A lot has been written on the issue of the 3 farm bills passed by the parliament relating to agricultural market, amendment to essential commodities act and contract farming. While the renowned agricultural economists such as Ashok Gulati have characterised the reforms as the 1991 moment for the Indian agricultural sector, the likes of Yogendra Yadav, who happens to be one of the leading voices of the ongoing farmers agitation, have opposed these bills vehemently as well as fundamentally.
While the general demand of the current agitation is to abolish all the three laws, the main issue of contention seems to be the — Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC). A bill that allows for the buying and selling of the agricultural commodities outside the physical jurisdiction of APMC’s or “trade areas”. The law states that such transactions shall not attract market and commission fee that is applicable in an state owned APMC mandi.
The fear is that once the private players are allowed in the market, the state APMC mandi’s will eventually close down as a consequence to which the centre and state will/shall stop the existing practice of procuring agricultural goods from the farmer at a minimum support price. This has given rise to the age-old demand of giving legal status to MSP mechanism, which is essentially meant to be an administration policy.
The centre has tried to assuage the above mentioned concern in the following manner by,
- Pointing to the fact that none of the three bills in question has any mention of abolishing the APMC mandi’s or putting a stop to the practice of procuring agricultural goods at MSP.
- By giving a verbal assurance on the floor of the house that government will continue the current practice of procurement of agricultural goods at an MSP.
- By providing the figures of the overall procurement under the current government which substantially exceeds the procurement under the UPA era.
However a larger debate has arisen on the efficacy of the MSP mechanism as a policy. In this piece I argue that,
- MSP system as it exists benefits a very minuscule number of farmers leaving the majority of the farmers out of its protection and benefits.
- That while mandi’s facilitate government procurement at an MSP, such an procurement can be continued despite them.
- That the government simply does not have the wherewithal to procure 100% of the goods upon which a minimum support price is guaranteed.
- That not only the current system is highly exclusionary but even those who currently seem to be benefiting from it i.e the farmers from Punjab and Haryana, are to loose from this mechanism in the long term.
- I argue against the very primacy given to the MSP mechanism as being central to the larger issue of increasing farmers income.
However like any change, the change in the current system can’t be sudden and immediate. That the reforms that are brought about by these three laws shall be utilised for a gradual shift away from the MSP system, while guaranteeing the continuance of it in the short run.
First, lets understand what MSP is all about,1. What is a minimum support price ? How many farmers are actually benefited from it ?
MSP is a minimum remunerative price that is assured by the “government” on certain agricultural commodities. The price is decided by CACP i.e commission for agricultural costs and prices.
The state and central government are responsible to buy the agricultural product at the minimum support price, the farmer however can sell to a private buyer if he receives a price higher than MSP. Ideally, MSP mechanism is supposed to set a price benchmark for the market, however the experience shows that this has not been the case so far.
Currently there are 23 crops upon which an MSP is declared by the government, however in reality majority of these crops are sold to private players at a lesser rate. A recent government report by a committee on restructuring food crop in India, states that only 6 % of the farmers are benefited from the MSP.
Of these 23 food commodities the procurement (buying) of the two crops i.e wheat and rice constitute a significant majority, still only a fraction of the total wheat and rice produced across the country is procured. It is procured by the Food corporation of India for the government run PDS shops, as we all know the passing of Food Security Act, 2013 has brought upon a legal obligation on the government to provide a certain amount of ration to those who fall under an income limit as specified by the act, practically that means almost half of India’s population.
Which farmer is benefited? Who looses out?
Although punjab is one of the the leading producers of wheat and rice in the country the amount of food-grain that FCI procures from punjab is disproportionately higher than states such as UP which is also a leading producer of wheat and rice. On an average more than 70% of the wheat and 85% of the total rice produced in punjab is procured by FCI. Although UP’s wheat production is more than punjab, FCI only procures only 10% of the total wheat grown in UP. Therefore it can be concluded that,
MSP is a system that benefits a select few farmers in the country and since it is heavily skewed towards the wheat and rice growing farmers in punjab even a hint that suggests that this procurement may stop causes serious anxiety to the farmers from this region and understandably so.
Now the second question,
2) Is the FCI procurement completely dependent on AMPC mandi’s ? Why are the middlemen (Arhtiyas) and a few state government’s against the bills ?
The first misconception that has captured the minds of the people is that the procurement of food-grains by FCI and thereby the assurance of minimum support price is completely dependent on APMC’s, since the food requirement of the FCI is not going away anytime soon it can either buy from the farmers directly, outside the APMC jurisdiction or buy the food-grains in its own yard. The farmers will still be getting the MSP whether they sell it through the APMC or outside APMC.
3) So who really stands to loose in case there is a private competition in the market that is currently run by the state APMC monopoly ?
Even after the implementation of GST the punjab government levied a 3% market fee and rural development fee each on the MSP. In addition to that the “arhtiyas” i.e the middlemen charge 2.5% fee on MSP. This exorbitant amount of fee has to be paid by the food corporation of India for the grains that it is procuring to feed the poor, let that irony sink in.
In the year 2019- 2020 itself the “government of punjab” as well as “arhtiyas” have earned 3500 crores and 1600 crores respectively in form of market fee from the FCI transactions.
The unreasonably high cess and market fee imposed on commodities and transaction is seen as a typical case of “rent seeking behaviour” by the state government of punjab. The problem started when the state government realised that the AMPC monopoly can also be used to generate extra revenue. To be fair to the state governments, some of this money is indeed spent on rural infrastructure and subsidies to the farmers. However since the said money is not shown in the state budget and remains part of the mandi’s bank account, the same is often used for discretionary spending. This has led to a lot of vested interests become part of the AMPC systems and become a reason for the corruption to seep in.
These issues were pointed out in a government document published in the year 2000, also referred to as the “rainbow revolution”. Consequently, Model APMC, act 2003 was brought in, followed by model APMC laws of 2007 and 2017. However, the states continued to charge high amount of market fee and cess.
As far as the “arhtiyas” are concerned a lot of literature as to how the arhtiyas in collision with market committee members have established a control over the AMPC’s, is written. How they end up exploiting the farmers or continue to charge high commission rates for services they have not provided or improved the nature of, is something all the commentators on the issue unanimously agree upon, including the vocal critiques of the current bills such as P. Sainath.
The state government and the commission agent believes that if the private markets pose a challenge to the state AMPC’s then they will have to give up the current exploitative practice of charging an high rate of market fee and cess. They will also have to provide better facilities in order to stay relevant. If the APMC’s are fair, there is no reason why either the FCI or the farmers will not favour them above the private markets. Any introduction of competition in a system that was monopolised by an inefficient APMC is bound to benefit both the seller and the buyer as well as reduce end cost of the product and hence also the consumer.
So the answer to the question as to what happens if the APMC’s close down is that they will not in fact close down if they undertake the much needed reforms, that the introduction of competition will make them undertake these reforms and if they continue with their exploitative methods, why should the FCI as a buyer and farmer as a seller continue to be held hostage by them ?
Therefore the average farmer from punjab has nothing to loose from the current reforms.
Now, lets evaluate the economic merit of the MSP system.
4) Is MSP system beneficial to the farmers across India?
Reiterating what I have said, even if it is the government believes that the system is flawed, there cannot be a sudden departure from it, any such policy shift should be slow, gradual and consultative in nature. The three farm bill, while they allow for the MSP mechanism to exist pave a way for such gradual changes.
As far as farmers across the nation are concerned. The current FCI procurement system disproportionately benefits the farmers in punjab and Haryana, and leaves out states like UP, Bihar, W.B who also produce high volumes of rice and wheat. This is when the farmers of punjab on all counts are relatively wealthier than the farmers in these poorer states.
5) Having shown as to how the MSP system is highly exclusionary, ill argue as to how the government does not have the wherewithal to make this system work at an 100% efficiency i.e procure 100% of the grains upon which MSP is declared.
Data on the food stocks stocks of FCI shows that as on July 2020 it had stocked 832.29 lakh tonnes of wheat and rice while its immediate as well as long term requirement of stocks as on April every year around is 210 lakh tonnes and for July it is around 411 lakh tonnes.
Those who demand legalisation of MSP do not realise that the government does not have the wherewithal to buy all the 23 commodities at the price of MSP. Ashok Gulati points as to how such a spending will bankrupt the government. On the top of that the wheat and rice that the government does buy, although only a fraction of it, is also in access to what is actually required.
To conclude, the government neither requires nor has the money to procure all the agricultural products upon which MSP is declared. Even after having procured just a fraction of the total wheat and rice that is produced in the country, the FCI finds itself with an excess stock.
6)How the current MSP system fares for the farmers in punjab for the long run?
Reports after reports have pointed out to the depletion of groundwater in punjab. This is primarily due to the cultivation of wheat and rice as they are water intensive crops. The excessive use of water and fertiliser leads to the silting of soil as well. The famous agricultural experts such as SS Johl a well known name in punjab have pointed the need of shifting the cropping pattern. Even the current CM Captain Amrinder Singh had prepared a plan for a shift in cultivation pattern, a move against which he too faced similar protests.
Is MSP the only or even an effective tool to increase agricultural productivity or farmers income ?
Economically speaking the wheat and rice crops have reached their maximum economic potential. The reason for that is that the current MSP for wheat and rice is already above the global prices. The stagnation of growth rate of agriculture in punjab is testimony to this fact. The average agricultural growth in punjab from since 2005 has been 1.9% as against 3.5% of India. The stagnation began even earlier from the year 1987 when the growth rate of punjab equalled the national growth rate, before 1987 punjab always grew at a faster rate than that of India.
This points to the dire need of green revolution 2.0 in India and especially in Punjab. A farmer from Punjab is benefited with the best irrigation and rural road infrastructure in India, he is also substantially richer than his counterparts in UP, Bihar or W.B. The current model of wheat and rice cultivation, supported by subsidized electricity and fertilizers as well as the guaranteed procurement by the government at MSP, is not only causing environmental decay but also promoting lazy farming.
Again quoting Mr. Ashok Gulati, the government instead of MSP that incentivises wheat and rice production, should give direct money in hands of the farmer, a package of some 10,000 crore or so, that is aimed at shifting the cultivation pattern from wheat and rice to high value crops can be ideal. The farmer from punjab has proved his metal during the green revolution 1.0 and done a great service of providing food security to India. While India has reached a state of food security the punjab farmer should undertake another mission of bringing prosperity to the farm sector and as always, show the way to the farmers across the country.
