New Farm Bills – 2020 | Why are farmers protesting?

Hello reader!

In this article we will discuss some important questions regarding the new Farm Bills. We will not be discussing the politics and protests here. We will rather focus on the direct questions that we as consumers or farmers may have in our mind regarding the bills.

What is APMC? Why was it brought in ?

Since 1947, Farmers used to sell their produce directly to consumers.

But due to the Zamindari system and other reasons, most farmers were always under debt. The money lenders used to charge high interest rates.

As the farmers wouldn’t be able to pay back the money to moneylenders in time, they used to buy the farmer’s produce at a very low price. Hence again they would have to take a loan and the cycle would repeat.

To stop this exploitation of farmers, the government brought in the Agricultural Produce Market Committee act (APMC).

This APMC act is based on 2 principles.

1. Ensure that farmers are not exploited by intermediaries (or money lenders) who compel farmers to sell their produce at the farm gate for an extremely low price.
2. All food produce should first be brought to a market yard and then sold through auction.

How does APMC operate?

Every state has its own APMC. The state divides its region in areas and each area has its own MANDI ( Market ).

If any trader wants to buy any goods from a  market, he needs to get a license from that MANDI. 

In contrast to this, there was NO GEOGRAPHICAL RESTRICTION FOR  FARMERS. ANY FARMER COULD GO AND SELL HIS PRODUCE IN ANY MANDI IN INDIA. This is not a part of new reform.

How does purchasing in APMC work?

The buying of goods in MANDIs is done by AUCTION. So the traders would start bidding for some goods and the highest bidder gets the produce.

The starting price of the auction is decided by 2 methods.

1. MSP – Minimum Support Price
2. Price Discovery

What is MSP?

MSP stands for Minimum Support Price.

This is the minimum price of a crop. The Government of India decides this price. 

MSP only applies to 22 different crops. Not all crops come under MSP.

MSP is the minimum price so these 22 crops cannot be sold under this price.

What is Price Discovery?

Price discovery is a way to decide the price of any crop on the basis of the demand of that crop and the total supply available for that crop.

How does the existing APMC system work?

Farmer brings his produce to APMC Mandi, from there the commission agents or ADATIYAs give it to traders. The transaction agents then pass on the price given by traders to farmers after charging their commission which is to be borne by the farmer.

The crop then goes from trader to Retailer/Wholesalers and then it reaches consumers.

By the time the produce reaches the consumer, the price of produce would have increased by around 50% and at least 25% of total produce is lost.

So when the consumer buys a crop at lets say Rs 60 or 70, it is said that the farmer only gets around Rs 7 to 10 of it. The other amount is divided in middle men and market fees.

Flaws in APMC system?

1. Who can become traders?

As the APMCs are under the state governments, the people having good political connections and ones close to the state government get a chance to be the traders.

2. A lot of middlemen between farmers and consumers.

Due to the long chain of middle men between the producer and consumer, the prices of crops are very much inflated when they land in the consumer’s hands.

The APMC act was brought in for saving the farmers from exploitation but with passage of time, today it seems the APMC system itself has become a way to exploit them.

What happens is some traders will form a “CARTEL” and decide not to buy goods from a particular MANDI over the MSP. 

The produce of farmers are perishable in nature so keeping stocked and not selling them would result in a damage to farmer’s produce. Hence they would be bound to follow what traders had to dictate and sell the goods in those prices.

What are the 3 Farm Bills? Why are farmers Protesting?

1. The Farmers Produce Trade & Commerce (Promotion & Facilitation) Bill 2020
2. The Farmers (Empowerment & Protection) Agreement on Price assurance and Farm Services Bill 2020
3. The Essential Commodities (Amendment) Bill 2020

This bill allows farmers to sell their goods even outside of their APMC Mandi. ( Which was alway allowed. Farmer was never restricted to sell his produce in the mandi of his area. He can always go and sell his produce in any mandi in india. )

It has also led to a fear that big corporates will enter the agri market and exploit the farmers.

There are fears that these bills will scrap the Minimum Support Price (MSP)

This also talks about creating a framework of contract farming.

Contract farming doesn’t have MSP provision. So if the MSP of a crop is Rs1000, the contract farming will allow the corporates to sign contracts with farmers for price less than MSP, say Rs 850.

85% of the farmers in India own land less than 2 hectares that makes it difficult for them to negotiate directly with large-scale buyers. Hence this will make an unequal ground for bargaining.

Are these fears Legit?

Bihar has abolished APMC in 2006. Hence after abolition of Mandis, farmers in Bihar on average received lower prices compared to MSP for most crops. 

Free Market means a market where the government doesn’t regulate the economics of the market.

This free market has been implemented for a very long time in developed countries like the USA, UK and France.  This has not given good results. Since 1960 farmer’s income has been on a steep decline.  Even in the USA the farmer suicides have been increasing. A farmer in the USA also claimed to have received less price of CORN in 2018 as compared to what his father received for CORN in 1972. It is also said that the American and European agriculture is surviving on subsidies that the governments provide.

Can this reform turn out to be great for farmers ???

1. The current reforms may give an impression that APMC Mandis are going away. But they are not. They will stay. These reforms will open another option for farmers to legitimately sell their crops to anybody. So basically it just adds an option to farmers.
2. Private buyers would be able to directly deal with farmers, set a price for their produce and even buy them in advance. The contract farming can prove to be good for many. It can encourage many innovations as it would no more be under the government. Afterall why would a farmer want to sell his produce at Minimum Support price when they can ask for higher prices and make some healthy profits!
3. This would reduce the power of license middle men. This can reduce the corruption, black marketing and even blackmailing to farmers and monopoly to an extent.

What do we have to say?

We believe that APMC reforms are needed. Not creating an option for it. Having private forces in agriculture will leave the farmers quite vulnerable. The government should have legally protected farmers but they ended up securing a better way for corporates to enter into the Agro system bypassing the state regulated APMC. This, in practical terms, may have left the small farmers vulnerable.

We think that the new farm bill is as good as GST. Amazing in theory.!

Creating a parallel system to the APMC system for corporations seems quite similar to BSNL vs JIO and Doordarshan vs Republic TV.