Friday, June 2, 2023

Farm laws: Centre should revitalise APMCs, improve with MSP

Following the stalemate with the farmers, the centre should infuse more funds into APMCs and effectively manage MSP. The Acts cannot be put on hold now, but can only be amended.

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By Vivek K Agnihotri

“That which has been done well has been done quickly enough.”

—Augustus, Roman emperor

On January 22, 2021, the prolonged dialogue between agitating farmers’ associations and the ostensibly patient government ended in a stalemate. Or is it a checkmate? Again, what happened on the Republic Day, 2021, was it part of the strategy of the movement launched on the Constitution Day, 2020? Only time will tell. For the time being, the government has offered to put the laws on hold for a year and a half; but the farmers will settle only for repeal.

The three laws are the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (Promotions and Facilitation Act hereafter), the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (Empowerment and Protection Act hereafter) and the Essential Commodities (Amendment) Act, 2020. 

At present, the farmers are required to sell crops through licensed commission agents (known as “arhtiyas” in Punjab and Haryana) at designated “mandis” (agri-markets) regulated by the state governments under their Agricultural Produce Market Committee (APMC) Acts. Commission agents earn 1.5 to 3 percent of the sale value for services, while states earn mandi fees paid by the crop buyers. Government agencies buy produce meeting their quality standards at the minimum support price (MSP) during the procurement season that lasts 60 to 90 days.  Thereafter, private traders buy the produce through commission agents at market price. About 6 percent of farmers benefit from MSP.

The farm laws form part of the Atmanirbhar Bharat package and offer three basic freedoms to farmers. The Promotion and Facilitation Act allows them to sell their harvest outside the notified APMC mandis without paying any state taxes or fees. The Empowerment and Protection Act facilitates contract farming and direct marketing. It gives freedom to make forward contracts, transferring the risk to businesses. The Essential Commodities (Amendment) Act, 2020, deregulates the production, storage, movement and sale of several major foodstuffs, including cereals, pulses, edible oils and onion, except in extraordinary circumstances. Freedom from the constraint of stocking limit would act as an incentive for setting up cold storages, among others.

Various farmers’ organisations, a large number of them from Punjab and Haryana as well as certain parts of Rajasthan and Uttar Pradesh, have been camping on various roads bordering Delhi to protest against the three laws since November 26, 2020, and are asking the government to repeal them. (See box Farmers’ apprehensions and government’s response for more details.)

While 11 rounds of talks between the representatives of the farmers and the government over about 60 days failed to yield any concrete result, all eyes were on the Supreme Court where a batch of petitions waited challenging the blockade to Delhi, among others. The Court, after an initial hearing in December 2020, ruled that the right to protest is part of a fundamental right. It also suggested formation of an impartial and independent committee of experts to hear both sides and make its recommendations. The Court also asked whether the implementation of the farm laws can be put on hold in order to facilitate negotiations.

After further hearings in January 2021, the Court issued a series of orders. First and foremost, somewhat surprisingly, it stayed the implementation of the laws until further orders. It also ordered the formation of a four-member committee to submit a report on the laws to the Court after hearing all parties and stakeholders.

It is important to contextualise some of the major concerns of the agitators. First and foremost, the farmers want legislation for continuance of MSP. Typically, 36 percent of the production is procured under the scheme, most of which relates to paddy and wheat. Further, most of the farmers, of whom 86 percent fall in the small and marginal category, are not benefited by MSP. The government procures more than 75 percent of rice and wheat produced in Punjab and Haryana.

As regards APMCs, they are physical markets (mandis) regulated by the state governments under their respective APMC Acts. There were, however, only 6,630 mandis in 2019, where procurement under MSP is done. On an average, one APMC covers a geographical area of 496 sq km. Most of the small and marginal farmers, given their little marketable surplus, do not find it economical to bear the cost of transport to take their harvest to mandis. Thus, they end up selling their harvest to a village trader at a lower price. The freedom to sell outside mandis already exists in many states.

As far as contract farming is concerned, the Punjab government had passed the Punjab Contract Farming Act in 2013. This was to provide improved marketing of agricultural produce through contract farming of 108 commodities listed in the Schedule and regulate the development of an efficient contract farming system. Tamil Nadu too has legislation on the subject.

The ostensible legal argument against the farm laws, articulated particularly by the government and the trade of Punjab, is that agriculture and markets are part of the State List of the Seventh Schedule of the Constitution. Therefore, there should be no tinkering with the MSP and APMC, which form the backbone of the existing trading arrangements. The economic reason for the vociferous agitation is that mandi taxes on wheat and paddy fetch the state government around Rs 5,000 crore a year, apart from earning fat profits for the middlemen (arhtiyas).

Be that as it may, on October 21, 2020 the Punjab state assembly passed three eponymous laws amending specific sections/clauses in the Parliament’s legislations and added new provisions to suit its requirements. The Rajasthan legislative assembly too passed a slew of legislations on the same lines to stall the central legislation. Chhattisgarh had a limited go at them by amending its APMC Act in order to ensure MSP and protect its farmers.

But these three states do not appear to be on the same page. For example, as far as guaranteeing MSP to their respective farmers is concerned, the Punjab Acts provide cover only to wheat and paddy crops. Rajasthan’s Acts refer to MSP guarantee only in case of contract farming, while Chhattisgarh’s Act is somewhat vague on the issue of giving legal cover to MSP.

The reaction in the southern states has been, by and large, muted, except for Kerala, where on December 31, 2020 the assembly passed a resolution demanding the repeal of the farm laws since they lacked the teeth to protect the interest of farmers.

The current forms of price support distort the market, cause overproduction of certain foodgrains and are environmentally harmful. Government stocks of rice and wheat are already thrice what are needed for buffer stocking. MSP can be a benchmark, but not a legal right, as the government cannot pick up the entire produce at a guaranteed price. Moreover, it will increase prices and lower demand.

As far as APMCs are concerned, the history of regulated markets is instructive. The first such market for cotton was created in 1897, so that textile mills in Manchester could get pure cotton from India. The system deteriorated because of poor management practices. Controlled by vested interests, price manipulation, excessive fees and taxes and exploitation of small farmers set in. India, of course, needs an increase in the density of mandis. However, we need not just more mandis, but also better mandis.

But the new order is already under challenge. The Bharatiya Kisan Union (Bhanu) has moved the Supreme Court for the repeal of the laws. It has argued that the laws were passed hastily by Parliament. Rather than expecting a poor and illiterate farmer to strike a hard bargain and sell his produce to a multinational, the government should infuse more funds into the APMCs and effectively manage the MSP for the welfare of the agriculture sector.

The constitutional wrangle, however, ultimately boils down to interpretation of the relevant provisions of the Seventh Schedule. The central government has not thought it fit to spell out constitutional provisions which empower it to legislate on the subject matter of its two primary legislations in the Statements of Objects and Reasons accompanying the Bills. However, the Parliament seemingly derived legislative competence under Entry 33 of the Concurrent List.

Let us also take a call on the government offer to stay the implementation of the farm laws for a year and a half. It is not quite clear as to how it proposes to do it in case the offer is accepted by the protesting farmers’ associations. Sub-section (2) of Section 1 of each of the three Acts uniformly states: “It shall be deemed to have come into force on the 5th day of June, 2020”. Thus, the implementation of the Acts is already on, it cannot be put on hold by an executive order. The Acts will need to be amended in order to state that they shall come into force as and when notified.

While doing so, a cover for the actions already taken under the Acts would need to be provided. However, normally this is done under the Section heading “Repeal and savings”; but the government is averse to repealing the Acts, which complicates the matter.

If an agreement is reached for specific amendments to the Acts, in addition to the changes pertaining to the concerns voiced by the farmers, the government would do well to take into acc­ount risk mitigation and market manipulation.

Moreover, it may also take note of the experience of other developing countries in this regard. At the same time, the farm laws, at the minimum, should give the option to states to notify various provisions at their convenience in order to facilitate gradual and calibrated implementation of reforms because it would appear that the farmers have reservations more about the implementation of the laws than the laws per se.

Moving to the other end of the spectrum, as agriculture is primarily a state subject and agriculturists have to deal mainly with state authorities, another alternative available to the central government is to propose Model Acts (like the Model APLM Act, 2017 and the Model Contract Farming Act, 2018) and let the states adopt them with local modifications. Thus, if a few states adopt the Model Acts, the farmers in other states, after watching the flow of benefits, will push their own states to adopt them. 

Of late, Farmer Producer Organisations (FPOs) have been created all over India and many, especially in Telangana, Andhra and Maharashtra, are doing well. One of their main jobs is sale and marketing of farm produce, particularly of small and marginal farmers. These FPOs need to be strengthened under the new farm laws.

Occasionally, one has to take a step backward in order to move three laws forward. Sometimes, going back to the drawing board too could be edifying.

—The writer was Secretary, Parliamentary Affairs from 2003-2005 and Secretary General of Rajya Sabha from 2007-2012

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