Understanding India’s Farm Bills 2020

Punjabi Farmer Protests and Advocacy

The three new national farm bills have caused great alarm with Farmers in Punjab, and as scenes of protest have been televised globally, increasing alarm amongst the Diaspora also.

YSPN’s focus is primarily on issues concerning our chapters across Australia and New Zealand, but what is clear is that as a first-generation community, we maintain close connections to our families and heritage in Punjab, who are being affected by these bills. We felt a responsibility given our position and capabilities to address these bills appropriately for our audience, and indeed the Global Sikh community.

We also acknowledge this a very divisive issue about a complicated system that is made up of a variety of underlying factors and vested interests. As Sikhs based in Australia and New Zealand, who are not experts in development economics, India’s political processes, or farming practices in Punjab—and therefore the full implication of these bills—we believed it our duty to become better informed from actual experts on the issues so that we can more precisely direct our advocacy and make a meaningful impact on those affected.

To properly pursue these objectives, we organised a pre-recorded panel discussion with two expert Indian-based agroeconomists to discuss the current structural issues with farming in Punjab; how these bills were aimed to address these problems; weaknesses that farmers have highlighted that need to be addressed; and fundamental farming practice reform that Punjabi farmers can undertake to greatly increase the value of their crops and land.

Our aim from delivering this event to you is fact-based exploration of the issues that rationally analyses the issues of the reform agenda holistically and provide better options for the Diaspora to contribute meaningfully to these issues and address the plight of Sikhs, Farmers, and Punjab as a whole.

Panel Discussion on India’s Farm Bills

The two experts that we engaged with to understand these issues are:

Professor CSC Sekhar – who is a Professor at the Institute of Economic Growth (IEG) & former Honorary Director of the Agricultural Economics Research Centre, University of Delhi. His research interests include agricultural markets (market structure, price formation, exports, and imports), food security, agricultural growth, rural development, political economy of development and governance. Other interests include applied Econometrics, econometric modelling, WTO issues related to agriculture, Development Economics and Law & Economics. He was a Fulbright-Nehru Senior Research Fellow and is a life member of The Indian Econometrics Society (TIES) and Agricultural Economics Research Association (AREA).

Professor Sukhpal Singh – who is Professor, and Former Chairperson, Centre for Management in Agriculture (CMA), Indian Institute of Management (IIM), Ahmedabad, Gujarat, Former Director General, Centre for Research in Rural and Industrial Development (CRRID) Chandigarh, and Former Professor and Head, Agricultural Economic Research Unit (AERU), Institute of Economic Growth (IEG), New Delhi. He has been conferred the title of the Fellow of the Indian Society of Agricultural Economics for his contributions to the discipline and the Society in 2018. He is founding co-editor, Millennial Asia-an intl. journal of Asian studies, published by Sage. His research interests lie in small producer and worker livelihoods and collectivization of such stakeholders in the context of agribusiness value chains and deregulation of agricultural markets in India and the developing world. He is known for his pioneering work on contract farming and farmer producer companies.

Below you can find a video of our discussion.

The main points discussed during the panel included:

Core Issues

  • The core structural issue appears to stem from the structure of the APMCs
  • The existing Mandi system which has over time created a monopsony (single-buyer); a rent-seeking political economy rife with nepotism and cronyism built on increasing commission rates; a deterioration of their performance in meeting the objective of building infrastructure for marketing agricultural goods; and interlinking of markets of illegal money lending and agricultural produce
  • The price-certainty created by the MSP which is operational for practically 3 or 4 crops per state (but nominally for 23 crops in total) and covers about 98% of farmers in Punjab (it’s about 6% throughout the rest of India) resulting in exhaustive cultivation of land, and overdrawing on water resources

Implementation Issues

The implementation has been flawed because:

  • Most state governments had achieved the effective intent of the current changes legislatively
  • The Central government has made key to the wording of the acts and implemented changes through ordinances without any communication as to their impacts on farmers
  • Uncertainty about future procurement intentions (which underpin the operation of the MSP)
  • The National Food Security Act (an enshrined right for 2/3 of India’s population) means that the government is unlikely to stop procuring wheat and paddy because private markets are too expensive, and with the introduction of storage can mean private participants can exercise pricing power
  • Government policy documents providing conflicting perspectives on what should be done with open-ended procurement, eg. one the one hand making the MSP a legal right for farmers to give them certainty, or on the other hand make procurement closed-ended – this inconsistency has increased the anxiety of farmers

Contract Farming

  • New channels—for example selling to private buyers—are a necessary liberalisation, to break the current inefficient monopsony by the state
  • Contract farming is not a new idea in India, Punjab has had contract farming for decades, but most small and marginal farmers have not benefitted from this yet
  • Concerns about contract farming resulting in a covert corporate takeover are unlikely because there are written provisions that explicitly prevent corporations from transacting on land, but they do make it possible to use land earnings to repay debt
  • There are some issues with the implementation of contract farming however
  • Despite the provision of a model contract, the quality and terms of the contracts in practice vary significantly
  • The bargaining power imbalance between farmers and corporates has not been subject to an adequate regulatory regime, and privatisation without regulation has proven to be disastrous

Impact on the Average Farmer

  • The replacement of the state procurement into a private sector monopsony doesn’t really change very much, or solve any fundamental issues
  • The average farmer has been locked out of contract farming since it began in India, and they are not expected to benefit from the expansion of sales channels. Most larger purchasers (for example supermarkets) purchase from larger players

Profile of the typical farmer  

  • Owns and operates 2.5 acres
  • Half of it is dry
  • He suffers from serious levels of production risk and also market risk
  • He doesn’t get credit, or at very high rates
  • He doesn’t get crop insurance
  • And when he comes to market after all his effort he is not able to get a good price
  • These small and marginal Farmers are 85% of the operators in the farming industry
  • The widening of sales channels to include private purchasing has been done so without any central clearing mechanism or collateral guarantees and introduces counterparty risks
  • The Bihar example—which repealed the MSP instead of adding to it—does not provide evidence that the increase of sales channels provides a tangible benefit for Farmers
  • Both speakers believe the solution to market problems lies outside of markets, for example the provision of credit. Because of the operating capital requirements, and production risks faced by farmers, they often get in trouble because they enter into (illegal) “interlocked” credit arrangements for personal consumption needs with Aartiyas which restricts their ability to market their produce and get the best price
  • The acts serve to add market risk to farmers in addition to the production risks they already face – the impact here may be mixed

What can the Diaspora Do?

  • Keep pressure on the government to ensure that the government does not dismantle the APMC system
  • Help farmers to widen their crop base beyond the 2 crops they rely on
  • Help farmers to move to higher value-added activities and move into the market
  • Help farmers to see a fuller identity that imagines a role beyond simply farming and production
  • Help farmers to set up marketing activities (weighing, grading, drying, cleaning) and capture more of the retailing margins
  • Recognise Women as the unsung heroes of farm production

Future Issues

  • Development needs to be pro farmer and worker: there is very little farm employment left after the mechanisation of wheat and paddy production, and Punjab is planning to also mechanise cotton which will result in even less employment
  • The current development has made the small and marginal farmers livelihood practically impossible

Additional Resources

We found value in presenting primary sources of information by directly asking experts in agroecnonomics. There are additional resources that we encourage readers to engage with to better understand farm practices in India and these new three farm bills. This is not a comprehensive list, but a sample of content available.

  • Article from the Tribune written by Devinder Sharma on the importance of assured pricing and a comparison to farming subsides in Western countries. Mr Sharma is a distinguished food and trade policy analyst.
  • A White Paper by Professor Ramesh Chand, from the National Institution for Transforming India, Government of India.
  • An analysis in The Diplomat by Professor Milind Sathye from the University of Canberra.
  • Discussion video with Professor Ashok Gulati, who is Infosys chair professor at Indian Council for Research on International Economic Relations. Associate Professor Mekhala Krishnamurthy, who is an Associate Professor of Sociology and Anthropology at Ashoka University. Siraj Hussain, who is a former Secretary of Agriculture and Farmers’ Welfare Former Union Secretary Agriculture.
  • Further discussion with Professor Singh.
  • Further analysis with Professor Sekhar.
  • The Climate Foundation addresses how current farming practices in North India contribute to pollution in New Delhi and have farmers can both reduce environmental impact and increase productivity.
  • Article from The Hindu which discusses the depleting water table in Punjab and the effects on farming.