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Contesting Farm Laws 2020: What’s Wrong With FPTC Act and the Fall of Mandis?

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The farm laws 2020 created quite a stir over the last year. Farmers from across Punjab and Haryana hurdled at Delhi NCT borders, and others rallied in their states, lending support to those sitting at the Tikri Border. But, while the protests silently loomed over the ends of Delhi, unweathered despite the pandemic, the farm laws and their issues are still unaddressed.  Though the Supreme Court stayed the implementation of the three farm laws, the negotiation hasn’t made much progress.

Amidst the relative silence from both ends, government and farmers, this article tries to reignite the discussion on what went wrong. Abhinash Ray writes on the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act to detail its provisions and demands of the small farmers.

farm laws 2020

By Abinash Ray, a student of BA LLB, KIIT School of Law, Bhubaneswar

Introduction

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation Act) (FPTC), hereon referred to as the ‘Act’, has been marred with controversy ever since it was ratified by the Central Government back in June 2020.

While the entire Act created the stir, Section 3 and Section 4 under Chapter II are perhaps the most important and contested as they completely change the way agricultural produce is traded.

The central government boasted the Act as a revolutionary step for small farmers. The Act was premised on the misery of the small farmers, who constitute 86 per cent of the total farmer workforce and don’t have the means to bargain for their produce to get a better price or have a newer efficient way to sell their produce.[1]

Now, coming to the most contested Sections of the Act.

Section 3 of the FPTC Act allows farmers’ produce in any ‘trade area’ outside the APMC market or any other private market regulated by APMC guidelines. It also provides for trade via electronic trading and transaction platform.

Section 4 further builds on the same with some add-ons. Although the idea seems flawless on paper, there are some significant loopholes advocated by the protests and protesters.

This article aims to understand the possible collapse of the Agricultural Produce Market Committee (or APMC market), identifying various hurdles in implementing said provisions. It also describes the conditions of the small farmers and then the potential changes that the new laws may bring.

Finally, it provides a conclusion and solutions based on extensive research.

Small Farmers and Marginal Holdings: The Perfect Playground

For the Act, the targeted demography is the small and marginal farmers who, as mentioned earlier, constitute nearly 80 per cent of the total farming workforce.[2]

Vijay Jawandhiya and Ajay Dandekar, in their article in The Wire, write about the fading operational holding of marginal or small farmers:

“The size of the operational holdings for small and marginal farmers has shrunk from 1.15 hectares in 2010-11 to 1.08 hectares in 2015-16, according to provisional estimates of the 10th agriculture census 2015-16, and small and marginal holdings constitute almost 90% of our total agricultural landholdings. What is more worrying is the fact that the top 10%  of the households are now cultivating almost 50% of India’s total cultivable lands. In contrast, the bottom 50% are cultivating less than 0.5% of India’s cultivable lands. The decline in India’s bottom 50% land holdings is steady”.[3]

So will small farmers’ be affected by the ending of the ‘mandi’ system?

The answer to the same is unclear. However, the important thing to note is that almost eighteen Indian states have already allowed the involvement of the private sector in the trade of agricultural produce.

Further, these states don’t really rely on the ‘mandi’ system. Yet, the price difference between what the end consumer pays and what the farmer receives is colossal. Further, over the last few years, this gap has only widened. So, with or without private players or the ‘mandi’ system, the condition of marginal farmers has seen a decline.

Therefore, regardless of the FPTC Act, the conditions of small farmers are more or less the same. On top of that, this Act just straight up assumes that private players have not existed until now.

It also assumes that APMC is nothing but a goliath like a monopoly, a system that compels farmers only to sell to licensed middlemen in government notified markets.[4] However, this narrative again falters as reports suggest that only 36 per cent of sales have taken place inside the APMC complex.[5]

Then, the key issues continue to persist regardless of implementing these provisions.

First, just formally ‘introducing’ private players won’t fix the existing system. Second, the Act doesn’t necessarily solve the woes of small businesses and marginal farmers. Thus, while it is promoted a certain way, even in mainstream media, in reality, it is doing very little to favour the marginalised.

Farms Laws 2020: Promising Utopia through FPTC Act?

Having identified the issues at hand, it is now essential to see how an ideal agricultural system pans out if these provisions are implemented to the tee.

The best part of the FPTC Act is that it allows direct purchase from farmers at their doorstep or farm, as is the case with milk. In addition, for the first time, farmers will have the opportunity to quote the price for their produce.

Although these changes might appear too good to be true, if the states encourage reforms in the right direction, it won’t take long for farmer producers or their FPOs to become ‘price dictators’ rather than remaining ‘price takers’ (Ramesh Chand, 2020).[6]

Despite how positive and relevant this seems, small farmers, who have minor to no landholdings, are the most concerned about how this Act and other farm laws 2020 will impact them. So to address their insecurities, the government is encouraging the production of high-value crops, and for farmers to even be interested in that, it requires price assurance.

Since the provisions expand what a ‘trade area’ is, farmers supposedly will have a bargaining chip for such crops as private players are more interested in those.

The FPTC Act intends to compress the value chains and eliminate what we call excessive intermediation. In many cases, farmers will be able to sell their produce directly to consumers through their groups. However, it is easier said than done.

In reality, these have some severe practical setbacks as well as legal concerns. Consider the example of the State of Bihar, which had abolished the APMC system way back in 2006.

Before abolishing the APMC system, Bihar is said to have had nearly 95 market yards. Out of which, 54 had proper infrastructure such as covered yards, godowns, administrative buildings, weighbridges, processing and grading units, among other necessary units[7].

In 2004-05, the state agricultural board reportedly earned over ₹60 crores through taxes and spent over ₹52 crores, out of which 31 per cent was developing infrastructure in those places.

It’s important to understand that the states collect taxes from the APMC.[8].With no revenue to maintain it, Bihar’s infrastructure is now in a dilapidated condition. Also, no significant private investment has come in.[9]

But it is essential to know that such a change came when Bihar had no real backing from the central government. Furthermore, it was accustomed towards Bihar specifically, so its failure cannot be a reason to dismiss the FPTC Act in the nationwide scenario completely.

Sudha Narayan (2020), an eminent agricultural economist, said that the first problem is how the provisions of the Act are worded. Primarily, they lack regulation and reporting and are not transparent to some extent. Further, the issue is with what the Act does not say or is silent about. According to her, you can’t have marketing bills devoid of the larger context of state intervention in agriculture and agricultural policy.[10]

Now, this opinion isn’t exactly correct. Such statements follow a textbook point of view and don’t accommodate a reformatory vision for the farming sector.

Just because an existing system works without much fuss doesn’t mean that it is flawless. Also, it certainly doesn’t mean that it shouldn’t get better.

Such reformations are important to propel change. They are needed to modernise the system further and keep up with the needs of the farmers. But unfortunately, people working in the agriculture sector remain devoid of positive change despite its necessity and importance.

The Collapse of the APMC Market: Privatisation or Death Sentence?

While the FPTC Act doesn’t explicitly mention an end to the APMC market, it is pretty evident that it will decrease the latter’s need and significance.

Since the three farm laws, 2020  are worded ambiguously, their interpretation is coupled with fear and distrust. Especially after the government’s back and forth on Minimum Support Price and Punjab and Haryana farmers demand against the new Acts, the talk on these Acts have become a little too confusing.

While the Centre promised that APMC is not going anywhere, the farmers protesting at the outskirts of Delhi have critiqued the Act for what it is and how it could favour the private sector more than small or marginal farmers.

However, those favouring the provision have denounced that privatisation could negatively affect the agricultural sector. Moreover, the lessons from India’s past suggest that the privatisation of the agriculture sector could crop up fears and ambiguities, especially for small farmers.

More recently, the telecom industry is a clear example of privatisation monopolising an entire industry.

For instance, in 2016, when Reliance Jio entered the telecom sector, it completely disrupts the industry by offering predatory pricing.

The rise of Jio in the telecom sector brought foreign investments from giants like Alphabet, Facebook and Qualcomm, among others. The government and TRAI also modified their rules and regulations to help boost these private players. However, three years later, India is left with two or three players who control the entire industry, and Jio is chocking the rest of them too.

Moreover, government-backed players like BSNL and MTNL have disappeared. Not only that, but many relatively smaller private players have also exited the market like Tata Docomo.

The example from the telecom sector raises a serious concern about how small and marginal farmers will compete with private and powerful players.

Thus, while the agriculture sector yearns for reforms, the 2020 farm laws generally and FPTC Act particularly doesn’t offer much respite.

Moreover, these new laws speak nothing about ‘Arhtiyas’ or middlemen who are very much part of the agriculture sector in states like Punjab and Haryana. But, more importantly, they are needed for trading at the APMC markets yards.[11]

Conclusion

Having transgressed through the existing system, the proposed structure and the loopholes, it is now essential to analyse where the sector is and where it is headed.

So far, many experts have flagged the discrepancy of the Act, which includes acknowledging that privatisation could pose a serious threat to small farmers and monopolise the agricultural sector.

Expanding ‘trade area’ could create a lucrative alternative for farmers. However, there is no provision to monitor or regulate negotiations with private players, potentially exploiting farmers.

There is no official statute guaranteeing the continuation and existence of MSP, which in many ways discredits the entire FPTC Act itself. Moreover, while the three farm laws are being touted as path-breaking, there are no concrete promises from the government’s end.

All these issues cumulatively make the farm laws a little risky. Further, this ambiguity is fueled by the lack of communication from the government. Thus, together they feed on mass hysteria by farmers unions.

Therefore, addressing these ambiguities and discrepancies at the grassroots level is necessary, targeting the most fundamental aspects. Here are a few pointers:

Firstly, it involves making the farmers aware of the new laws because fear and hysteria hamper developmental schemes more often than not. Since the current NDA government is known for being inefficient in communicating with the public, these fears are not unfound. Given that these laws are for farmers, they need to be a party to such policymaking and change, giving them the upper hand.

Secondly, the government must form an overseeing body to look upon the trading conducted outside the APMC market yards, whose sole purpose would be to ensure that farmers are not exploited.

Thirdly, official legislation or statements must be made by the government to tackle the MSP debacle. At least there’s a step towards the same since the government’s proposal of December 2020 aims to do just that.[12] At the same time, laws must be amended so that private players can be registered. Thus, the states can impose a cess fee. This way, the Centre will not infringe upon the states’ authority, as the former overstepped their bounds while promulgating farm laws 2020.

Lastly, the government must inject funds by providing subsidies and incentives to encourage private players to invest in the sector, thus ensuring that Sections 3 and 4 of the FPTC Act benefit the small farmers by providing them with higher financial yield.

Furthermore, the government must modify the APMC regulations so that the market yard doesn’t collapse in the future. Thus, providing farmers with a choice rather than a compulsion.

Ultimately, it just boils down to whether and how the government can work together with all the involved stakeholders and ensure the development and benefit of the farmers.

Endnotes

[1] What are new farm laws and why farmers are protesting https://timesofindia.indiatimes.com/india/what-are-new-farm-laws-and-and-why-farmers-are-protesting/articleshow/79609234.cms (Last Accessed on 1st June 2021)

[2] Agriculture, food and small farmer in India: An overview

Centre for Education and Documentation http://base.d-p-h.info/en/fiches/dph/fiche-dph-8104.html (Last Accessed on 18th August 2021)

[3] Three Farm Bills and India’s Rural Economy

Vijay Jawandhiya and Ajay Dandekar https://thewire.in/agriculture/farm-bills-indias-rural-issues (Last Accessed on 29 May 2021)

[4] Will the farm bills benefit farmers? https://www.thehindu.com/opinion/op-ed/will-the-farm-bills-benefit-farmers/article32690170.ece (Last Accessed on 30 May 2021)

[5] Discussing the Aggravating Crisis of the Indian Agricultural Sector with Emphasis on the New Indian Agricultural Bills (2020)https://www.researchgate.net/publication/344772889_Discussing_the_Aggravating_Crisis_of_the_Indian_Agricultural_Sector_with_Emphasis_on_the_New_Indian_Agricultural_Bills_2020

[6] New Farm Acts- Understanding the Implications https://niti.gov.in/sites/default/files/2020-11/NewFarmActs2020.pdf (Last Accessed on 13 June 2021)

[7] Lessons from Bihar’s abolition of its APMC system for farmers https://www.livemint.com/opinion/columns/lessons-from-bihar-s-abolition-of-its-apmc-system-for-farmers-11600962615201.html (Last Accessed on 18 August 2021)

[8]  Lessons from Bihar’s abolition of its APMC system for farmers https://www.livemint.com/opinion/columns/lessons-from-bihar-s-abolition-of-its-apmc-system-for-farmers-11600962615201.html (Last Accessed on 18 August 2021)

[9] Lessons from Bihar’s abolition of its APMC system for farmers https://www.livemint.com/opinion/columns/lessons-from-bihar-s-abolition-of-its-apmc-system-for-farmers-11600962615201.html (Last Accessed on 14 June 2021)

[10] The Three Farm Bills- Is This the Market Reform Indian Agriculture Needs? https://www.theindiaforum.in/article/three-farm-bills (Last Accessed on 28 May 2021)

[11] Middlemen or Service Providers: What Role Do Arhtiyas Play in Market Yards? https://thewire.in/agriculture/farm-bill-protest-arhtiya-commission-agents-middlemen-service-providers

[12] Guarantee on MSP, tax on private mandis: Key points of Centre’s draft proposal to farmers https://timesofindia.indiatimes.com/india/guarantee-on-msp-tax-on-private-mandis-key-points-of-centres-proposal-to-farmers/articleshow/79643010.cms

 

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