Agriculture is a state issue on India’s constitutional list; This list includes matters that require local knowledge. Agriculture is a biological business with a diverse climate and locally grown crops. The coconut farms of humid Kerala need a different plan than the apple farms of chilling Kashmir.
The central government of India formulates a macro policy for the agricultural sector, and the states are responsible for implementing this policy through various local programs. The central government maintains control through tools such as the minimum support price (MSP). It gives direction to produce enough food, feed and fiber. States further decentralized policy directorates to the district level. For example, to run a central policy program like the Rashtriya Krishi Vikas Yojana (RKVY), it is mandatory to provide district agricultural plans in advance (DAP).
With this background, let’s read the three bills passed by parliament that nullify the state laws of the Committee on Marketing of Agricultural Products. 1) The Pricing Agreement (PA) is an advanced version of the existing contract farming, 2) The Essential Commodities Act (EC) is an amendment to current law to promote the storage of agricultural products that until now had a limit to avoid hoarding essential food products. 3) Trade in agricultural products and commerce (PTC), which allows trade between a producer-farmer and a buyer company outside the physical enclosure of mandis, is also committed to promoting electronic commerce.
These one-size-fits-all ordinances aim to give farmers barrier-free market access, “One India, One Farmers Market” by cutting out the middlemen. Access to the alternative market will give a better price to farmers, which will ultimately contribute to “doubling farmers’ income.”
The goal of the three ordinances appears to be noble and beneficial to farmers. There are protests from many farmers’ unions and even within the parliament from political parties like Congress, Trinamool Congress, Shiromani Akali Dal, left-wing parties and the Aam Aadmi Party. As agriculture is the largest employer and the main source of food, it is essential to understand the political economy of agriculture.
Opposition leaders organize a protest in Rajya Sabha. Photo: RSTV Screenshot via PTI
Agricultural economics
One of the most discussed issues in the Indian policy arena is increasing farmers’ incomes. Given the size of the population dedicated to agriculture and its impact on the political economy, various programs are being implemented to make the sector competitive.
Although significant investment in industry comes from small farmers, government intervention plays a critical role in the availability of agricultural inputs and the acquisition of agricultural production. Agriculture remained the only positive sector during the coronavirus pandemic. However, in recent years, the growth rate of gross domestic product in the agricultural sector has slowed. Rising costs of cultivation and declining profits are important factors that explain the stress on agricultural competitiveness.
The heavy reliance on weather conditions and small farms adds to the lower bargaining power in markets for Indian farmers. A productivity gap in the country has not yet been covered, in terms of performance. Still, higher production often results in oversupply in markets and lowers profits. To ensure profitability, doubling farmers’ incomes by 2022 is a timely intervention by the central government.
Farmers’ income in India has long been determined by food security measures to ensure that consumers get affordable food. By declaring MSP, producers were encouraged to grow crops like wheat and rice that would be provided through the public distribution system; This mechanism completes a cycle of food security through the security of farmers. The inclusion of all cash crops in the price support mechanism remains a concern for both farmers and agricultural officials; price has an underlying impact on both productivity and profitability. The agricultural market cycle is not complete in terms of credit availability, risk insurance, and a fair pricing system. Still, it provides a platform for secure government purchases, the only assured income for most farmers.
Price realization remains the biggest concern of farmers, which can be attributed to the abundance of food and therefore lower demand. The three laws passed by the government do not provide any guarantee on price and override the existing APMC structure, facilitating the MSP. In addition, it does not answer how the incorporation of alternative buyers or electronic selling options will increase the demand for a food. For example, if wheat consumption remains the same, what will buyers do to improve a farmer’s “price realization”?
Many organized retail and wholesale companies, including Reliance, Walmart, Metro, have attempted to centralize purchasing from farmers. Still, it becomes expensive to buy from small farmers and therefore they are now buying from much hated middlemen found on the APMC mandis.
Agricultural policy and policy
Cabinet Minister Harsimrat Kaur Badal’s resignation letter protesting the three laws signaled a centralized, top-down approach to political decision-making. She wrote,
“… I continued to do everything possible to persuade the cabinet to accept the real stakeholders in this decision, the farmers, and remove their apprehensions and concerns.”
A similar twist occurred in Rajya Sabha on September 20, where the government razed the Bills amid opposition protests.
The BJP in its 2014 manifesto promised to grant MSP to farmers according to the Swaminathan Commission report, which recommended a formula in which if a farmer does not get 150% of the cost of cultivation, the government should buy it at this price. under the MSP. After coming to power, the government deducted the land rent from the cost of cultivation while calculating the MSP, without consulting the farmers concerned, ruining their hopes.
Farmers in India are under perpetual stress and many have died by suicide. Furthermore, they are not politically organized in caste-based Indian society. In the absence of employment opportunities in the alternative industrial or service sector, they hope to receive support from the government. Policy makers time and time again, through various tools, attempt to consolidate the fragmented agricultural sector assuming the leverage of economies of scale. Such centralization has the underlying assumption of increasing production, lowering costs, improving farmers’ income, and attracting private investment.
What the policy maker does not see is that agricultural production is already optimal, the largest consolidated farm needs mechanization, which increases the cost of a farmer in the short term. If you consider farmers as investors, financing in the agricultural sector is already up to 90% private. Farmers and agricultural scholars are well aware of these facts and see the three laws as an effort to entice large corporations into better control.
The largest consolidated farm needs mechanization, which increases a farmer’s cost in the short term. Photo: Wikimedia Commons
Learnings and way forward
Small savings protected the Indian economy from the 2008 recession; Similarly, agriculture was the only sector that grew, while gross domestic product growth of all other sectors slowed under the influence of the coronavirus pandemic. A similarity between 2008 and 2020 is the decentralization phenomenon associated with small savings and small farmers, which should be seen as a strategic advantage and not as a disadvantage.
Demonetization broke the savings of millions of families; Similarly, these three ordinances can ruin the smallholder nature of Indian agriculture for the worse. We can only hope that Prime Minister Modi will work with the comments on Badal’s resignation letter on top-down decision-making and modify it to an evidence-based process that listens to stakeholders. The time has come to invest heavily in rural infrastructure and build on what already exists and not to destroy and start over.
Vikas Singh works at the Indian Institute of Plantation Management, Bangalore.
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