Reality check: Why 'benefits' highlighted in Farm Bills aren't feasible to implement

11 Jan 2021

Opinion:  Sanjib Pohit

Multiple rounds of discussion on the Farm Bills do not convince the farmers to withdraw the agitation. The proponents of the Farm Bills seem to highlight the benefits. However in realities many of these are not feasible for an ordinary farmer. That is the reason for the continuous deadlock. It is the high time the proponents come in terms with some of the finer points articulated below.

Gospel 1: Farmers’ can sell their produce anywhere in India. Thus they would be in a position to sell their produce to the highest bidder even if he/she located in the metros or in fairways places. The days of exploitation by middlemen is over.

Reality Check:

Barring the large farmers most undertake cultivation on borrowed finance. The financier may be local money lenders or seller/distributors of seed/fertilizer/other inputs who provide these inputs to the farmers in credit on trust. Thus as soon as produce are harvested they are after the farmers to get their due.

By and large farmers are thus in a hurry to dispose of their produce to pay back their loans. Last but not the least they do not have storage space in their home to keep the produce. Thus farmers need to sell their produce at he earliest.

Thus disposing of produce fast is any farmer’s priority. Taking their produce to nearby metros for selling at higher price is also not a feasibility as they do not own trading license to sell their produce in metros. Their own means of transportation is only a tractor fitted with trailer which may allow them to carry their produce to nearby markets.

However even if they are able to transport their produce to nearby wholesale market located in a nearby metro to get higher price they may not get the money value of their produce immediately as it is tradition of the most of wholesale markets to make part payment against goods brought in. The money value of their entire produce will be handed over in instalment as goods are being sold.

In essence this does not work in farmers’ favour especially when he/she has a loan to pay back and creditors are knocking daily at the door. In sum they have to depend on commission agents/middlemen to dispose of their produce post-harvest at a go to get cash in hand.

Gospel 2: With repeal of Agricultural Produce Market Committee (APMC) Act private markets will evolve where farmers’ will get better price due to competitive pressures

Reality Check:

It is believed that corporates will enter the agri-markets with the introduction of the three agri-bill. They will make investment in agri-logistics as well development of private markets as the ecosystem of their business in place. The lifting of hoarding limit of agricultural produce is a clear signal that corporates are welcome to play a role in this market. 

If farmers form Farmer Producer Organizations and negotiate with the other party their bargaining power would increase. But we rarely come across functional FPOs

Will it really happen especially when the corporates are going slow in investment in Corona-times? With the downturn in business do they have the fund for investment in agri-logistics which is indeed a capital intensive sector? It may be noted that APMC has been repealed in Bihar more a decade ago. Maybe Bihar‘s example may shed some light regarding the behavior of the private players.

The abolition of APMC Act in 2006 did not usher in private investment for creating new markets or strengthening facilities in the existing ones leading to a declining market density. Instead it ushers a regime of commission agents who visits the farmers in their villages to buy the agricultural produce.

Without a functioning close-by market the options of farmers get limited. The commission agents become their sources of price signals of agricultural produce who obviously quote low prices. Since the farmers’ lack storage facility and need hard cash to payback loan they have taken during the cultivation process their option of bargaining with commission agents are limited In sum the farmers’ dream of obtaining better prices in private market remain unfulfilled.

Gospel 3: The contract farming would minimise the farmers’ risk from crop failure or price variability

Reality Check: 

Theoretically this is bound to hold provided the agreed contract is honoured by the contracting parties. However there have been several instances where the buying party (corporates) of agricultural produce did not honour the contract and farmers were the losers. Given the state of Indian judiciary it is next to impossible for a farmer to get his/her entitlement if the other party defaults on the contract.

Of course if the farmers form Farmer Producer Organizations (FPOs) and negotiate with the other party their bargaining power would increase. However in reality we rarely come across functional FPOs in India.

Sanjib Pohit is Professor at National Council of Applied Economic Research (NCAER) New Delhi. Views are personal

Published in:  Counterview, January 11, 2021