Farm Bills 2020 - Explained.

Last week, the Government passed 3 Farm Bills, igniting controversy and protests all over India as farmers voiced their dissatisfaction.

Current trade system:

In 1965 the APMC (Agricultural Produce Market Committee) was set up to regulate agricultural trade for states. Special markets, called Mandis, were formed to trade produce. Farmers brought their goods to the Mandis, where they were auctioned off and sold to traders. The buyers obtained a license to buy the goods. Farmers could not directly sell their goods outside the Mandi.

What are the 3 Farm Bills?

1. Farmers Produce Trade and Commerce Bill, 2020

2. Farmers (Empowerment and Protection) Agreement of Price Assurance

3. The Essential Commodities Amendment Bill

What do these ordinances entail?

1. The first Bill allows farmers to sell their produce directly to traders and corporates outside the APMC Mandis, and buyers will not be required to pay the Mandi tax.

2. The second Bill facilitates farmers to do contract farming i.e. to enter into a contract with companies and sell the harvest for a pre-decided price.

3. The third Bill removes cereals, pulses, oilseeds, edible oils, onions and potatoes from the list of essential commodities. This effectively ends the stock limits on them, except under special circumstances.

What is the intended impact?

The intention is to facilitate free trade, so farmers can get better prices, and to improve infrastructure by introducing the role of private companies.

Since no tax will be charged outside Mandis, traders would prefer buying harvest in the open market. Farmers will be able to sell their goods to companies directly, eliminating the middlemen. They will have the option of trading both, outside and inside the Mandis, helping them receive a fair price.

10,000 FPOs (Farmer Producer Organizations) will be set up, to protect the interests of small farmers. Farmers will be secured, as buyers will have to issue payment to them within three days.

What is the predicted impact and why are farmers protesting?

Once free trade is facilitated, buyers will prefer buying outside the Mandis. Since trade within Mandis will reduce, it will lose revenue and ultimately shut down. The loss of revenue will be a major blow to Mandi maintenance. The Punjab government alone charges a 6% Mandi tax (along with a 2.5% fee) and earns annual revenue of about ₹3,500 crores.

Due to auctioning in Mandis, farmers are able to judge the price of their harvest and the market rate accurately. If Mandis shut down, farmers may be exploited by the capitalist companies due to lack of a base rate. Especially in Punjab and Haryana, most of the trade is through Mandis and a large amount of produce is procured by the Government at MSP. MSP security will not be available in the open market. Hence, the protests are more prevalent in Punjab and Haryana, as Mandi Trade and MSP affects them more than the other states, where trading through the Mandi is not as much.

If there are no Mandis, the corporations have an upper hand over the poor farmer. Farmers mainly fear domination by large corporate players in the industry, which would lead to exploitation and no focus on their welfare.

Landholdings in India are fragmented. In fact, 86 per cent of farmers are small farmers and have a holding of fewer than 2 hectares. Big companies would prefer to buy goods in bulk, thus small farmers’ goods may not be bought in the open market. As a result, the Mandi would be the only way for them to sell their goods, which may not exist anymore. It could render small farmers helpless.

Farmers are worried companies might delay or not pay them for the harvest at all. The Government has issued assurance, that buyers would be required to issue payment within three days. However, since the transactions would not be regulated by anybody, there is no way, as of yet, to ensure that the payment has been made.

The Punjab Chief Minister has validly stated that removing impositions on stock limits would lead to hoarding farm produce when prices are low, and releasing it later when prices increase. This would give companies a role in determining prices. Since the state would not have knowledge of free-market transactions, there would be no information regarding the amount of available stock, reducing food security and increasing black marketing of harvest.

Unregulated transactions would also increase Income Tax and GST evasions, making the States lose out on more revenue. Mandi employees, porters, will all lose their jobs if Mandi's close.

What is the solution?

The Bills all have good intentions but have sparked protests mainly due to the speculation that they will result in the ultimate closure of the APMC Mandis which would have a huge chain effect. While the Government has said that they will not close Mandis, the effects of the Bills might just result in so.

There is a need for reforms within the Mandi structure to end bureaucracy and reduction of Mandi tax so that traders do not lose incentive. This may keep the structure from collapse. Also, promoting the e-NAM platform and educating more farmers about it will help them keep up to date with market prices. FPOs also need to be strengthened and given more leverage.

All the protests are based on the speculated impact of the Bills. They may benefit a large amount of the agricultural population or have severe effects in the long run. In theory, the Bills are effective reforms. The question of their implementation still remains. As for having the desired impact, only time will tell.

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