‘If APMC mandis go, MSP will vanish’

Print edition : January 29, 2021

Sukhpal Singh.

Interview with Professor Sukhpal Singh, Principal Economist, Punjab Agricultural University, Ludhiana.

Even if the government would have everyone believe that the farmers’ protest has no basis, the experience of people involved in the sector has been otherwise. Dr Sukhpal Singh, Principal Economist at the Punjab Agricultural University, Ludhiana, coordinated a joint three-university study on the reasons behind farmer suicides in Punjab. The study revealed shocking levels of indebtedness. On the basis of the research, the Punjab government formulated a policy to address the issue and provide compensation. Dr Sukhpal Singh has authored six books, 10 research manuals and 50 research reports in Agricultural Economics. He is also the president of the Indian Society of Agricultural Development and Policy.

In an interview with Frontline, Dr Sukhpal Singh argues that the present system has to be redressed and that the farm laws do not provide any solutions. Excerpts.

The farmer protests have acquired a pan-India character now, though it cannot be denied that it was led by farmers of Punjab, Haryana and western Uttar Pradesh. How do you view the demands of the farmers?

First, it is important to understand why the maximum outrage is from Punjab, Haryana and western U.P. Despite assured procurement, marketing and commercial farming at the minimum support price, there is an economic crisis in these areas as well. The peasantry is leaving farming. We call it “de-peasantisation”. Where there is mechanised farming, there is less work. Even the secondary sector has been unable to meet the demand for work. People are not being absorbed either in the farm sector or in the non-farm sector today. There is unemployment, but then there isn’t outmigration from Punjab or Haryana as there is from Uttar Pradesh and Bihar. We have good rural-urban link roads, good connectivity and good communication systems. There are organisations that have been working among farmers. There is a good degree of awareness as well. So, compared with States where there is no commercial farming, assured procurement, the sense of loss is much greater here. Punjab farmers feel that whatever they have is because of the MSP. Even if there is no fear that the government will acquire their lands, there is a sentiment that the new laws will result in an environment where farmers will have to lease out their land in contract farming. You will see that the youth has participated heavily in these protests.

We conducted a door-to-door survey on farmer suicides in three phases, spanning over 17 years that culminated in December 2018. I coordinated it along with three universities. On a daily average, one agricultural worker and two farm labourers committed suicide over the last 17 years. Over the years, domestic expenses have also gone up. Agricultural income is not enough for farm and non-farm expenses. Every household with an annual income of Rs.6 lakh [the average income of most households] had a corresponding debt of Rs.10 lakh. Agriculture by itself was not unviable, but meeting non-farm expenses like health and education was. The present income level is sufficient to meet farm expenses but not other expenses. Two decades ago, there were five lakh small farmers who owned two hectares and less. Of 10 lakh holdings in the State, five lakh holdings were owned by small farmers. Now this number has come down to two lakhs. People just left farming. Normally, the number of small land owners goes up due to land inheritance. This is the trend all over the country, but not so in Punjab. This was because of capital-intensive farming. Small holdings were not viable for such farming. Small farmers either leased out their land or sold off their land. Large farm holdings increased as a result. In 1991, the number of small landholdings was five lakh, in 2001 it was three lakh, and now it has dwindled even further. Around 12 per cent of farmers left farming altogether.

Also read: Punjab’s small farmers need access to institutional finance in order to end their dependence on arhatiyas

There is a general resentment among the people also. They feel harassed by the system. Now 83 per cent of the area is under “self-owned” farming. And the remaining 17 per cent is leased out by the owners themselves to relatives and family. People in this region are attached to land and do not want to give it up entirely. It is a cultural factor. It has a social importance apart from the obvious economic one. No one can say that it was an ideal situation before the three laws were enacted. But the laws will worsen the problem as they can do away with the MSP. We have had a bad experience with contract farming, with Pepsi Co and potato, tomato, chilli production. It was popularised by the State government on the grounds that it would profit the farmer. All that did not work.

The farm laws envisage a legal framework for contract farming. Yet it is being opposed.

The government does not want to continue giving subsidies to agriculture. It wants to get out of market support. The World Trade Organisation also doesn’t want that. India is a signatory to the Agreement on Agriculture, which regulates domestic subsidies in agriculture. Under this, subsidies like that of the MSP would have to be capped at 10 per cent of the total value of the product. The idea behind the agreement was to get farmers to cultivate something other than wheat and paddy. So there is an outcry over diversification, stubble-burning and lowering of the water table. The agreement on agriculture does not allow for any kind of subsidies—power, MSP, etc. Why doesn’t the government legalise MSP? The answer is, it can’t. So even if the government makes a law on MSP, it might not purchase crops. Countries have to be bold to reject the pressure from the WTO. Corporates need this market. The global agri-business is the second most profitable venture after pharmaceuticals. If you look at the Electricity (Amendment) Bill, 2020, the government says that farmers will have to first pay their bills, and the benefit will subsequently reach their accounts. No direct subsidies will be given. The DBT [Direct Benefit Transfer] is in fact not direct but indirect. The disadvantage is that the Centre will enter the picture and set up a Central Regulatory Commission and tell the States that it is optional to give the subsidy. States are as it is starved of funds. The farmer will pay the bills but later might not get the subsidy. Later there might be a cap on the subsidy, which might get wound up altogether.

There is an impression that well-to-do farmers are leading the protest and resisting crop diversification.

If it is being led by rich farmers, then why does the government want to help them further? They should help the farmers in Bihar in fact. If the alternative crops, other than wheat and paddy, are economically competitive, farmers will happily switch to them. But there is no crop other than wheat and paddy where there isn’t any production risk. For instance, there is a lot of production risk in fruits or vegetables. Prices also fluctuate a lot. In the case of wheat and paddy, production is assured and so is procurement. So, if the farmer goes in for a new crop, who will buy it? But it is not that it cannot be done. Governments can evolve a system. The Kerala government has declared an MSP for vegetables. Take pulses, for instance. They is not as perishable as fruits or vegetables. They can be stored. There is a domestic requirement for pulses. But we import pulses. Secondly, oilseeds production and procurement can be encouraged. Vegetables and production of fruits like kinnow can also be encouraged. All these can generate a lot of employment for the youth. So, diversification is possible. The technology developed in Punjab so far is for the major crops, paddy and wheat only. In the Rabi season, only wheat is grown all over Punjab. It’s sown in November and harvested in April. All over Punjab you will see only wheat at this time. In June, the Kharif crops, rice, cotton and maize, are sown. So in one season, for six months, there is wheat, and in the other, three crops are sown. So rice in grown in central Punjab, cotton in the north-west and maize in the semi-hilly areas. The thing with wheat is th at it doesn’t spoil the environment. Rice takes a lot of water and then the stubble issues are there as well. We grow cotton, yet we import cotton for our textile industry. If we replace 10-20 per cent of the area under paddy cultivation with some other crop, there would be no problem. Cotton is as profitable as rice. The issue with maize is that it is not being marketed properly. The government has to take the initiative in encouraging farmers. The present farm laws offer no solutions.

The NITI Aayog says there is not enough space to store grain and that Food Corporation of India godowns are overflowing. But government data show that nutrition levels have gone down. Can we afford to take risks with food security?

Those who speak in favour of the laws contradict themselves. They say that MSP will not go anywhere. When there is a demand to legalise it, they say that it was not legal earlier as well. Then they say, what is the point of purchasing? The minimum buffer stock that should be there is 41 million tonnes. Now it is close to 70 MT. Third, they say international prices are lower than domestic prices. What is the point in procuring, they ask. All of this indicates that the government has no intention of procuring.

If MSP is legalised, farmers in the entire country will benefit. In Punjab, the government will have to procure one way or the other. If not the Centre, then the State government will have to. The pressure of the peasantry will ensure that. The Central government procures other crops but there is a quota fixed. In Punjab, there is blind procurement. The average landholding of the Indian farmer is one hectare; in Punjab it is four. Eighty-six per cent of Indian farmers have less than two hectares; 67 per cent of them have less than one hectare. Foodgrain production is mostly for self-consumption, not for the market. But the farmer still manages to sell his produce to meet other needs. So, an MSP will definitely help the farmer. It is said that only 6 per cent of the farmers get the MSP. It is not an entirely correct statement. The correct interpretation is that 6 per cent of the total produce is procured at the MSP. Assuming that 94 per cent of farmers are not getting the MSP, and only 6 per cent benefit from it, there is what we call a “price discovery”, a term used in agricultural economics, where the price gets determined, by the MSP in this case. The benefit of this goes to the 94 per cent as well as it is a “declared” price. So, if the price of wheat is “discovered” or “realised” at Rs.1,925 a quintal, it becomes difficult for anyone to pay less than that rate. If there was no declared price, it would sell at any rate. Vegetables, for instance, they are sold at any arbitrary rate. Carrots can sell for Rs.5 a kg or even Rs.50 a kg. If any government declines to procure, it will affect everyone, not just the 6 per cent. So, whenever the government declares a price and procures, it becomes a declared price.

Agriculture can never be a trade. What the farmer produces is not food stuff. There is nothing that can be directly consumed from a farmer who produces grain.

Is the farmers’ rejection of the new laws based on lived experience?

Punjab, Haryana and western U.P. are part of the Gangetic plain and were the heart of the Green Revolution characterised by high productivity of the principal crops. Productivity went up until the 1980s, but after the 1990s, the rate of increase in productivity and rate of increase in farm prices declined. On the other hand, the price of farm inputs increased, reducing profitability. The Union government started reducing support to the agriculture sector gradually. When it reduced support to health and education, too, it affected farmers as well. When agriculture became capital-intensive, the fixed costs for mechanised agriculture went up. The small farmer could not afford this and went into a debt crisis. The three D’s cropped up—deaths, debt and de-peasantisation. Five lakh households owed one lakh crore rupees in debt. On an average, each farm household was indebted to the tune of Rs.10 lakh while the annual income was Rs.6 lakh. The debt servicing capacity of the peasantry was either zero or it went into the negative. Many small farmers were unable to even repay the interest amount.

Almost one fifth of the small peasantry is facing bankruptcy as the debt amount is three to four times the annual income. The process of de-peasantisation has started. Twelve per cent of farmers have left farming over the last four decades. Two lakh farmers left farming in the last two and a half decades. More than one third joined the labour market as wage labourers. Indebtedness and de-peasanatisation led to suicides. The maximum number of suicides in the Green Revolution States took place in the cotton belt. The BKU [Bharatiya Kisan Union] began raising the issue of suicides. It was then that the Punjab government commissioned the study.

Also read: 'Reform' by stealth

We visited every household in our survey. It was like a census. Three universities collaborated – the Punjab Agricultural University, Ludhiana, PAU, Patiala and Shri Guru Nanak Dev University, Amritsar. We found 16,600 farmers and laborers had committed suicide in the last 17 years; 9,300 were farmers and 7,300 were farm labourers. So, almost every year, 1,000 people committed suicide. A section of the media projected it as if farmers were driven to suicide by personal reasons.

We found 88 per cent of the farmer suicides were related to heavy debt. The small farmers were the main victims. Seventy-seven per cent of those who committed suicide were small farmers. One third of the total number of suicides happened in single-earner families. So there is no bread earner in one third of those families. At least one or two persons in the victim families were found to be suffering from depression. In about 11 per cent of those families, children’s education had been discontinued and in 3.4 per cent, marriages of children, particularly the girl child, got disrupted.

Almost 30 per cent of Punjab’s population comprises members from Scheduled Castes. Supporters of the farm laws claim the laws would benefit them.

The Scheduled Caste population is mostly landless. The main source of employment for them is agriculture. Manual labour is highest in cotton. It is a sensitive crop. Women and child labour [family labour] are used a lot in cotton-picking activities. Women are otherwise engaged in paddy-sowing. With a decline in cotton cultivation, a lot of work related to it has gone down. Generally, mechanisation was responsible for displacement of labour. Thirty-five lakh people are engaged in agriculture, 20 lakh cultivators and 15 lakh labourers. The laws will create an environment where the viability of individual farming will go down. The agricultural labourer will be affected badly.

Farmers don’t trade. Farming is a source of livelihood for them. Farmers are protesting because they are already facing a crisis.

How free will the farmers be under the new regime?

I call the three laws the APMC [agricultural produce market committee] by-pass Acts. The three taxes levied in the APMC mandis are paid for by the buyer, which amount to 8.3 per cent. It comes to Rs.155 to Rs.165 per quintal on an average. The farmer pays a simple charge for cleaning the foodgrain. The buyer in the private mandis will not have to pay taxes. It is possible that he will offer this money to the farmer, but might not do it permanently. The government will then slowly wind up its procurement operations. The government says the MSP will continue. The farmer is demanding a legal framework because there is a private system of procurement. Farmers are already free to sell to anyone anywhere. The laws don’t give freedom to farmers but to the companies. Earlier, the companies did not have the freedom to enter regulated markets. Every village has a grain yard. It was not only that area which was under regulation. The whole of Punjab was under regulation. If the new private mandis come up, they will be under the Central government and not the State. There is no farmer in Punjab who has not benefited from the MSP. An impression is being given that people do not want to buy at the MSP. When it is not being given, how is the farmer expected to take it? The price of maize in Punjab from the recent kharif season was half of the declared MSP. The regulated markets in the APMC are very important for the MSP regime. If the APMC mandis go, the MSP, along with public procurement, will vanish.

Also read: Farm Acts: Farmers’ freedom at stake

Contract farming is a failed concept. This was initiated long back by Pepsi on the grounds that it would benefit the farmer. Where is that company? Where is the crop cultivation of tomato, potato and chillies? The small farmer did not participate, but it did not benefit the large farmer either. The claim that the middleman will be removed is not correct. The middleman plays a role and takes a commission from the buyer, not the farmer. There used to be an exploitative system, but there was a reason as farmers were getting the payment for their produce through the arhatiyas. But this payment assures the repayment of other things like inputs like seeds and other domestic requirements. If the government wants, it could make direct payments to the farmers. But the new Acts do not do away with the middleman. They create many new middlemen like aggregators, and this will be more harmful. There are similar systems in other countries as well. The aggregators reduce the margins for the producer.

It is argued that farmers will always want a higher rate for their produce, which will affect the consumer, and so a balance has to be worked out.

It won’t be the case if the public distribution system is made effective. We have a 70 MT buffer stock against a requirement of 40 MT, and unmilled paddy as well. This is being projected as if we have double the quantity of food stock. If so, this should be distributed through the PDS. It is the responsibility of the government to ensure food security. Under the National Food Security Act, 2013, 75 per cent of the rural population and 50 per cent of the urban population have to be covered. Then there is the Antyodaya Scheme where 35 kilograms of foodgrain are to be given to the poorest of the poor. Still, after all these efforts, people are battling hunger in our country. It should be distributed at lower rates. Buffer does not mean sufficient food stocks. It is a minimum level of stocking. Even this year the FAO has received a Nobel for peace as it distributed food to 88 countries. The prize was for distribution! The ones who are producing food are sitting at Singhu.

It is being claimed that the new Acts will initiate crop diversification.

But even that requires an MSP backed by procurement. It will only work if an economically viable combination works out. There is no crop combination today apart from wheat and paddy with the best economically viable combination. If all 23 crops are given MSPs, diversification will automatically happen. Under the banner of a second green revolution, currently under way in Madhya Pradesh, where wheat and paddy are being encouraged, more problems will crop up. Why don’t they encourage diversification in new areas? There was more procurement of wheat from Madhya Pradesh compared with Punjab this time. Many economists cite the example of the milk sector as being profitable under a market economy. But it is a fallacy. Verka, which is a cooperative undertaking, has played a role in price realisation. That is why people are getting some income from this sector. Unless the cooperative or the government does not participate in marketing, people will not get remunerative prices.

If the government has to do this, they can do it in places where there is no APMC, in Bihar for instance. Then after it has succeeded, it will be replicated elsewhere. Farmers are saying that they do not want these benefits. India is divided in different agro-climactic regions, and on that basis, the requirement for production should be assessed. We have many crops for which the need for chemical inputs is less. But those are not encouraged. With the present food production levels and present technology, all countries can not only just survive but thrive. Equitable distribution is the issue.

The government claims that the Farmer Producers Organisations will benefit farmers. It is also said that the APMC taxes are the highest in Punjab even though Punjab no longer contributes the maximum to public procurement.

The FPOs will be an alternative to the cooperative and the state. There are altogether only 67 FPOs in Punjab which are supported by NABARD [National Bank for Agriculture and Rural Development]. The FPO was conceived and launched as a precursor to the farm laws. The FPO will act as a middleman for contract farming. Some 200 farmers form one FPO. They will be the suppliers. It is a platform to encourage private players. As of now, there is no overwhelming response to the FPO concept. As of now, Punjab contributes one third of the total procurement of wheat for the central procurement pool, which is similar to Madhya Pradesh. Only this year, there has been a little bit more procurement of rice from Madhya Pradesh. In Punjab we have Basmati, which is not procured by the Central government but by private parties. It is also exported. We [in Punjab] have 1.5 per cent of the land in the country and 2.5 per cent of the cultivable land. Our productivity is higher than that of any other State. It has been so for the last 20 years. Madhya Pradesh has reached our levels of productivity only now. There are three or four companies that hold 70-80 per cent of agri-business in the world. The idea with the farm laws is to create more monopolies.

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