In the last six years, we have become used to a new normal. When the ruling dispensation will sit back, in the years to come, to read about its tenure, teamwork is a word that will be missing from the manuscript. How does a democratic alliance work without even consulting or taking its allies into confidence? I won’t go into taking the most important stakeholder into confidence, the people. Even the members of the government will not expect a mention of this. But when you talk about a reform in agriculture, in an agrarian economy, not taking farmers into confidence is the worst sin any government could commit.
The three farm bills presented in the lower house on September 17 echoed all of the points mentioned earlier. The only reason why it is being hailed as a great reform by the members in the government is because the yes-man attitude is the only thing that will keep them in the fray. Unfortunately, this attitude is harming not only the social fabric but the political fabric as well. If we start assembling the benefits that are being highlighted, there are three key arguments being made in the favor of these reforms. Firstly, these create a free and fair ecosystem for the farmers. Secondly, the farmers will have economic freedom to sell their produce through any route that they wish to. Thirdly, these reforms will prove to be a win-win situation for all the stakeholders involved: Farmers, Consumers and the corporates.
Before we jump into any conclusions, let’s evaluate the merit of each of these arguments. Analysing critical data points will help us understand the landscape better. Based on the agriculture census 2015-16, 86 per cent of farmers in the country own less than 5 acres of land. Currently, these small farmers would sell their produce at their nearest Agricultural Produce & Livestock Market Committee (APMC) mandi. For all government procurement, they were guaranteed a Minimum Support Price (MSP).
Now, what do these bills change. The short answer is: everything. Let’s assume that corporates get all excited and start connecting with the farmers directly. A very small percentage of farmers who have a big scale would actually be their customers. A private entity always wants to rationalise its supply base and negotiate prices on scale. In this case, the number being low, even if we assume further that they still want to engage, they would have to go to a lower tier—to the smaller farmers. Will the smaller farmers who own two acres of land be in a position of leverage to negotiate prices, manage long-term agreements and own the risk?
The other aspect of the government’s argument is that the middleman in these transactions would vanish and the farmers will be able to get better profit margins. Let’s look at other similar examples. In the US, the structure of food service distribution is very mature. But even there, the farmer’s produce is purchased by, in some cases, a lower tier company that deals in commodities that further sells it to a processing company or directly by a processing company. This processing company then enters into a long-term agreement with food service distribution companies that actually sell to the end users that are again B2B—food stores like Walmart, Meijer or restaurants or retail outlets. So, the argument that the number of layers will simply reduce isn’t true.
The only difference will be that the new middleman will be a corporate entity with well-dressed representatives and will be working to manage its employer’s bottom line. That will have a trickle-down effect on the restrictive prices that a farmer can command and will never be in a position of leverage. The prices will be governed by the entity at the top of the ladder and in most cases, it will be determined by competition. Especially, if the concept of MSPs will not feature in the rulebook.
How does it impact the stakeholders? The state government will lose out a lot on their revenue through the market fee. At a time when public spending needs to go up and the centre is failing to transfer the state’s share of revenues, it will hit the states further. Punjab’s cumulative fees, that included a rural development cess, from the sale through the mandis was close to Rs 3,500 Crore annually. The centre should be prepared to compensate the states for the shortfall. The consumers will no longer be immune to the possible malpractice of hoarding by big private entities. By removing the stocking limits, the government is encouraging corrupt practices which will have adverse effect on cost for end consumers.
The only stakeholder that I see benefiting out of all of this are the corporates. More corporate entities will connect with the farmer, not to change the farmer’s fate but their own. I sincerely hope that pricing settled through this market economy route will not become a benchmark to decide the MSPs. Instead of being rigid, like each time in the last six years, the government should work with the states to bring positive amendments to these bills, end the trust deficit and provide a level playing field to the mandis and not defeat its purpose entirely.
(The writer is a national spokesperson of the Congress party and a Professor of Finance. Views expressed are personal.)