing the price of any item that falls within the essential commodities list. The list of essential commodities as per the original act included the following: medicinal drugs, fertilizer (inorganic, organic or mixed), foodstuffs (including edible oilseeds and oils), hank yarn made wholly from cotton, petroleum and petroleum products, raw jute and jute textiles, and seeds from food crops, fruits, vegetables, cattle fodder, and jute.

However, the new Essential Commodities Amendment has removed foodstuff, including rice, wheat, potato, onions, cereals, pulses, edible oilseeds, and oils from this list of essential commodities - unless circumstances are dire, i.e., a war, famine or 'extraordinary' rise in prices. Moreover, according to this amendment, the government can not impose a stock limit, or in other words, it cannot stop a supermarket chain or retailer from hoarding, unless there is a 100% rise in prices of perishable goods or a 50% increase in prices of non-perishable goods.

Many critics argue that this amendment will lead to increased hoarding and an artificial price rise for food items that everyone, especially the more impoverished population, needs every day.

The Marketplace Law

Under the Agriculture Produce Marketing Committee (APMC) Act of 1964, every state government in India has an Agriculture Produce Market Committee (APMC), responsible for setting up markets (mandis or yards) for farmers to sell their produce to wholesale and retail traders via auctions. The APMCs across the country ensure that farmers get a fair price for their produce and do not sell it as part of a distress sale. Moreover, the buyers and commission agents are all regulated by the APMCs, which provide them with licenses. In fact, any market fees or charges are also regulated by the APMC.

According to the new Marketplace law, farmers are given the choice to sell their produce anywhere in the country and even online. The government hopes that this new farm law will be beneficial for the farmers, as now they will have more options for selling their produce outside the APMC-regulated marketplaces.

This farm law is widely criticized, as many argue that agriculture marketing is a state subject in India, under Schedule 7 of the Indian Constitution, which means that the Union government can not make this law in the first place. Furthermore, the APMC markets currently ensure that farmers get the Minimum Support Price (MSP) for their produce. Hence, a significant concern raised on this issue is that farmers will not make the same amount of income outside the APMC marketplace as the new law does not set an MSP. Although it may not be feasible to establish an MSP as part of the law, as it changes frequently, critics argue that the law should at least necessitate that the trade should only happen at a rate above the MSP. For many, this law would only increase distress sales amongst farmers, who cannot use this newly gained freedom to protect their interests.

Contract Farming Law

According to the Contract Farming Law, farmers can enter into written agreements with anyone, including a company, to sell them their produce for a certain period of time. The price, standards of quality, and other legalities can also be determined as part of the contract. This amendment hopes to protect and empower farmers to sell to anyone, whether it is a wholesaler, retail chain, or an exporter. Moreover, this will also allow farmers to sell their future produce today.

This new law has raised serious concerns. Many critics deem it too optimistic for India's agriculture sector, where 82% of the farmers are small and marginal farmers, farming over 2.5 to 5 acres of land. In this case, a small farmer will not be able to stand up against a big corporate chain in case of litigation, maintain quality standards, or even store produce for months. Although the ability to have written agreements with private companies sounds like a financially attractive opportunity for farmers, the law does not guarantee protection for farmers operating on a small-scale.

In addition to this, there is also no mention of a price-fixing mechanism in this law, and if private companies are given this free-hand, it could lead to more farmer exploitation. Moreover, if private companies reject produce as 'not good enough,' farmers might be forced to make distress sales at prices much lower than the MSP and in marketplaces not regulated by the APMCs. Furthermore, corporate chains can contract several farmers and hoard their produce to increase prices artificially for profits, resulting in consumer exploitation.

Greater Distress for Indian Farmers?

India's agriculture sector contributes about 15% to its $2.9 trillion economy and employs around half of the country's population. Moreover, the farmers' debt crisis in India, resulting from crop failures and an inability to secure competitive prices, has been a significant concern; as unable to cope with this distress, farmer suicides have been common in India. According to the National Crime Records Bureau of India, a total of 296,438 farmers have committed suicide since 1995. Maharashtra had the highest death toll, with approximately 60,000 suicides as of 2019 (averaging ten suicides a day). Similar trends have been prevalent in states with loose financial regulations, which lead to predatory lending.

While the new farm bills are criticized for being anti-farmer and pro-agri-business companies, there is a growing need to reassess the importance of regulatory oversight in India's agriculture sector.