Blog: The Flaws In Modi Government’s New Farm Bills


When India was born as an independent nation, it was, quite literally, very hungry. Food was so short that Nehru began growing sweet potatoes in his kitchen garden in Teen Murti House, and championed rotis made out of a dough that was a mix of atta and shakkarkandi. It was a time when those who grew food went without it because landlords and moneylenders, who controlled the local grain trade, bought cheap and sold dear.

Nehru had fresh memories of Bengal’s Churchill-made famine of 1943 which took between two to three million lives. Starvation was a political time bomb and Nehru knew that he would need to deal with it, at least in rhetoric if not in fact. “Hang the hoarders and black-marketeers from the nearest lamppost,” is what he was believed to have said in reaction to artificial food shortages being engineered by grain traders.

It is in this backdrop that the state decided to control food trade. Over the next two decades, state governments set up large mandis which were run by regulated Agricultural Produce Market Committees or APMCs. Gradually, all large wholesale markets, which were the first touchpoints for farmers, were brought under APMC Acts. The objective was to track all the produce that was arriving in large mandis across the country, estimate food availability and ensure farmers were paid stable and reasonable prices.

This was accompanied by a minimum support price (MSP) for farmers in key crops. Theoretically, this was the floor price at which the government would buy the farmer’s produce if they couldn’t find better rates in the open market. And the APMC mandi was the mechanism through which the state would procure the produce at a pre-announced price.

Today, MSPs are set by the government for 23 crops consisting of cereals, pulses, oilseeds and four cash crops – sugarcane, cotton, jute and copra (dried coconut). However, a floor price only makes sense if farmers are assured that everything they bring to the mandi will be bought. Right now, only paddy and wheat is procured by government agencies, along with some amount of cotton, oilseeds and few daals. For the remaining crops, there is hardly any procurement at MSP rates.

So even in the APMC mandis, farmers end up selling most of their produce below government-mandated prices. This is especially the case for non-MSP crops, such as fruits and vegetables. We know how farmers earn a pittance even when wholesale prices of tomatoes and onions shoot up. It’s middlemen and commission agents who control the mandis – in collaboration with local netas and dadas – and get fat, while the farmers and consumers lose.

In fact, even with paddy and wheat, only a few farmers manage to sell their produce to government procurement agencies. The Modi government’s own Shanta Kumar Committee that looked into the food procurement system reported in 2015 that on average, just about 14 percent of paddy and wheat farmers were able to sell their produce to government procurement agencies. The report also says that even those who sold to the government got the declared MSP for only 27-35 percent of their produce.

Shanta Kumar’s report also suggests that only rich farmers are able to access government mandis and get paid the MSP. He says that of the total agricultural households in India, less than 6 per cent sold to procurement agencies. In fact, nearly 75 per cent of paddy growers and over 65 per cent of wheat growers didn’t even know that the government procures any foodgrain. What is even more surprising is that 68 per cent of paddy growers and 60 per cent of wheat growers hadn’t even heard of minimum support prices. Even if one assumes that rich farmers account for 50 per cent of the paddy and wheat that hits the market, Shanta Kumar’s report would suggest that just about a sixth of India’s total rice and wheat output is bought by the government at the floor price it announces.

There are two solutions to this problem. One is to strengthen the procurement system and ensure that everything that farmers offer to government agencies is bought at the MSP that’s been announced. The other is to say that since such a small number of farmers actually benefit from APMC mandis and the MSP system, we might as well dismantle it. The first puts the onus on the state to build more mandis, bring them closer to farmers, expand the procurement network, invest in storage facilities and ensure quick and efficient transport from surplus states to those which don’t produce enough. As the agricultural expert Devinder Sharma says, India needs 42,000 mandis so that every farmer can access government buyers, but we currently have just 7,000.

The second approach is only conscionable if policy-makers believe that the private sector is more efficient in handling the entire food-marketing system. But we know this cannot be restricted to food-trade alone. After all, trader margins are based on beating down what they pay to producers and pushing up what they charge consumers. Those who propagate deregulating food trade must also be committed to the corporatisation of agriculture. Because it is only when producers cuts costs and reduce trade margins that they can sell at lower prices to consumers. So it is only when the capitalist enters farming directly, introduces efficiencies of scale and improves labour productivity that costs can be cut organically, and profits be expanded.

It is clear that the Modi Government has chosen this second path for solving the problem of India’s slow agricultural growth, low farm incomes and volatile food prices. That is why the three farm bills have come clubbed together. The first makes APMCs virtually redundant. The second sets the ground for contract farming at pre-agreed prices. And the third removes state control over the amount of cereals, pulses, oilseeds, potatoes and onions they can be stocked by traders and producers.

All these three changes were needed to enable the entry of large private players into farming. If APMCs are the go-to  for large farmers, then private procurers will not be able to compete. Unless large-scale contract farming is allowed over contiguous farms, there can be no mechanization and economies of scale. And, the entire logic of large-scale distribution networks is contingent on how much private companies will be allowed to store. Crucial crops had to be removed from the Essential Commodities list for that to be possible.

Will this help farmers? Of course not. The history of big companies in agriculture across the world shows that small farmers are unable to compete and get uprooted once big players enter the market. A recent study of contract farming in the Moga, Tarn Taran and Amritsar districts of Punjab by Pavneet Kaur and Naresh Singla proves this point for India as well. Contract farming excludes small and marginal farmers, and even larger farmers find it tough to match the legal resources that corporates use during disputes.

Some would argue there is nothing wrong in that. There is a high level of disguised unemployment in Indian agriculture – more people work on a piece of farm land than are required without adding to income or productivity. Farm sizes are unviably small and getting smaller after each generation. So there’s no harm in small and marginal farmers being pushed out of agriculture and being forced to move to productive jobs in factories and services.

In reality, that process has already happened. The RBI’s data says that 20 years ago, about 60 percent of India’s employment came from agriculture. By 2016, it dropped to 42 percent. CMIE’s data suggests that has dropped to about 35 percent now. There’s been a massive exodus from farming. Yet, there have been no good jobs in factories or the organised services sector. Most of those who were forced to leave agriculture had to become self-employed, living a hand-to-mouth existence.

Things have only become worse for India’s lower-income groups – those who technically are above the poverty level but are always in danger of sinking below it – in the past four years, since demonetisation and GST broke the back of India’s unorganised sector. On top of that, factories are operating at well below their capacity, and corporates are not investing in expanding old ventures or setting up new ones. So there’s no reason to believe that farmers who are ‘freed’ from their land will end up getting better jobs outside agriculture.

It is understandable then why cynics see these new farm laws as a lifeline for big corporates who are keen to enter the only space where demand is always ever-present: food supply. This feeling is compounded by the Modi government’s reluctance to make MSP a law. If these legal changes are going to help farmers get better prices in the open market, then what is the problem in legally fixing floor prices every year? After all, if private procurers are going to pay more, the government will never actually have to pay the MSP, and it will cost the exchequer nothing.

No one believes that the existing APMC system is good. But the opposition to these new laws isn’t just coming from those who believe in ‘socialist’ solutions. There is also the example of the successful milk cooperative movement in Gujarat’s Amul and its offshoot, Mother Dairy. What stopped the Modi Government from introducing new laws that would facilitate, fund and legally protect such cooperatives in farming? That’s a question even the greatest votary of capitalist farming will find difficult to answer.



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