Opposing the demand of farmers’ unions from the north for a repeal of the three farm laws,
Maharashtra’s Shetkari Sanghatana has told the Supreme Court Committee on Farm Laws that the Centre should “not compromise at any cost”.
The Sanghatana says the protestors are animated by a “trade union mindset” and their demand for legally guaranteed assured procurement at minimum support prices (MSP) cannot be defended. The Sanghatana says it is “high time the farmers of this country are convinced to say goodbye to the bad era of (trade) restrictions, (export) bans, MSP, FCI (Food Corporation of India, which does much of the procurement of rice and wheat for the government), and APMCs (Agricultural Produce Marketing Committees, which preside over the regulated markets).” The Shetkari Sanghatana, founded by Sharad Joshi, made a representation to the SC committee on February 4.
Asked whether, by breaking ranks, the Sanghatana was not undermining farmers’ solidarity, its executive president, Lalit Patil Bahale, said his union has taken a stand in the long-term interests of farmers. Bahale has just replaced Anil Ghanvat as the union’s leader as Ghanvat is one of the three remaining members in the SC-nominated committee, entrusted with the task of speaking with protesting farmers. A fourth member, Bhupinder Singh Mann of the Bharatiya Kisan Union (Mann), has withdrawn from the committee though he is aligned with the Sanghatana’s free market policies. Mann cited sympathy with the protesting farmers for his action, but that has not prevented his expulsion from the union of which he was founder and president. His union has been renamed as BKU (Punjab).
The Sanghatana says MSP was initially intended to shore up open market prices through limited government intervention. The purpose was not to supplant private trade through procurement at above market prices. “Nothing can be farther from the truth or good economics” than the assumption that procurement is a binding commitment on the government, the Sanghatana says.
Market prices, however, at the time of post-harvest arrivals can be low, even lower than the stated cost. Small landholding farmers, without the capacity to store and sell, might cash out to repay loans they contracted to raise crops. This was the reason Frank W Parker, an American advisor to India’s food and agriculture ministry, wrote to the government in 1959 to declare minimum support prices for all major crops a year before the harvest. Of the greatest economic incentives for production, he said, was a satisfactory and dependable level of prices. Food and agriculture minister C Subramanian, an architect of the Green Revolution, implemented it in the mid-1960s. To ensure food security, not only should MSPs be declared, but the government should also procure. Subramanian set up the FCI for procurement and the Agricultural Prices Commission (now called CACP) to recommend MSPs after studying cultivation costs.
In later years, the procurement overdrive had unintended consequences. In 2018, Prime Minister Modi announced that MSPs would be at least 50 per cent above the cost of production, when they should have been at least linked to the landed price of imports. MSPs of wheat and rice now tend to be above market prices and have edged out or substantially shrunk private wholesale trade in these commodities in some states. In the 2020-21 wheat season, 70 per cent of wheat production in Madhya Pradesh and Punjab was procured. As a share of their marketed surplus, procurement was 94.6 per cent and 79 per cent, respectively. The government also bought 61 per cent of Haryana’s wheat and 76 per cent of its marketed surplus.
MSP and procurement result in a two-tier system of prices, causing complications and corruption, the Sanghatana asserts. Procurement benefits a small number of farmers, it says. An NSSO survey of 2012-13 revealed that 6 per cent of the country’s farmers sold their produce to the government. But a CACP report says wheat was procured from 1.05 million Punjab farmers in 2020-21. This is about half the total number of farmers and almost all wheat growers.
The Sanghatana is right about malpractices. Not all the wheat procured in Punjab, Haryana or MP is from those states. Farmers sign ‘J’ forms in which they falsely exaggerate the amount of grain they supply for procurement; traders make up the rest with grain bought cheaper from other states. But even this practice lifts market prices in states with poor procurement infrastructure.
Procurement by FCI at MSP has indeed hurt the long-term interests of farmers in Punjab and Haryana by depleting groundwater. This is unsustainable, environmentally and even economically, as the Sanghatana says. In 1960-61, nearly 5 per cent of Punjab’s cropped area was under rice, a water-intensive crop. Now it covers 40 per cent. The area under maize, which needs less water but isn’t procured, has shrunk from 7 per cent to 1.5 per cent. That under pulses has reduced from 19 per cent to less than half a per cent. The cropping pattern needs to shift away from procured rice and wheat. The solution is managed transition with incentives for cultivation of commodities in demand. This year’s budget missed that opportunity.
The Sanghatana rightly says that procurement at MSP through the regulated markets does not help in the cultivation of varieties that processors want. In these markets the arrivals are mixed and sold as ‘fair, average quality’, while a seller of branded wheat flour might want specific varieties that consumer prefer, like Sharbati. There is no differentiation based on crop varieties, taste, digestibility, colour and geographical influence in the regulated markets under the present ‘one-size fits all’ system. That could happen if these markets do not deny membership to food processors like ITC and Hindustan Unilever.
Imposing legal compulsion on private traders to buy at MSP is “immoral and undemocratic”, the Sanghatana says. It “will destroy the whole market system of the nation”. The Sanghatana says any government intervention to stabilise prices of agricultural commodities will be a “sinister mechanism to lower prices”. Markets must remain open and free, it asserts.
This market fundamentalism emanates from the thoughts of Sanghatana founder Sharad Joshi, who called APMC regulated markets as the “slaughterhouses of farmers”. He said they have done little to allow prices to rise above the cost of production or shorten the chain of intermediaries between farm and the kitchen. (The Sanghatana now has four factions, only two of which espouse free markets.)
APMCs have “perfected the art of looting farmers by diverse and devious practices,” through delays, cartelised price manipulation, non-transparency, fake receipts, pocketing of (mandi) cess and head loaders exploiting farmers through high charges, the Sanghatana argues. Hence it is necessary to restrict their powers to their physical confines.
Variation in APMC laws across states has resulted in fragmented markets. State governments are unable to challenge the hold of the APMC actors. Even private market players tend to look to APMC markets for guidance on transaction prices. APMCs, the Sanghatana says, have affected the growth of agri-markets and have harmed farmers. It says the Union government should not only not repeal the law that allows cess-free trading outside the regulated markets, but also insert a provision in the law to privatise them.
The union appreciates the Centre for enacting the laws. It admits that agricultural market reforms are the domain of states, but powerful lobbies of traders in association with politicians have blocked reforms. So far, efforts at harmonising state-level laws have taken the form of appeals and entreaties, the most recent recommendation being the Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act of 2017.
The Sanghatana’s free market policies cannot be implemented piecemeal. They will need systemic change. Free trade in agricultural land should be allowed so that those who want to exit farming can sell their land and move out or lease it out to those who are interested. Consolidation of holdings will results in scale economies. Currently there are restrictions on sale, tenancy and mortgage. Input subsidies will have to be abolished and replaced with income transfers to vulnerable farmers. Restrictions on technology, including genetic modification, must go for productivity to rise.
Governments have not shown the appetite for such drastic changes over the past 30 years nor are a majority of farmers keen on accepting them.