Farm sector laws and their implications for Punjab agriculture

Baldev Singh Dhillon

Three farm sector related Acts, namely,  i) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; ii) Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 and iii) Essential Commodities (Amendment) Act, 2020 were passed by the Parliament of India in September 2020.

These laws claim to create an ecosystem to provide freedom to farmers and traders to trade, and empower the farmers to engage with agri-business firms and other players of agricultural value chains by providing a national framework for mutual agreements and reducing excessive regulatory restrictions on private business operations by removing basic food items from essential commodities list.

There are divergent views about their implications for agriculture sector, especially, Punjab. Some claim that the laws will make markets more efficient, increase competition, strengthen agri-value chains and will benefit the farmers, whereas, others argue that the farmers may ultimately loose by increase in market power of traders and corporates, and through dismantling of MSP and public procurement of food grains. The state may also suffer loss of revenue from market fee and cesses, which may adversely affect agricultural infrastructure and other public expenditure on agriculture and rural development.

The Punjab Agricultural University, Ludhiana organized a webinar on ‘Farm Sector Laws and their Implications for Punjab Agriculture’ to examine the claims of these laws, their timings, effect on market power, state autonomy, MSP and public procurement, their impact on small farmers and way ahead for the state. Mr Ajay VirJakhar, Chairman, Bharat Krishak Samaj (Farmers’ Forum, India),talked about Union and State relations and the timeliness of these laws. He also talked about the structural changes in the system of support to farmers being brought through farm sector laws. Dr Sucha Singh Gill, a renowned economist and Senior Professor, Centre for Research in Rural and Industrial Development (CRRID), talked about the implications of farm laws on Punjab economy and questioned the appropriateness of these laws. Dr PS Birthal, National Professor, National Institute of Agricultural Economics and Policy Research, New Delhi,took the national view, cited success stories in agricultural value chains in Punjab and highlighted the new opportunities under the changed regime. Mr Avtar Singh Dhindsa, a highly-established floriculturist, talked about the step-wise strategy which can be more effectively followed to move Punjab on a sustainable growth path under new laws. More than 200 participants from various state and national level institutes as well as representatives of press and media attended the event.

Discussion

The discussion focused on understanding various aspects of laws and their implications for Punjab economy. There was a general agreement that the laws were enacted in haste and there should have been broader consultations with the states, farmers and other stakeholders. Agricultural policies should be the state prerogative because agriculture is not only the state subject but there alsoisgreat diversity in agro-ecology of India.

Some arguments that MSP and public procurement benefit only 6 per cent of the farmers in India and this entails huge financial outlay are also misplaced. The outlay is nothing when compared to the tax and other economic benefits given to the big corporates in India. Nearly 60 per cent of rural population largely earns about 16 per cent of gross value added in Indian agriculture, which clearly indicates gross inequality in income distribution between agricultural/rural households and others. Hence, our efforts should focus on enhancing income/profit of remaining 94 per cent farmers, while the new developments emphasize on eroding the livelihood of 6 per cent of the farmers, who are receiving MSP backed by public procurement.

The widening inequality between the rich and the poor can be gauged from the fact that half of the100 richest Indians increased their wealth by 14 per cent, amounting to US$ 63.5 billion, even during the COVID-19 period, when majority were suffering. One is forced to think why no steps are being taken to redistribute the income from rich to poor and the focus is on so-called rich 6 per cent farmers, who are in fact extremely poor as compared to those in other sectors; what to say of corporate houses.

The assumption of improvement in market efficiency through these laws may be misplaced as in Bihar where the APMC markets were absent and food grains were sold through private traders, there were no economic gains as the farmers were unable to sell at MSP. Recent developments raise strong apprehensions of dismantling of MSP and public procurement in near future which will harm farmers in the food bowl of India, though some are of the view that public procurement is still important to meet the national food security needs. But the farmers are not willing to buy these arguments in the current scenario of mistrust.

There are theoretical expectations that new laws will facilitate crop diversification through the entry of private trade and better prices for crops. If it is so, then why it has not happened in case of crops other paddy and wheat. Taking example of two most important alternative crops, namely maize, the market prices ruled substantially lower at Rs 700-1,000 per quintal than the MSP of Rs 1,850, even when the ordinances were issued/laws have been enacted.

Crop diversification requires MSP backed by assured marketing for alternative crops or adequate compensation to the farmers for any loss due to crop shifts. This will also require better research in markets, establishing industries, and developing value chains and post-harvest infrastructure. These require large investments and long gestation period.

Kinnow and seed potato (major fruit and vegetable crop of Punjab), and poultry (broiler) are being cited as successful examples, where there is no MSP support. Majority of them are big farmers who are better informed, have better connectivity, financial strength, and can bear market shocks and cannot be compared with small-sized paddy-wheat growers. Similarly, the success story of milk sector in Punjab cannot be completely attributed to the private sector as Verka (a cooperative undertaking) is a major player in the milk industry and acts as a price leader. Even during the lockdown, when all private traders stopped procuring milk, Verka came to the rescue of milk producers.

Recommendations

Following important recommendations emerged from the webinar:

• In agriculture, the views of states should prevail as agriculture is a state subject. There is an open divergence of views of the Central government and those of some states, which needs to be avoided in the larger national interest.
• There are extremely diverse agro-ecologies in the country (consider cropping systemin three adjoining states: Himachal Pradesh, Punjab and Rajasthan). Thus, states are in a better position to design and implement policies tuned to their strengths and weaknesses. Implementation of uniform policy across the nation ignoring the resource endowments and agro-ecologies of the states/region may be counterproductive.
• There are fears of dismantling of MSP and public procurement under new laws. As repeated verbal and written assurances are being given on its continuation, therefore, there should be no roadblock to legalize it.
• It is being argued that MSP has benefited a limited number of farmers belonging to national food bowl. Efforts and programs need to be designed to raise the incomes of farmers of other regions as well, rather than focusing on depleting the livelihood of farmers of this region.  The support being given to the farmers in the form of MSP and public procurement is just peanuts as compared to the incentives being given to other sectors, especially, the big corporates.
• There should be a policy to narrow down the inequality between agricultural and non-agricultural sectors, by generating income opportunities and raising income levels of farmers rather than providing a platform and free hand to the larger trade and corporate houses to flourish at the cost of poor farmers.
• The loss of state revenue on account of abolishing of market charges may adversely affect the infrastructure development in agriculture and rural areas. This is a major source of state revenue as industrial development got a major setback in Punjab due to huge tax rebates and incentives given to the industry in the hilly states. Thus, the state should be allowed to levy taxes on the trade of agricultural produce outside the APMC markets also.
• The laws must have adequate safeguards for the farmers and the government should explore quasi-judicial forms of dispute settlement rather than leaving it to the bureaucracy.
• The claim that the laws will encourage crop diversification is also misplaced. The crop diversification requires MSP backed by assured marketing for alternative crops and/or ensuring at least current level of income and livelihood to the farmers. Punjab can develop niches and follow cluster development approach. Organic products, fruits, vegetables and processed products provide a huge potential in the national and international markets. Besides capacity building of the farmers, this will, however, require better research in national as well as foreign markets for alternative crops, establishing processing industries, developing value chains at the national and global level, and comprehensive analysis of the risk and mitigation strategies of these chains.
• The COVID-19 pandemic has clearly demonstrated the importance and role of public sector R&D institutions. Therefore, agricultural R&D will require huge financial resources to cater to the needs of the changing times and remain relevant.
• Farmers should be compensated for ecosystem services and conservation of natural resources resulting from adoption of sustainable farming practices as these may involve fall in profits.
• The special economic packages and incentives have been provided to the adjoining hilly states, which have eroded the industrial base of the state. Therefore, Punjab needs special incentives by the Centre to revive and develop industry, particularly, agro-industries. This is an essential input for diversification of paddy-wheat cropping system towards high value crops and value addition.
• Punjab is a landlocked state which is far away from the seaports. This acts as a major disadvantage to the state for promoting exports due to high transportation costs. The freight subsidy and opening up of opportunities for exports through western borders will encourage crop diversification and better returns to farmers.

There is a need to create viable farm and non-farm income avenues for the rural poor so that their current level of livelihood/profits are not adversely affected. It must be ensured that their vulnerability is not aggravated under the new marketing regime.

(Baldev Singh Dhillon is Vice Chancellor of  Punjab agricultural University, Punjab. The views expressed are his personal.)