Why are Indian farmers protesting against the new Farm Bills?

Why are Indian farmers protesting against the new Farm Bills?

On Friday, farmers all over the country took to the streets to protest against the three new farm bills passed by the Parliament recently. The agriculture sector contributes around 15 percent of our economy and employs almost half the country’s population. Considering that this sector plays such an important role in our country’s livelihood, all of us need to understand the contentious issue.

When the farmers harvest their agriculture produce, they cannot enter into the market and sell their produce directly to the end customers. Instead, they are required to sell their produce in their designated ‘Mandis’, which are regulated by the Agricultural Produce Market Committee (APMC). In a Mandi, the farmer gets in touch with an agent to help him through the auction process. The produce is auctioned in the Mandi, where traders or arhatiyas licensed by the APMC bid for the produce. The highest bidder takes home the produce and the farmer receives a fair price.

Ideally, this whole system was designed to provide the farmers with a free place to trade and receive a fair price. Although the system is highly flawed as it creates a monopsony — a market situation with a single buyer — since it is compulsory for the farmers to sell their produce at government-regulated Mandis under the APMC act, 1964. And this single buyer has been taking advantage of the farmer by keeping the Arhatiyas club exclusive giving them an opportunity to collude in the auctions and pay a meagre price compared to the actual worth of the product. And since the farmer is not allowed to sell his produce anywhere else, the farmer is left with no choice than to accept the price offered in the auction.

In order to address this issue, three new bills were passed in the Parliament — The Farmers’ Produce Trade And Commerce (Promotion And Facilitation) Bill, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, and The Essential Commodities (Amendment) Bill.

1. Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020

This legislation aims to break the monopsony by providing farmers with the freedom to trade their harvest outside the state-regulated Mandis. It also allows ‘barrier-free’ intra-state and inter-state trade of farmers’ produce outside state APMCs.

2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020

Farming is an unpredictable business and many small farmers in our country procure loans in order to grow their crops. This makes it quite risky for these small farmers in case of an unfortunate event. In order to shift this burden of risk and unpredictability from the farmers to other businesses, this bill has been passed. Under this, the farmers will be able to enter into binding contracts with other businesses laying a system of contract farming. The farmers will be able to sell their produce to such firms, processors, wholesalers, exporters, or large retailers at a future date at a pre-agreed price

3. The Essential Commodities (Amendment) Bill, 2020

Agriculture is a seasonal activity. The harvest from one season needs to be stored and distributed in the market to maintain a consistent supply until the next harvest season. The Essential Commodities Act, 1955 provides the state government with the power to moderate the storage of some essential commodities such as cereals, pulses, onions, potatoes, etc. This act aims to stop agri-businesses and agri-commodity traders from hoarding excess supplies to inflate prices. But this also disincentivizes any private investments in building storage facilities for such supplies as the government can impose stocking limits as and when they deem fit. Furthermore, invoking this act does not guarantee that the prices can be brought back to normal. Last year’s onion price fiasco is still afresh when the onion prices touched Rs. 200 per kg in December.

In order to promote private investments and foreign direct investments, the government has passed an amendment in the Essential Commodities Act by removing remove cereals, pulses, oilseeds, onions and potatoes from the list of essential commodities.

Now you might be wondering that if these three legislations are solving so many problems at large, why are so many farmers protesting against and demanding a roll-back of these bills. Well, the simple answer is that even if these bills are plagued with some issues that should be addressed before the implementation of these bills to ensure that the small farmer does not suffer.

1. The end of Minimum Support Price (MSP)

MSP is a price guarantee scheme introduced by the Government of India, which insures the farmers against any sharp fall in prices. The minimum support prices are announced by the government at the beginning of the sowing season for certain crops to help the investment decisions of producers. In case of an excessive fall in prices due to bumper production, the government procures the produce at the minimum support price for the Food Corporation of India (FCI) for public distribution.

Considering 11,379 farmers committed suicide in 2016, it is important to provide the farmers with a guarantee such as the MSP so that the farmers are provided with a safeguard against sluggish market prices. The farmers demand to include a clause regarding procurement that would quell a lot of fears or setting a floor price for all transactions within or outside the APMC.

2. Lack of Regulation

When the producers sell directly to agri-businesses, it will create a lack of regulatory oversight and transparency. Currently, the transactions in the APMCs set a reference price for the private agri-businesses to conduct their own transactions. When it is not mandatory to trade through the APMC, large corporates will conduct their trade outside the APMC in order to avoid Mandi fees or taxes. When such large scale trade is conducted with no oversight and almost invisibly, it is bound to provide an unfair advantage to the corporates to dictate terms and prices undermining farmers interests.

The government has left us at the mercy of big corporations.

— Indian Farmers
3. Grievance Redressal

We are all aware of the inexorable delays in the Indian Judicial system. When the farmers deal directly with the private organisations, any grievances shall have to be dealt with under the administrative or judicial system. And it is quite obvious that a small farmer shall not be able to withstand the heat and financial burden of a long and cumbersome trial stretching over years if not decades. With the APMC system, the state government regulates all transactions and there is a proper grievance redressal system that provides resolutions for all associated stakeholders.

4. Vitiation of farmers’ interests by corporates

According to Sudha Narayan, agricultural economist at Indira Gandhi Institute of Development Research, “Internationally, we’ve seen cartels. The French dairy producers and the dairy farmers’ co-operatives in the U.S. have become huge players. A lot of buyer cartels fix the price, and that’s one of the reasons the EU and the U.S. are taking a hard look at their own supply chains to reduce the power of consolidation… The farmer runs a lot of risks dealing with the big players. It’s not a given that the big players will come in, set up shop and crowd out other players. But if they manage to get a place, there are two ways in which I have seen them operate. One is to try to crowd out competition and the other is to co-opt them.

5. Collapsing APMC system

By creating a system to bypass the APMC system with an advantage to save the Mandi fees or taxes, most private players shall circumvent the APMC system to save costs. APMC traders might as well start operating outside the Mandi for the same reason. This shall result in the collapse of the whole APMC system. Most small farmers do not have storage capacity for their harvest and tend to transport their harvest to their designated Mandis at the earliest. Without the Mandis, the farmers might have to incur extra costs on storage and transportation of the produce.

With the collapse of the APMC system, the state governments will lose out on major revenue streams from Mandi fees and the traders shall also be affected.

The issues raised by the farmers are genuine concerns and when it comes to their livelihoods, they are bound to protest against it. Despite having the world’s longest constitution, the central government has time and again disregarded provisions causing suffering to the economy, employment, migrant workers and the common man. These bills passed by the Parliament need proper discussions within the government bodies, farmer unions, traders, etc. to reach an amicable understanding benefitting all stakeholders. This government has already burnt their hands with by rushing into decisions affecting trillions of rupees and billions of people such as demonetisation and improper implementation of GST regime. It is time to realise and learn from our mistakes to run a government that is truly of the people, by the people and for the people.


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