New Farm Bills: Will Short Term Resistance Overshadow Long Term Benefits?

How will the new bills affect the way of agriculture in India? Should the reforms be welcomed or resisted?

By: Tavaga Research

The Upper house of the Parliament, Rajya Sabha, passed two bills on September 20 marking landmark reforms in the agricultural sector. The bills passed are The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, and The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020. The Essential Commodities (Amendment) Bill, 2020, the third bill, could not be taken up for voting as the session had to be adjourned due to significant uproar and opposition to the bills by the minority parties.

Ordinance bills were passed in June 2020 promulgated by the President of India as the Parliament was not in session due to the outbreak. The bill seeks to replace the ordinance bills permanently and hold superiority over the State Acts in the discussed matter.

What are the farmer bills and reforms?

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020

The bill allows every farmer to enter into a written framing agreement in respect of any farming produce. The reform pertains to contract farming expanding the reach for the farmers’ produce enabling the farmers to tie up with large agri-business firms, retailers, and exporters at a pre-determined price. The bill eliminates the compulsory middleman under the previous system who controlled marketing on behalf of the farmers.

The pricing of the farmer’s produce determined in the agreement, if variable, will provide for a guaranteed price. Any additional amount over the guaranteed price, in the form of a premium or bonus, has to be linked to a price reference as mentioned in the agreement. 

The purchase and sale of the farmer’s produce will be handled by the sponsor. The bill transfers the market risk of prices from the farmer to the sponsor. The sponsor will not be permitted to acquire ownership rights of the farmer’s or make changes to the premises. 

The said agreement will allow the farmer to obtain credit and insurance for optimum production. Potentially, it will provide farmers with access to high-quality equipment and raw materials for healthy produce. 

Before the passage of this bill, Agricultural Produce Market Committees (APMCs) governed over a particular market area with several committees spread within the state. Any sort of wholesale activities of farmer’s produce was conducted as per the regulations of APMCs. APMCs authorized traders to establish mandis and to carry out trade with farmers. APMCs charged various kinds of fees from warehousing agents, loading agents commission agents, etc. APMC regulations, however, hindered freedom of choice-based marketing and limited inflow of investment.  

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020

The bill provides the farmers and traders with freedom of choice to conduct trade and commerce in a trade area, inter-State or intra-State. The bill also facilitates payments via electronic channels, with no additional fee, given the parties to the transaction have a permanent account number (PAN).

The bill is intended to encourage competitiveness in agricultural supply chains by eliminating the monopoly of traders. Traders also reaped economic gains by charging hidden mandi and commission costs. Fair competition across the sector will integrate the present fragmented markets on a national level with supply meeting demand through market forces. 

The bill ensures a reduction in the price charged to end consumers as well as a rise in the farmers’ income by abolishing the middleman profit. In the long run, the aim is to earn foreign exchange through flourishing exports, promote job creation, and keep pace with the dynamic e-commerce industry. 

The Essential Commodities (Amendment) Bill, 2020

The bill removes certain commodities from the list of essential commodities. The reform uplifts the earlier stock holding limit on such commodities, except under extraordinary circumstances such as war. The bill seeks to increase price stability and cut wastage of farm produce. 

The change is expected to attract investment toward warehousing, food processing, and cold storage facilities. The agriculture sector is to be at the forefront of change as the country comes out of the pandemic. 

Why is the opposition opposing the bill?

• The States will suffer from loss of revenue as mandi fees will become redundant. The farmers will have the option to carry out trade in open markets or APMCs, encouraging an informed decision.
• The opposition is fearful of the removal of the MSP based procurement system. However, the Prime Minister, Narendra Modi, took to Twitter on Sunday evening to reaffirm the continuation of the MSP system.

What is MSP?

MSP refers to Minimum Support Price, which is a guaranteed price for the farmers’ produce by the Government. MSP is announced for certain crops at the beginning of the sowing season. The Government undertakes to purchase the farmer’s produce if the market price of a commodity falls below the MSP.

• Large private companies may dictate the terms of the agreement depriving farmers of fair negotiation.
• Big players also have the appetite to maintain an inventory of commodities, which will be detrimental to the farmers’ produce.

The discussed bills are broadly directed to raise farmers’ income levels, boost spending, and achieve fair markets. The agricultural sector is set to reap the benefits of these bills in the long term if execution in the short term catalyzes the benefits for the farmers. 

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