An Economic Analysis
By Alakh Niranjan and Rajendar Dichpally
This Act, commonly known as the Farmers’ Act, permits intra-state and inter-state trade of farmers’ produce beyond the physical premises of Agricultural Produce Market Committee (APMC) markets and other markets notified under the state APMC Acts. The rationale given for this Act is that it will facilitate better prices to the farmers through increased competition from the private sector like superstores – Amazon or anybody by promoting barrier-free inter-state & intra-state trade, and online trading, of agricultural goods. This Act eliminates market fees or cess on farmers, traders, electronic trading platforms outside the APMC area.
We start our analysis with the first question of the reliability of the Act as the government of India intends that this will benefit farmers. The point to note is if this Act was passed at the request of farmers or their representatives since they can represent their interests in the best manner. We get a clear “No” as an answer. The Agriculture Minister of India did not invite any farmers organizations/ bodies for discussions and refused to meet the representatives of farmers when they came to meet him for amendments after the passage of the Act. The ruling party did not allow a debate to happen in the parliament or a vote and passed the bill (unprecedented in Indian parliament). Then the question arises at whose request or whose benefit was this Act passed for? Let us try to understand whom the bill is really going to benefit and then we can infer who has paid for this Act to be passed.
This Act makes the provision that anybody with an Adhar card (identity card for Indians) can buy any amount of agricultural produce and store it in godowns without limit. Obviously, the language of this Act is trying to confuse the Indian people since all consumers have Adhar cards and they can think that they got an opportunity to buy cheaply just after the harvest, and store the produce in their homes. But in reality, they would not buy more than a few days or at most a few months of food stock as it is highly inconvenient and costly to keep large amounts of food stock. But that option makes the consumers happy because they feel they got something for free and that gives public support to the government. The farmers have no means to bring their stock/ piles of produce to the retail market and none of the farmers own shops in the retail market to keep their produce. Given that the end consumers will not be using the benefit of buying cheaply and storing provided by this Act, the real buyers and beneficiaries will be the superstore owners like Big Bazar, and Reliance Smart and Fresh, and Amazon or a few other wholesalers. These big players will buy just after the harvest and stock in their godowns. They have no competitors as small traders do not have money to stockpile, hence they will be thrown out of the competition. On the concentration of the market, we noted that Reliance is selling 40% of its stake to Amazon for 20 billion dollars (proposal stage only), so basically, reliance will not be a competitor for Amazon, but a partner of Amazon. Reliance has already bought the Big Bazar for Rs 24,713 crores on August 30th, 2020. With these competition avoidance initiatives, there is only one buyer (also called monopsonist in economics) left because the other ones have been eliminated and the rest will be eliminated sooner than later. The entire government of India is there to kill the competitors for reliance. Eventually, Reliance will have a double monopoly as it will be the single dominant buyer for farmers’ produce to pay the lowest prices and the single dominant seller to consumers to charge them the highest prices. Moreover, Farmers do not have the skills of negotiation and salesmanship, and the prices of their products were either decided by the Government or decided in auction. The Big corporate players will simply dictate the prices with the Farmers. We analyze the second question if this Act benefits the consumers. Since there are only a few very big sellers in the market and eventually only one will remain, the consumers will have to pay the price these large traders or the monopolist will charge. They will be paying higher prices than today because monopoly price is always higher than perfectly competitive price. After this Act eradicated the stock limit of essential commodities on September 27, 2020, the final prices of essential commodities increased significantly. For example, the price of onion is currently at Rs.80 per Kg, potato at Rs.50 per kg, tomato to Rs.60 per kg, almost triple than before. The sad part is the farmers got a small fraction of that price. The large middlemen are looting both the farmers and the consumers. Because of this loot of farmers, not only the farmers are protesting in large numbers and getting support from opposition parties but also some of the ruling BJP’s own Party members are opposing this Farmers’ Act. BJP’s alliance party Akali Dal left them.
Another factor to be considered is that farmers are NOT assured of their return on investment! This Act removed the earlier protection of minimum support price (MSP) hence these few large buyers can force the farmers to sell their produce at lower prices (bulk prices). The net gainers will be these superstore owners as they have far more bargaining power than the farmers. They know that the farmers have no storage capacity.
To check the success of Act, we analyze if the farmers can delay the sale of their produce to bargain better prices from these few large buyers or eventually the monopsonist. Again we see that this is not possible because the farmers have borrowed money from banks before sowing to purchase fertilizers, insecticides (PESTICIDES) and other inputs and the banks (sometimes owned by the superstore owners) will be after the farmers to sell their produce quickly and return their loans. Also, their goods will perish because of lack of storage facilities with them. After this Act, the prices of agricultural produce are being sold at 50% to 60% of MSP. For example, paddy is being sold for Rs 900 a quintal while MSP for that is Rs1750 per quintal. Same is the case with wheat, maize, and other staple crops.
Total farm produce of India in 1950-51 was 50.82 million tons. It increased to 252.22 million tons in 2015-16. Even though production increased, 70% of the 90 million farmers’ houses have less income from agriculture than the family expenditure implying they will be in debt. 52% of Indian farmers are in debt and the average amount of debt as per NABARD data was $1470 or Rs. 85,000 in 2018. With the elimination of MSP, their indebtedness will increase because their income will be lower than before.
Another provision of the Act is contract farming which allows corporations to sign contracts with the farmers about what to produce and how to produce. The implication is the contract company will utilize farmer’s land intensively, exploit all its productivity, use the maximum possible amount of fertilizers to increase final product, make the land barren in 3-4 years and then leave it to find another fertile land. Thus, the company will effectively rob the farmer of his fertile land and leave him with barren land on which the farmer cannot produce any crop for a year or more.
The other loss to farmers is that the subsidy provided to farmers is gone. As we analyzed and found that in the case of Indian agriculture, the farmers do not have equal bargaining powers vis a vis their big corporate buyers who have immense financial resources, better knowledge, and can build large storage facilities. Since agricultural goods are either perishable or have high storage costs which the Indian farmers cannot bear, there is the justification for subsidies to farmers. This subsidy covers fertilizer subsidy because fertilizers increase agricultural productivity and minimum support prices (MSP) so that farmers can take rational decisions with price assurance. This kind of assurance through MSP is good for society as well since it assures the supply of consumable agricultural produce with fewer price fluctuations. With the elimination of MSP, these large corporate buyers have freed the government with the responsibility to provide subsidies to the farmers. This is disastrous for the farmers because they lost the protection of MSP. The consumers will also lose because they will have to pay the monopoly price. To sum up, this Act is helping only the big corporate middleman and fleecing all others. On a national scale, this is disastrous for the economy because it will increase inequality, poverty, and possibly crime and ultimately reducing GDP growth. The provision of contract farming has the potential of being environmentally disastrous.
As I write this article, there is a huge protest against this act by the Farmers all across the Country. Over 12 million Farmers have converged on the National Capital with around 96 thousand tractors to protest against the Farmers Act. This is the largest rally by the farmers ever anywhere in the world. The NDA Government must listen to these voices of the farmers and revoke this act that will not benefit the farmers or the consumer and will only lead to more difficulties for the farmer. Let us hope the Government listens to the voice of the farmer that feeds the country amidst so many difficulties.
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