Agrarian Reform: The Farm Reforms: Myths and Realities

Agrarian Reform: The Farm Reforms: Myths and Realities

The repeal of the three agricultural laws enacted by the government set back the entire reform process. Because it can not explain the benefits to some farmers. It also generated new thinking about the reform process. How to get broader support for the reform agenda?

The Three Farming Acts were enacted to bring about reforms in agricultural markets, which are largely under the control of state agricultural product marketing committees (APMCs). These APMCs act, by default, as regulatory barriers to competition in the agricultural market. Thus, there has been long-standing demand, indeed consensus across the political spectrum, for reforms to enhance competition among buyers of agricultural products so that farmers can achieve a better competitive market price. Several countries have been reforming the laws of the commission’s member states, albeit very slowly, despite the presence of powerful vested political interest groups.

The abolition saga seems to send the wrong political message against such necessary reforms, which can lead not only to governments inaction, but also to actions in the wrong direction. Rajasthan, for example, is said to be planning to reverse its decision to allow trade outside the APMC markets, despite having a few special delegates. A few days ago, Maharashtra had issued notices to agricultural producer companies to do trade outside the AMPC.

In order to clear up the false messages against the APMC reforms and in order to establish proper contact with the farming communities, it would be helpful to separate the wheat from the chaff, i.e. the differences between the myths and the facts about these reforms in an impartial manner.

Myth: Reforms are anti-farmers

Indeed: No, reforms are not anti-farmers, but in favor of farmers. The current APMC system contributes to farmers apathy and must be reformed. State APMC laws provide a fertile breeding ground for anti-competitive activities sponsored by vested local interests, which in turn delay the achievement of a competitive market price by farmers. Therefore, pro-competitive elements must be included through reform of the current, and old, regulatory system. Ideally, states should lead such reforms, but failure in any of them if the center intervenes should be taken in the right spirit. For example, the central government launched the Electronic National Agriculture Market (E-Nam) five years ago which connects all delegates and enables them to trade across borders and get better prices. It proves to be a blessing.

The three central laws were intended to expand farmers’ freedoms and give them more choices. It not only paved the way for the sale of agricultural produce outside the APMC Mandy system, but it also promised freedom from arbitrary storage restrictions and gave farmers an option to deal directly with buyers. Although canceled, the essence of this reform is still valid.

Myth: Legalizing marine machinery will benefit all farmers

Indeed: No, the legalization of the Minimum Support Price (MSP) scheme, as demanded by the protesting farmers, is not a silver bullet to increase farmers’ income. Although the Center has declared MSP for 23 crops, there is no legal mandate for it to purchase all of these crops. In practice, the government mostly buys rice and wheat in quantities that meet its requirements to provide food security for the vulnerable population. Moreover, these purchases largely occur in only two and a half states – Punjab, Haryana and western Uttar Pradesh – and thus only eight to ten percent of Indian farmers have benefited from them.

On the other hand, the center is not in a financial position to buy all the crops for all the farmers under the MSP. On the other hand, it may also violate our obligations under WTO agreements. It should be noted that the MSP was introduced to promote the Green Revolution in the 1960s so that the country would become food self-sufficient. We have achieved that.

One negative effect of this MSP system was the spread of the mono-crop culture, mostly rice and wheat, in the said area. This has resulted in severe soil degradation and water table deterioration due to groundwater extraction due to free or heavily subsidized electricity. Added to this is the excessive use of pesticides which have adverse health issues and high air pollution due to straw burning. The current MSP system, which benefits only a handful of farmers, creates income disparity among the farming community. Thus, a course correction is highly desirable.

Myth: ADR can be unfair to farmers

Indeed: There were reservations about the simple, fast, and cost-effective dispute resolution mechanism enshrined in the repealed central farm laws. The repealed statutes provided for a three-tiered dispute resolution — a conciliation board, a sub-district judge and an appellate authority (additional collector or collector) — and barred the jurisdiction of civil courts. This alternative process was provided so that farmers would not have to go through a cumbersome court process in cases of any dispute with merchants. However, if there is still any reservation to this dispute settlement mechanism, the appeal can be allowed to go to specialized commercial courts, rather than civil courts.

Myth: Reforms will establish corporate control of agriculture

Indeed: There are concerns that unregulated entry of firms into the agricultural market may influence market conditions and impose terms of trade, given their unequal bargaining power. This may conflict with the interests of the farmers. However, this fear is more fanciful than practical given the current highly fragmented agriculture market in India, which is particularly reflected in the difference between marketable and marketed surplus. It will take the market several years to consolidate enough in order to make said fear a reality.

In order to get rid of these concerns, the government can establish an effective monitoring mechanism to monitor market dynamics, and intervene when needed. The active role of the Indian Competition Commission can also help in correcting the market if such a situation arises. Maintaining competition in the buyers market is the key to the welfare of farmers in a liberal environment. In addition, farmers can always indulge in organized protest against bad corporate practices as proven in this agitation.

Myth: Reforms can’t have safety nets

Indeed: It is a mistake to think that there is no place for safety nets in the liberalized agriculture market. The government is advised to put in place an appropriate and less market-restrictive safety net and introduce it as an integral part of the reform package for its wider acceptance. Perhaps the lack of proper safety nets in the Three Central Farming Laws and the lack of a good communication strategy were the reasons why the government failed to get them by the angry farmers.

A committee has been announced by the central government to recommend future steps on various issues related to agriculture, including making the Minimum Support Price (MSP) more effective and transparent. It is hoped that the proposed commission will take a comprehensive look at the farm sector, including the claim to make MSP legal and recommend prudently.

It would also be beneficial to reform the National Food Security Act 2013, which benefits about 85 Crore to link the volume of purchases to needs at the state level. In this way, not only will the purchasing process be decentralized, but it will also benefit. There can be real-time monitoring of deficits in particular and its procurement requirements from surplus countries can be met under an agreed formula.

The government may also consider establishing a Price Stability Fund to deal with sudden increase or decrease in crop prices due to natural disasters and other factors. Instead of announcing specific average price plans for selected crops, the government may consider price ranges and market interventions through the use of this fund once they are breached.

These safety nets must also include the revival of agricultural extension services, which has been one of the key factors to the success of our Green Revolution. In particular, these services are required to diversify our agriculture from monoculture to multi-crop including enhancing our farmers’ knowledge about the correct use of fertilizers and pesticides, and other benefits such as access to crop insurance, and the use of solar pumps.

“Reforms with safety nets” is the correct narrative that can have more support from the farming community. This should be the motto for all future reforms.

SAP as a way forward
It may be better to introduce India’s unique Structural Adjustment Program (SAP) to guide the implementation of the various transformations needed to correct the Indian agriculture sector. The proposed committee to be appointed by the government could also look into this matter. SAP can be a comprehensive program to direct, among other things:

  • agricultural market reforms with safety nets;
  • Adjustment of the subsidy system, including the transition to direct transfer of benefits to farmers;
  • curbing market-distorting policies and other practices;
  • discourage monoculture and promote multi-crop culture;
  • protection and restoration of degraded soils and groundwater;
  • reduce the use of fertilizers and pesticides;
  • promoting organic farming;
  • promoting environmentally sustainable agriculture;
  • Promoting digitization in Indian agriculture, including agricultural market such as eNAM.

The primary objective of SAP could be to build a sustainable food system and farms through the Farm-to-Fork strategy, including by including the right biodiversity strategy and climate action plan to achieve India’s net zero emissions target by 2070.

The authors work for CUTS International, a global public policy advocacy and research group.

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