Agricultural reform or battering ram?

Print edition : October 23, 2020

Members of various farmers’ organisations protesting against the new farm laws block railway tracks at Dhalan in Patiala, Punjab on October 2. Photo: PTI

Farmers from across Karnataka protesting against the new farm laws, in Bengaluru on September 21. Photo: G.R.N. Somashekar

The passage of the three controversial pieces of legislation facilitating agricultural marketing threatens to pave the way for consolidation of wealth in rural India.

When “freedom” arrives on a platter, unasked and apparently without a fight, it is time to be suspicious of the motives of the zealous. And, when it comes gift-wrapped by those whose political progenitors were conspicuously missing from the original freedom struggle, it appears even more dodgy. Not just the Modi government and its acolytes but even well-regarded economists who have followed Indian agriculture for years are singing the “freedom” tune on the controversial farm Bills. Ironically, the supposed recipient of this largesse, the Indian peasant, is angry, very angry.

Protests by farmers have rocked the country on a scale that is unprecedented in several decades. The fact that these protests are happening in the midst of heightened fears caused by the pandemic makes them even more remarkable. Peasant leaders say that protests have been reported from every part of the country, even from Srinagar in Kashmir, which has been under a particularly draconian version of a lockdown on normal life for more than a year. Why is the peasantry so edgy? What, in the three pieces of legislation that were rammed through Parliament in unseemly haste, is so particularly repulsive, given that these marketing “reforms” have been incessantly pursued in the States as well as the Centre, irrespective of the political shade of governments in power?

Genesis of the APMC

The publicity blitzkrieg of the Narendra Modi government claiming that the three pieces of legislation will set farmers “free” has obviously failed to convince farmers. As Sudha Narayanan points out in an accompanying piece in this issue, “reformers” have been assiduously chipping away at the regulatory practices governing agricultural markets since 1991 both in the States and at the Centre. Primarily, these were aimed at loosening the regulatory regimes governing the mandis operating under the Agricultural Produce Marketing Committee (APMC) regime. Note that the APMC was administered by a “committee”, an arrangement that explicitly endorsed the consensus that a collective, rather than an individual or a private enterprise, would determine prices at which produce would be sold in the “market”.

The presence of official government and elected representatives in APMCs, apart from farmer representatives, was supposed to provide a further measure of insurance against price manipulation by dominant interests, whether in trade or land. That regulation in some form was a cardinal virtue of this regime is demonstrated by the fact that even four decades ago this correspondent heard peasants in Tamil Nadu, even those completely unfamiliar with English, actually referring to the APMC mandis in English as “regulated markets”. The broad political consensus that some degree of regulation should govern markets was thus the sine qua non of public policy. Stripped off all the platitudes by the zealots, this is exactly what is at stake.

The APMC has a long tradition, starting with the reforms initiated by Sir Chhotu Ram in Punjab in 1939. In fact, the APMC took its now-generic form from the Punjab Agricultural Produce Markets Act initiated by him. That is how mandis became APMC mandis. The “notified” areas around these market yards and their “sub-yards” became the sole places where wholesale trade could take place. Thus, regulation became a key feature of trade in agricultural produce. There are now more than 7,000 APMC mandis and sub-market yards across the country. But central to the notion of a “regulated” market is the determination of what constitutes a fair price of farm produce. This is also the reason why the notion of a minimum support price (MSP) is so central to the peasantry.

The triad of agricultural price policy

Advocates of “reforms” conveniently isolate the question of the APMC, separating it from the issue of MSP and public procurement. This is a travesty of history.

In fact, the APMC ought to be seen as part of a triad, including the notion of an MSP and the enforcement of state procurement that would actualise that notion. In fact, the MSP was designed as part of an elaborate apparatus to provide and defend food security, in which the Green Revolution since the 1960s played a major role. The notion of what constitutes a fair price was left to the Agricultural Prices Commission, which later, in the 1980s, morphed into the Commission for Agricultural Costs and Prices (CACP). The calculation of costs and prices was based on normative costs associated with farming a range of crops in India.

Although farmers have legitimately quarrelled with the manner in which the CACP has determined costs, the fact that the CACP set a floor price was nevertheless a redeeming feature of the exercise. The MSP itself was part of a more elaborate plan to provide a measure of food security on the one hand, and to assure a floor price for farmers. Logically, it ought to be seen as part of a larger strategic toolkit. Indeed, the MSP is what resulted in farmers in Punjab and Haryana adopting the high-yielding varieties of wheat first and paddy later on such a large scale.

At the other end of the system was the implementation of a public distribution system (PDS) that was meant to actualise food security by delivering essentials to all Indians, especially the poor. The extremely uneven spread of the PDS in India only demonstrates that this was never achieved in actual practice. Naturally, the notion of a fair price for farmers, while also assuring fair prices to consumers, requires a subsidy by the government. This subsidy reflects not just costs associated with the prices paid to farmers but also the transport and storage of produce across the country. Since the 1990s, this entire apparatus has come under strain. The first to be hit was the distribution side, the PDS, by the regrettable attempt at “targeting”, which excluded large sections of the most vulnerable Indians. Seen from this perspective, the perception of a threat—that APMCs may be dismantled as a result of the news laws—by peasants, especially in Punjab and Haryana, where a lot of the paddy and wheat are procured by state agencies, is not an idle one.

Even those critical of the new pieces of legislation accept that the APMC system is not a paragon of virtue. Only the naive would have assumed that the extreme inequalities that characterise the Indian countryside, ridden by caste and class divisions, would not cast their influence on the marketing arrangements. But there is no doubt that the APMC mitigated extreme arbitrariness in pricing (including the effects of widespread cheating by traders in market yards) and provided a measure of accountability. Despite the bureaucratic problems associated with APMCs, price formation was fairly transparent, orderly and open to scrutiny by farmers. The daily lot-wise details of price and quantities of market arrivals have always been open to scrutiny, which, at least in theory, provided an opportunity for farmers to scout for better bargains. The very fact that elected representatives and government nominees were an essential part of the APMCs also ensured a degree of transparency and accountability in their functioning. This has also provided some leverage, however little, for farmers to contest practices within the APMCs.

Inviting opacity, abandoning accountability

The threat posed to the APMC system is likely to wreak chaos in Indian agricultural produce markets. Large private traders, operating through a network of smaller traders, would not be open to any kind of scrutiny. Consequently, neither prices nor quantities sold at those prices would be available for scrutiny by anyone, not even the government. The APMC, however faulty, at least provided “price signals” for farmers, even in situations where most trade was happening outside the APMC yards. Such a “reference” price would be unavailable to farmers once the APMC is dismantled or even marginalised. Economic statisticians who have agonised over the treatment meted out to official data in the Modi years have to reckon with a sharp decline in the quality and credibility of commodity price data as the APMCs stand emasculated. It is incredible that economists, particularly those of a neoclassical orientation, who so worship the role of price formation in “competitive” markets, ignore this basic asymmetry in information that may set the ground for opaquely functioning markets. In effect, this would result in the farmer selling blind, without being aware of what even the “market” actually assesses his/her wares to be worth. This would be an absolute travesty of what even free-traders preach as the fundamental “truth” of markets.

One of the most important consequences of the feared jettisoning of the MSP is the final burial of the recommendations of the Swaminathan Committee’s report, which provided a common minimum platform for farmers’ unity in India. Although the MSP has played a vital role, it is necessary to appreciate that its role has been overstated, indeed, exaggerated by the liberals who are now calling for its dismantling. First, the MSP, unless enforced by actual procurement, is utterly meaningless. Second, procurement by government agencies is only happening in a few States, most notably Punjab and Haryana. Third, since procurement is mostly only confined to rice and wheat, the MSP for most crops has failed to provide actual price support to peasants. All this has meant that the MSP has remained purely notional for most crops, implying no real-world consequence for growers.

Logically, the notion of a “support” price requires intervention — whether by the state, quasi-state actors or by other agencies such as cooperatives. Intervention is thus key to the defence of a target price that is based on a normative standard such as costs of production. Thus, in economic terms, the functioning of the MSP system can be compared to any commodity stabilisation scheme, which alas, is now a relic after being swept away by the tide of neoliberal logic. It is not as if the government or its agencies need to procure the entire produce in order to defend the target price (the MSP in this case). It is enough if the government and its agencies act as “swing” procurers by mopping up, say, one-fourth of the produce. This would be enough to lift market prices, even for produce sold outside the APMC yards. In fact, in the shrill cries of “freeing” farmers from the clutches of the wicked APMC regime, the simple fact that only one-fourth of all agricultural produce is routed through such mandis has been completely obscured.

Reversal of policy course

It is thus obvious that what is on offer is nothing less than a complete reversal of an elaborate system that governed agricultural price policy in India. And, behind the notion of promoting “efficient” markets lurks an ideological predisposition that regards intervention, particularly by state, with utter contempt. What its proponents do not tell us is the corollary that follows — that freely operating private enterprise knows what is best. In other words, the “let-the-markets-rule” mantra considers “free markets” as being equivalent to “efficiency”. Pray, why should this unsubstantiated dogma not be considered an ideological position? Liberals who chastise those who call for greater state regulation would do well to answer that before gleefully celebrating the “freedom” of Indian farmers. In effect, the fear is that the marginalisation or elimination of the APMCs removes all vestiges of regulation and oversight.

The new laws pave the way for the unfettered foray of private capital into agricultural commodities trade. The amendments to the Essential Commodities Act remove limits on stockholding and paves the way for the free movement of agricultural commodities across State boundaries. This has been a demand essentially of large corporates who needed economies of scale to operate in this line of business on a countrywide basis. This had hardly anything to do with “freedom” for farmers.

The noticeable participation of arhtiyas (commission agents) in the ongoing agitation in Punjab is largely because they fear that they — especially the smaller ones among them — would be wiped out in the consolidation process that may be unleashed by the recent legislation. Larger traders may prefer to use their own aggregators to source agricultural commodities, which may force these commission agents out of business. Meanwhile, the local village-level traders, to whom the small peasant sells generally (and to whom he may well be indebted as well), may also have to face the savage onslaught of large trading companies.

In effect, the dismantling of the APMC, the abandonment of the use of the MSP and the systematic use of the state as a procurement agent in agricultural commodity markets signifies a major departure from what was considered to be the state’s role. Most worrisome is the resulting abandonment of price stabilisation and food security as responsibilities of the state.

Ideological bias in favour of the large

Of course, given the state of the Indian countryside, characterised by extreme inequality, only the naive would have expected the APMC to act as a vehicle of deliverance. Nothing papers over this crass inequality more than the characterisation of the mass of the Indian peasant as the usage of the label “farmer”. The imprint of inequality on Indian agriculture is best conveyed by a simple statistic relating to land ownership and control (a must-read on this is How do Small Farmers Fare? published by the Foundation for Agrarian Studies). Small farms, measuring less than two hectares, accounted for almost 85 per cent of all farms in India, but their share in farmland was only about 44 per cent. It is obvious that any policy on agriculture — not just the ones relating to marketing of produce — would need to assess the differentiated impact on a peasantry that by no means has uniform access to resources.

Although on the surface it may appear that the peasantry is a united mass, it would be rather naive to regard it as such. It is quite possible that the upper crust of the Indian peasantry, most notably the landlords and capitalist farmers, may well be beneficiaries of the changes that may arise from the fresh legislation. After all, the Indian landlord has not just command over land. His command extends to everything that is of consequence in the village, including the politics there. He — mostly male because of the way property rights are structured in rural India — not only has ties to the trade in inputs such as pesticides and seeds but also to traders of output in not just the village but in urban centres as well. Depending on the scale of new opportunities offered by the expansion of the large trading interests in agricultural commodity trade, this class may even choose to align or act as some kind of agent of the large corporates. Indeed, elements from this section may even fancy their chances for morphing into the ranks of the large enterprises.

Much has been made of the new law enabling contract farming, about how it frees farmers, enabling them to scout for better returns. In effect, it promises farmers the possibility of unleashing their entrepreneurial zeal. It is of course pointless to try and prevent farmers from entering into contracts that may offer them a better deal. But the notion that contracts somehow insulate them from price fluctuations is grossly exaggerated. Indeed, such contracts, as well the MSP-based price, especially that which is backed by guaranteed procurement, can be compared to insurance schemes in general. While the nature of contract farming is generally oriented to higher-value crops — nobody imagines contracts for rice and wheat, for instance — the risk-reward premiums are greater. This implies greater risks for farmers not just with the crop but in terms of what happens after the harvest at the hands of the contracting counter-party.

In contrast, an MSP-based system is much more oriented towards relatively lower-value crops, one in which crop risks may be lower but whose prices are also relatively lower. It is obvious that the extreme inequity in access to land makes it plausible that the small and marginal peasant would regard the MSP as a better form of insurance. This is because it provides protection against price volatility of a commodity in which the margins are not expected to be as high as those of high-value crops.

Implicit in the explicit bias in favour of contract farming, instead of a commitment to perpetuating and strengthening of more diversified MSP-regime, is a fundamental ideological bias in favour of the large and the strong in the countryside.

It is likely that state procurement will be under pressure. Fiscal pressures would undoubtedly be cited in the push to facilitate the entry of private trade. Moreover, State governments, even those such as Kerala and Punjab, which appear to have responded more sympathetically to farmers’ demands of higher floor prices, may come under pressure, fiscally as well as otherwise.

The demands in Punjab that the MSP be declared as the statutory minimum price, making any sale below that price illegal, is fraught with serious risk. Punjab, for instance, is heavily dependent on Central support for procurement; reports suggest that it would not even have the funds for gunny bags if it were to fend for itself. If the Centre chooses to walk away from its responsibilities for procurement, Punjab Chief Minister Amarinder Singh may well have a war on his hands. It would appear that the Akalis abandoned the NDA ship just in time, to avoid facing the wrath of the Jat Sikh peasantry, its core support base.

The passage of the three laws opens up the possibilities for a qualitative change in the way agricultural markets operate in India. The fundamental consequence would be an inexorable march of the process of consolidation of economic surplus and wealth.

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