We believe that the Indian government should repeal recent farm laws: Economic experts

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“We are writing to you as economists who have engaged for long with issues of agricultural policy. We believe that the Indian government should repeal the recent Farm Acts that are not in the best interests of small and marginal farmers and about which a broad section of farmer organizations has raised very critical objections,” said an open letter written by 10 Indian economists, released on December 17, 2020.

Former professors – Dr Narasimha Reddy, Kamal Nayan Kabra, K.N. Harilal, Rajinder Chaudhary, Surinder Kumar, Arun Kumar, Ranjit Singh Ghuman, R. Ramakumar, Vikas Rawal and Himanshu – wrote the letter to Union Minister of Agriculture and Farmers’ Welfare Narendra Singh Tomar, stating five crucial reasons why the Farmers (Empowerment and Protection) Agreement on Price Assurance & Farm Services Act, the Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act and the Essential Commodities (Amendment) Act are fundamentally harmful in their implications.

“The reforms brought by these Acts… are based on wrong assumptions and claims about why farmers are unable to get remunerative prices, about farmers not having freedom to sell wherever they like under previously existing laws, and about regulated markets not being in their interests,” they said.

Accordingly, the letter stated the following problems with the new laws:

1. Undermining the State government’s role:

Experts said that the state government machinery is much easily accessible to farmers at the village level. Thus, state regulation of markets is more appropriate rather than commodity sales and trade under central control.

Further, more than 20 states had already amended their APMC Acts to allow for private mandis, e-trading, electronic payments, e-NAM, under the regulation of the state government.

“For such reforms to succeed, there has to be a buy-in from all stakeholders in the market including farmers, traders, commission agents. This process can be handled with more sensitivity and responsiveness by the state government, rather than through a blanket legislative change at the central level,” they said.

2. Two markets, two different sets of rules:

The laws created a practically unregulated market in trade areas alongside a regulated market in APMC market yards, both subject to two different Acts, market fees regimes and different rules.

Traders have already begun moving out of regulated markets into unregulated space. However, unregulated spaces carry the same risk of collusion and market manipulation as with APMC market spaces.

Moreover, APMC markets have mechanisms to address and prevent market manipulation, whereas the central Act’s ‘trade areas’ contemplate no such mechanisms.

“Means of exploitation of farmers include price and non-price issues such as weighing, grading, moisture measurement. Farmers are rightly afraid that fairness cannot be ensured on price and non-price factors. Such exploitation is faced largely by farmers in remote areas, including tribal areas, who do not have access to structured markets,” said economists.

3. Fragmented markets, monopsonies and problem with price discovery:

Even prior to the three laws, a large percentage of agricultural commodities sales were carried outside APMC markets. However, APMC market yards still set benchmark prices through daily auctions and offered reliable price signals to farmers. These price signals prevented fragmented markets with only one buyer.

A testament to this is Bihar farmers’ experiences after the removal of the APMC Act in 2006. Farmers have less choice of buyers and less bargaining power, resulting in significantly lower prices compared to other states.

4. Unequal players in Contract farming:

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Acton fails to protect the interest of marginal farmers entering into contract farming with companies. Thus, the law would not change the current reality wherein contract farming through unwritten arrangements offers no recourse for farmers while companies are protected from any liability.

The letter also addressed farmers’ concern that provisions for farm services agreements, coupled with the government’s moves towards a liberalized land lease regime, would lead to large-scale corporate farming. While contract farming arrangements are voluntary in principle, the acute crisis in agriculture with no price assurances, may push farmers towards this pattern despite bleak results.

5. Concern about domination by big agri-business:

Economists agreed with farmers’ concern that the three Acts together unshackle agri-business companies from state-level regulation and licensing; constraints such as existing relationships between farmers, traders and market agents; limits on stocking, processing and marketing.

A few big players would control consolidation of the market and the value chains in agricultural commodities. This has already happened in countries such as the USA and Europe, they said.

They argued that instead of the “Get-Big-or-Get-Out” dynamic Indian farmers require a system that enables better bargaining power and their expanded involvement in the value chain by putting storage, processing and marketing infrastructure in the hands of farmers and FPOs. Such an alternative would enhance farmer incomes. Some earlier government policy initiatives were expected to work towards that direction.

The letter further alleged that the Acts allowed the central government to step back from its commitment to help farmers build infrastructure and consolidate their bargaining position in the market.

“In view of the above fundamental issues, we believe that amending a few clauses will not be sufficient to address the concerns rightly raised by the farmers. We strongly believe that it is not desirable to perpetuate the impression that farmers are misled by others, when they are raising valid and genuine concerns. The current impasse is not in anyone’s interests and it is the responsibility of the government to proactively resolve it by addressing the farmers’ concerns,” they said.

Accordingly, the group asked the central government to withdraw these Acts and instead consult farmer organisations and other stakeholders to bring about equitable and sustainable benefits to farmers and the economy.

“It would be the truly democratic thing to do,” they said.

The complete letter can be viewed below: