The White, Black, and Grey of the Farm Laws, 2020

Weeks after farmers arrived in the national capital to have a dialogue with the union government, the Supreme Court gave a keyhole opportunity to both the parties by suggesting a committee of farm law stakeholders. Can it offer a way forward? Is it enough to ensure financial security for the farmers? What can the farmers propose and what should the government change? What are the other concerns on the contentious laws which resulted in the biggest protest the world has witnessed so far?

Constitution and Legislative Powers of The Union and States

Under Article 246 (1) of The Government of India Act 1935, the legislative powers of the union and state governments have been defined. There is an exclusive jurisdiction of 97 items in the union list, 66 items in the state list, and 47 items in the concurrent list for which both the centre and state can make laws. In case of a conflict, however, the doctrine of federal supremacy prevails. According to the list of items within the centre’s purview, parliament has no power to make agriculture laws. So yes, it is unconstitutional for the Modi government to pass these laws when only the state governments have the power to do so. But here’s the catch! In 1954, the then socialist PM Jawahar Lal Nehru realized that land reforms would be difficult to achieve as not all states may work in sync towards agricultural reforms, so he made the third amendment and added agriculture in entry 33 of the concurrent list of Production, Sale, Distribution, Trade and Commerce (PSDTC). Entries 26 and 27 of the state list are ‘subject to’ entry 33, so the laws being ‘unconstitutional’ is a weak defence in the eyes of the Supreme Court.

Procedure of Passing the Laws

Before ending his second term at the end of 2013, Manmohan Singh introduced the National Food Security Act, one of the biggest welfare schemes the world has seen. To prove his mettle in 2014, Narendra Modi promised 1.5 times the MSP to farmers but failed to deliver it until the budget was presented in 2018. To appease farmers for the upcoming Lok Sabha elections, they announced a massive reform they didn’t know how to sustain. 2020, the pandemic year, was a golden period to take aggressive measures without facing much backlash as the country was homebound. In case of an emergency, the President of India can pass an ordinance if the parliament is not in session. On June 5, the parliament introduced the three controversial farm laws, which would have been null and void had they not passed within the monsoon session between September 14 and October 1. However, the parliament can re-issue the ordinance (with some humiliation) but with more interference from the Supreme Court in the process.

The bills were proposed and passed in Lok Sabha with a simple majority. Then came the upper house to work on a Sunday with the opposition in low attendance but NDA in the majority. Out of the 242 MPs present, the Modi government needed a majority of 122 to pass the bills. It is not just the supporters but also the non-voters who can help in doing so. Apart from the 40 odd non-voters, the number was the same on both sides of the bill. Shiv Sena had supported the bills in Lok Sabha so could not be against them in Rajya Sabha, thereby choosing not to vote in the end. NCP, an old ally of INC, could not be against the bills as Congress implemented the same conditions in Maharashtra under the Vilas Rao Deshmukh government. The bills are usually forwarded to a Select Committee by a simple majority to evaluate the terms. But time was running for BJP, so the provision was consciously avoided. Instead of regular voting in which each vote is counted at the press of a button, NDA chose to go for voice votes by arguing that physical voting can only happen if all the members are present on their allotted seats. This was impossible due to social distancing in the upper house. Whether voice vote was in the majority or not can be challenged, but under Article 122, Supreme Court or High Courts do not have that power. Only a Rajya Sabha member can challenge voice vote but not under judicial scrutiny. However, even a single MP or Deputy Chairperson can call for a division. The opposition did not act and the speakers naturally obeyed the ruling party. The constitution has the provision of a joint sitting if Lok Sabha has a majority and Rajya Sabha, minority. A simple majority of both houses can pass the bill. Five hundred forty-three members of the lower house and 242 members of the upper house required a simple majority of 393 members out of the collective strength of 785 members. Even after discrediting Shiv Sena and Akali Dal, NDA had a majority of 333 members in Lok Sabha and another 100 odd votes in Rajya Sabha. In any case, NDA would have easily managed a majority of 400+ MPs. Modi had said during the pandemic, ‘Aapda ko avsar mein badlo’ and so he did.

Content of the Bills

  1. The Farmers’ Produce Trade and Commerce Promotion and Facilitation Act, 2020.

Farmers’ produce includes fruits, vegetables, grains, flowers, dairy, fishery and piggery. Earlier, they always struggled with liquidity and borrowed money from zamindars for their daughter’s wedding, death and other contingencies. Sahukars used to charge interest as high as 5% and take away the first yield, leaving the farmers penniless. The union government post-independence formed the Agriculture Produce Marketing Committee (APMC) Act to curb farmers’ exploitation by creating a mandi where farmers would sell their first yield at an assured price. The mandi is a collection of wholesalers, traders and commission agents.

The act proposes a choice of trade areas to farmers outside APMC, which may constitute farm gates (direct sale outside the farm), factories (say pickle or wafer factories), cold storages, warehouses, etc.

APMC is regulated within state laws that restrict the farmer from selling his crop only in the APMC of his area and not to any other APMC. This may sometimes force him to sell the produce at a lower rate than what he may get in some other city of his state or another state. The trade policies of any other product do not have such geographical boundaries. The act says that the farmer must be able to sell his output wherever he gets the best rate at the national level, following ‘one nation, one market’ philosophy of the Modi government.

The act allows online sale of agri produce directly to other businesses like whole-sellers, cold storage owners, factories or end consumers. Let’s visualize a mobile app that operates like a stock exchange, where each farmer has an ID and enters his produce, quality and rate each morning, including his transportation, mobile application commission and other overheads. The argument given is that the farmer can earn a higher margin in online transactions against the current system in which he only makes Rs 6 out of a kilogram of potatoes sold at Rs. 40.

The power of state governments to charge any tax, cess or fee on the trade areas outside APMC has been taken away through this act.

In case of a dispute, only the SDM of that area can be approached where a conciliation board of equal number of both the parties (1 or 2) will be made to resolve the matter. Once that happens, a Memorandum of Settlement is signed which cannot be altered later. The act permits the SDM court to exercise the powers of a civil court with an argument that poor farmers cannot afford lawyers’ fees and the tiring process of tareekh pe tareekh.

Now, APMC has auction houses that provide benefits. Agents who charge a commission of 2.5% facilitate the sale by offering soil testing, transportation, weighing the yield and everything else a farmer coming from a distance without local contacts needs. Farmers tend to form a cordial relationship with their agents, who also help them at the time of crisis. Bigger and richer farmers may often become agents themselves. End consumers can also buy the produce directly from APMC at a lower rate. The auctions are recorded to be used as information for future disputes, if any, so there’s no risk of a buyer taking away the yield without paying the farmer. APMC provides security as well as additional services to the farmer.

Problems

Anything monopolistic in nature functions like a cartel. All farmers have a fixed agent who may work with other buyers or agents to pay the same amount, like in an oligopoly. Farmers cannot ask for a price higher than MSP, leading to a cascading effect and making the products expensive. Market fee at 3%, Rural Development Cess at 3% (Punjab) and agent’s commission at 2.5% in addition to the MSP increase the price to a large extent. Market Boards regulating APMCs usually are connected with top leaders of the state government. The reforms in APMC began in 2003 during the Atal Bihari Vajpayee’s government. He could not gather the majority to form such a revolutionary bill, so he formulated the Model APMC Act, proposing that at least fruits and vegetables should be freed from APMC, to which 15 states agreed by 2016-2017. Since 2006, APMC stopped existing in Bihar. Maharashtra, under congress rule and Vilas Rao Deshmukh’s leadership, has already been implementing similar amendments. The state brought 18 private markets like APMC and 1100 license holders with the eligibility criteria of owning 5-acre land and creating collection centers. There are direct market licenses like Reliance Fresh. Only 6% of the farmers reach APMC and manage to get MSP because of unimaginable level of corruption at FCIs. Theoretically, the advantages of the bill can be B to B possibilities, innovation, inter-state transactions, fair competition and farmers’ freedom to sell anywhere.

However, A lot is at stake here. Despite the government claiming that APMCs will continue, they will eventually terminate because other trading areas will not have taxes. State governments will not be able to collect tax, making the products at APMC expensive. Every farmer will go to other trading areas to avoid overheads like cess and surcharges. When farmers stop going to APMC, the existence and purpose of APMC will eventually end and so will the security and benefits they bring. Along with farmers, what about the survival of APMC workers who have no judicial support? The biased SDM court intervention is worrisome too. Collectorss are under the government and will act in the interest of the government. The collectors are more likely to side with corporates, take bribes and favor them over farmers. Also, there are no regulations on who can buy the yield according to this act. Anyone with a PAN card can take the yield and flee without paying the farmer. What remains is a new oligopoly that provides no security, support and facilities. So the farmer might just be going from one cartel to another.

The concerns in the first act can be worked upon by making a level playing field for both APMC and private trade areas. Either APMC can be tax-free or trade zones can be taxed. Competition should be fair and liabilities equal. Judicial intervention through a national agriculture tribunal with a branch in every district can ensure a fair redressal to farmers in case of a dispute. The conciliation board can have one representative from the government, an SDM or collecter, who submits a report to the concerned department. The tribunal can have people from both judiciary and agriculture and they must solve the matter within 10-12 days. But the farmer should have the right to appeal to the district court and later to the high court in case of a dispute because corporates will do anything to have the upper hand. To ensure financial security for the farmers, buyers must be registered after document verification to be penalised in case of a default.

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

Farmers can make an agreement with the sponsor, unlike APMC, according to the contract farming act. The sponsor will provide farm services like seeds, fertilizers, pesticides, or agriculture science consultation for free or a price. In the case of crops, the contract period can range between the first crop season up to 5 years, and in the case of animal husbandry, the same can be for a breeding cycle.

The act mentions that the union government ‘may’ make a model contract with no hidden implications. The farmer only has to fill variable details like the crop name, rate, quantity and contract period. In another case, the government may issue guidelines to make a model contract. Instead of model contract being an uncertain provision here, it should have been ensured to ease the farmer into entering contracts.

The price-fixing mechanism is questionable when the market conditions offer a higher price than the one decided in the contract. To save the farmer from incurring a loss, a percentage can be fixed while the remaining part can be flexible for the Minimum Assured Price (MAP) to match the rate at APMC or retail markets.

Farmer’s payment is to be made by the sponsor on the same day (within 24 hours) of delivery or 3 days in case of consecutive bank holidays from the time of delivery of goods. 

Farmer’s land cannot be mortgaged or attached by the sponsor. But, if both the parties agree, there can be a permanent structure on the land of which the farmer will have ownership once the contract is over. However, there can still be forceful eviction of the farmer from his land through fraudulent documentation of crony capitalists. It is more likely to happen with farmers from the marginalized communities who hardly have access to authorities and justice even for regular land-related problems. Imagine the plight of Dalit farmers who end up sacrificing their lives for raising their voice even at Panchayat level.

Each state government has the right to make an authority to register farming contracts to maintain its legitimacy. The state can decide the details of the registration process.

Force Majeure is a clause that ensures the protection of a party (farmer) from being penalized against absence or delay in delivery due to sickness or natural calamity.

Dispute settlement has the same provision of a SDM Court with a compulsory conciliation board for arbitration and signing a Memorandum of Settlement. The SDM, Collector, or Additional Collector will intervene and settle the matter within 30 days.

In case of dishonoring the contract on behalf of the sponsor, he can be liable to pay up to 1.5 times the damage caused to the farmer, but the provision requires to pay only the amount of expenses incurred by the sponsor if the farmer defaults.

There can be a group of farmers as one party supplying the same crop in large quantities to one sponsor. This group of farmers can collectively decide the terms of the contract through a mediator called the aggregator.

One of the parties can propose identifying a specific seed supplier, fertilizer vendor, or agro scientist as farm service providers in the contract. However, the farmer can be cheated if the sponsor decides everything in case of low output. Imagine the farmer being asked to pay for the quantity he could not produce due to low-quality seeds, fertilizers, or pesticides provided by agencies decided by the sponsor.

Farmers are always unaware of the demand and supply situation after the harvest. The second act claims to provide direct sale opportunities with a higher margin in closer and farther locations. It also promises fair competition and innovation for alternate crops like medicinal, herbal and cosmetic ingredients. Another problem area it aims to solve is groundwater conservation by breaking the crop pattern by focusing less on water-consuming rice and more nutritious grains like barley and millets. Besides, it shows dreams of a model like Amul or co-operative societies by forming farmer collectives to ensure entrepreneurship, rights and security.

Concerns

The denial of access to District Courts and High Courts is a significant reason for the insecurity of entering into a fraudulent contract. The tribunals must ensure a fair settlement to the farmers. Dynamic pricing benefits must be assured by including flexibility to match the ongoing market rates. Model contracts with blank spaces only for necessary details must be provided with no option to change the language. Regulations on buyers should be strengthened by securing an advance amount in proportion to the sales recorded by him and thorough identification and background check of the sponsor.

What is MSP?

Minimum Support Price is the minimum rate at which the government purchases crops like wheat and rice from the farmers while ensuring procurement of the crop in case no sales are made. The minimum support price and procurement price of the government are now the same.

The Commission on Cost and Pricing estimates the MSP for each harvest year and the Cabinet Committee for Economic Affairs decides the MSP before the harvest begins. APMC ensures that no sale or purchase is made at a price lower than MSP. The government only procures wheat and rice through Food Corporation of India (FCI), which stores and trades the crop. Cereals, mainly wheat and rice, five varieties of pulses, oilseeds like groundnut and mustard, and commercial crops like sugarcane and raw jute are 22 + 1 items on the list. Sugarcane does not get MSP but Fair and Remunerative Price (FRP). Fruits, vegetables, flowers, fishery and dairy do not get MSP. Unfortunately, only 6% farmers can avail MSP because of extreme corruption at the warehouses. A farmer may pack his harvest, load it in a truck and get it to a FCI, where an official may ask him to come after 3 days due to lack of storage space and long queues. The farmer cannot repeat the expensive process twice or thrice only to hear the same excuse again. Several farmers do not ever reach FCI for the same reason. Some traders take advantage of the situation and ask the tired, disappointed farmers to sell their harvest at a rate much lower than MSP, let’s say Rs. 1500 a quintal instead of Rs. 1975 a quintal. The traders will take the same truck to the FCI for which they will ‘now’ have space and sell the same at Rs. 1600 a quintal, but it will be recorded in the books at MSP, Rs 1975. Rs. 375 a quintal would be a bribe distributed amongst FCI officials. Outside traders may also exchange bad crops with that of FCI’s good crops for a minimal amount that again goes at MSP and the bad crop goes to ration shops for public distribution, including the army we have high regards for. Most FCIs are in bad shape where crops often rot and are eventually destroyed. This happens at a mass level.

Why was MSP started?

1964-1966 were famine years and Indian economy was suffering after the war with China in 1962. India also went on a war with Pakistan in 1965. There were migrants from Bangladesh who had to be supported as well. We had no food security during those years. America used to provide grains to us under PL 480 scheme and throw tantrums. This hurt the then PM Lal Bahadur Shastri. Indira Gandhi also felt a dire need for India to be self-reliant for food and thus began the green revolution in 1965-1966. An American scientist and M. S. Swaminathan had a significant role in bringing food security by procuring high yielding variety (HYV) of crops from Mexico and encouraging farmers in highly fertile states of Punjab, Haryana and Western UP to cultivate and get good output through premium quality seeds, fertilizers and pesticides. To motivate the farmers, an assurance was given to not worry about the market and grow as much wheat as possible, so no one in India slept hungry. This was done by promising government procurement of wheat. MSP was announced to maximize output by farmers and this resulted in India’s self-reliance in food production by 1980. Distribution was still inefficient. On one hand people were dying of hunger while on the other, crops were rotting in warehouses. Let alone producing, we are also exporting our produce to other countries now.

Why is MSP still required?

We may have food security now, but we still have a Public Distribution System. In 2013, UPA government introduced the world’s biggest social welfare scheme called the National Food Security Act that guarantees food security to more than 80 crore people. Mid-day Meal scheme, Maternity Benefit scheme and Targeted Public Distribution System (for the underprivileged) get their grains under PDS through which a person can get 5kg each of rice, wheat and course grain at Rs 30 a month. Rice and wheat procured by FCI at 19.75 and 18.60 per kg with additional warehousing and collection cost are sold at Rs. 3 and 2 per kg to more than 80 crore people. The government incurs a loss, yes, but mid-day meals, maternity benefits and TPDS are not the provisions the government should ever withdraw.

Concerns regarding MSP

In 2004, National Farmer’s Commission proposed three price fixing methods. A2 only accounts for the cost of seeds, fertilisers, pesticides and transportation cost. A2+FL accounts for the labour of the farmer’s family in addition to the expenses mentioned earlier. C2 also adds to A2+FL the capital gain of land. The amount of rent a farmer could have generated or the interest on investing the same amount, is the opportunity cost for not farming. Swaminathan recommended multiplying C2 by 1.5 to arrive at MSP. Subsidies on agriculture are already high so the government does not like to spend more on MSP. In 2014, PM Narendra Modi had promised to increase the MSP by 1.5 times. The question then was, 1.5 times of which amount? It was decided on A2+FL. MSP cannot be sustainable on other produce like fruits, vegetables, flowers and animals, according to the government.

Poor warehousing and a dearth of cold storage facilities amounts to huge wastage. The degree of corruption at FCI has also damaged the system, reducing its benefits to as low as 6% of the farmers.

The added cost, taxes and fee on MSP leads to an increase in food price.

AS MSP encourages food crops of only a few kind, it causes ecological imbalance by disturbing the level of ground water and restricts innovation in agriculture.

Why Punjab and Haryana started protesting?

Green revolution began in these 2 states and parts of western UP because the farmers there had irrigation facilities and some more resources to invest in equipment. Eventually, they became richer than the farmers in other states. Even those with less land in these areas were richer than farmers with less land in other areas. Hence we can find more medium and higher income farmers in these states. Farmers from Orissa, Bihar, Chattisgarh and Jharkhand cannot come on their tractors in huge numbers and protest outside the national capital. Punjab and Haryana were ahead since Green revolution. These states majorly grow wheat and rice and 88% of rice and 70% of wheat from these areas go to FCI at MSP, meaning, their entire agricultural economy is dependent on MSP. They have more awareness, resources and geographical proximity to Delhi. 35% of rice, 62% of wheat and 50% of India’s total procurement comes from Punjab and Haryana. On the other hand, Andhra Pradesh, Telangana, Orissa and Uttar Pradesh together contribute to 44% of rice and Uttar Pradesh and Madhya Pradesh together contibute to 23% of wheat procurement.

Solution

MSP should continue. Farmers are demanding a legislative guarantee and the government is denying it. Judicial intervention through Tribunals must happen in the interest of farmers. Private buyers must be registered and verified.

  • The Essential Commodities (Amendment) Act, 2020

PM Nehru, in 1955, had included the ECA in the concurrent list to avoid illegal hoarding of essential crops like wheat for profiteering. The entire game is of demand and supply. Hoarding a crop and reducing the supply to increase demand and then selling at a higher price is a criminal offense.

According to the third act, supply of foodstuff will be considered essential commodities only under extraordinary circumstances like war, famine and natural calamity. So, processing units can now hoard the produce under normal circumstances. India has more supply than demand, is exporting food, so we can accumulate to innovate and experiment, is the argument. Only in case of an extraordinary price rise by 100% in fruits, vegetables and horticulture and 50% in non-perishable produce like cereal and oilseeds will be such commodities considered essential. The two exceptions are for food processing units to hoard in proportion to their installed capacity and for export houses to meet the demands of a product for orders already received.

The concerns regarding this act are artificial demand and manipulation of rates.

Conclusion

The government must assure that the farmers will continue to get MSP, APMCs will not dilute, private markets will be regulated and the judicial process would be fairer. The acts were suspiciously passed at possibly the worst time. The government did not talk to the farmers for days. The treatment was worse in Haryana near the border because both the state and union governments are of BJP. There should be regulations on APMC as well as trade areas and a security deposit from the buyers. There should be distributive justice within the farmers in which state governments must play a better role to empower them equally. A more sustainable way of subsidies must be considered.

Principles of a contract say that both parties must have equal rights, but corporates will any day be more assertive in dealing with farmers. Private players buying directly from the farmers will certainly fluctuate the price of food products. 94% of farmers cannot buy at MSP even when it exists; imagine the consequences if it is eliminated. A single MP or deputy chairman can order a division in the passing of a bill. Why were parliamentary conventions not followed? India is a union of states, not unitary states. States’ powers must not be snatched by the union altogether.  Farming is an occupation and not a business, so farmers exercise their right to life and livelihood by protesting. Article 19 permits citizens to assemble peacefully without arms. There have been protests by educated people for pension schemes, OROP by armed forces. So why can the farmers not protest for their financial security? It is the hypocrisy of the privileged to deny the lesser privileged the same right to protest. Can you fire a teacher from a government school and tell her to avail private tuition opportunities as they pay more? If farmers in Punjab start growing some other crop to save groundwater, will the state or union government compensate for the losses incurred, if any? Repealing a law should not be a matter of humiliation for the government as it can always pass a new bill with revisions. The same can be done by consulting and taking on board farmer groups, state governments and corporate federations. Even the British consulted interest groups before making laws. Banaras Hindu University and Aligarh Muslim University were asked to draft their own set of policies. Here, the real stakeholders should at least be consulted before rebelliously changing the way they work. When the stakeholders participate in the process of making a law, it is not just a better law but also a more enforceable law. Lawmaking is a serious business; it should not be rushed into when the country is homebound due to a pandemic. NO one denies that APMC needs reforms, but such revolutionary changes should be made after public debates and risk assessment.

If farmers fear that buying and selling of crops may function like a stock market and feel insecure, you cant disregard their concerns by calling them ignorant. They are aware of the risks. What is the rate of digital literacy in India anyway? Can our parents shop online, pay bills, fill forms and upload documents? The very definition of a farmer in the act excludes croppers, tiller and laborers. The whole chain is essential. It is a family occupation. The third-party can refuse to buy the crop without giving reasons. The quality of the produce must be mutually agreeable. What are the safeguards on a third party quality check? A farmer and a corporate must be equal in a market or court. Not having the right to civil judiciary is a grave warning in itself. Even a highly educated software engineer ends up agreeing to the contract given by the MNC he/she works for. The deliberate confusion around MSP must be pointed out by courts before there is a consensus between farmers and the union.

There could have been a possibility of revising the act instead of repealing them, but the government has given ample reasons for distrust. Smaller farmers who own less than 5 acres of land are more than 80% of the whole community and cannot take the risk of being cheated. Farmers feel that they are being treated like laborers on their farms. If the government intends to continue providing MSP, why is it so difficult for them to add such a clause in the law to that effect that no matter who buys the produce (government or private entities), the farmer must be given a MSP? The APMCs help build link roads that private players can never manage to do. The variety of wheat grown in the ‘food bowl’ states of Punjab, Haryana and Western UP contain 11% protein than 7% protein grown elsewhere. Crop diversification can be encouraged by purchasing crops other than wheat and rice on MSP to conserve the dwindling supply of groundwater. There need to be better storage and distribution facilities for perishable goods like fruits and vegetables for the produce to be sold at an appropriate time. The same can give more staying power to the farmers, who must represent Niti Aayog to share their inputs for policy formation. The way this government restricted the supply of perishable produce during the lockdown when the farmers were already struggling is unforgettable. The visuals of men in uniform toppling vegetable carts on the streets in the home state of Modi, harming not just the farmers but the entire supply chain only to see onions being sold at Rs 100 a kg clearly speaks of where the government’s interest lies. The news of migrant workers walking 100s of miles and starving, cannot in any human capacity make them trust the government. They still remember the promise in 2014, the blunder that was demonetization and everything ever since.

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One thought on “The White, Black, and Grey of the Farm Laws, 2020

  1. After following the news, I had some interest and this article explains the situation in plain and simple terms. Any layman can get a clear picture.
    Nice one indeed…!!!

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