Breaking the Complexity of Farm Acts

[This is a post by Surabhi Srivastava, Contributing Editor]

Through this post, I am making an attempt to discuss the new farm bill (now an Act) on a comparative analysis basis. Certain questions, such as whether the Centre had the power to make laws in this area? Or what is the dispute going on between centre and state? Why in certain states there is comparatively more hue and cry regarding this bill? And can the proceedings in the Parliament be challenged in the Supreme Court of India? The final question, whether farmers are in actuality going to get any benefit out of this bill?  Give a quick read to this article and find out the answers!

Understanding the existing Agricultural Produce & Livestock Market Committee system

After the nation got independence in 1947, the farmers used to sell their produce directly to the customers but owing to the Zamindari system and other unavoidable circumstances the farmers had taken a loan from some or the other sources. In result, the money lenders (including Zamindars) use to charge an exuberant amount of interest from the farmers, consequently, the money lenders use to buy the produce of the farmers in the lowest possible price and again when the farmers wished to grow crops etc., he would not have enough fund to conduct his farming activity. Again, the farmers would turn to the money lenders and the story would viciously repeat. The farmer was struck in this merciless situation and their exploitation was on a loop.

 To solve the issue regarding the exploitation of farmers, the government comes into the play and enacts, Agricultural Produce & Livestock Market Committee Act (for brevity Act). This laid the prohibition of direct exchange of goods between the farmer and any other person, rather all the process of sale would take place through mandis which were established through the ACT. The mandis were, however, run by the State Government. Now let us look at the present-day functioning of the APMC ACT, each state has its own APMC and the State divides it area wise according to its own convenience, awarding one mandi to each area. Suppose, if a trader wants to buy some product from that mandi then he would have to acquire the licence of that mandi and similarly if a farmer wants to sell his produce in a mandi he will have to acquire a licence too. This process is a mandate.

Further, if we go on to see how the product is sold according to APMC, then it is according to the auction system, the goods are divided into two categories for the purpose of sale, one being MSP (Minimum Selling Price) and Price Discovery, the price in case of the former is fixed by the Government of India and to be noted that not all crops fall under the category of MSP, there are only 22 crops that are permitted to the credit of MSP. The latter includes all other crops apart from those 22 falling under MSP; here the goods are sold according to the market situation such as demand and supply. Furthermore, in APMC, goods are sold through a chain, in nutshell, there are various middlemen between the farmer and the end consumer, the new Farm Bill is on its way to do away with this system.

However, the present chain functions as follows:

(1) Farmers take produce to APMC

(2) Commission agents (first-person farmers gets in connection within APMC mandi )

(3) Traders (from here it goes to the retailer, wholesaler, vendors etc. and at last reaches the customer)

(4) Transaction agents (approaches the farmer and informs him about the selling price of his produce, and charges at least 3-4% market fees from the farmer)

(5) Farmer

This whole process is not transparent, as in the farmer is totally aloof of the process as to how the price of his produce is fixed. By the time the product actually reaches the customer, there is at least a hike of 50% price from what is being paid to the farmer and about 25% of the total produce of the farmer is wasted. For instance, if an apple has reached a customer for Rs.50/- the farmer has got only Rs.5-7/- for it. The rest of the amount is eaten up by middlemen etc. Thus, this is the existing APMC system.

Now two flaws are patently seen in the system, first- who can become a trader? Since the whole AMPC is controlled by the State Government so much believed fact is that only those people who are politically inclined towards the government attain this position. Second- due to numerous middlemen, the consumer is buying the product at a much-inflated price and the farmer is left with no choice but to sell his produce at a low price.  

The APMC act was introduced with a purpose to do away with the exploitation of farmers in the hands of Zamindars and money lenders but with the passage of time, the Act itself has become a means to exploit the farmers. Most of the time, the traders form a cartel and refuse to buy the produce beyond MSP, on the other hand, the production of the farmer is perishable in nature and hence, he is bound to sell it at the lowest cost, quoted by traders. To increase the MSP, farmers of various states have appealed multiple times. Thus, the APMC Act has become counterproductive and failed to fulfil its purpose. Even if we do not come up with a new Farm Bill, still the APMC should be amended for the betterment of farmers. Additionally, the government must interfere a little less in the matters of agriculture to bring in reforms in the hands of private organisations. However, the new mechanism should be well equipped with the problems of the  21st century, such as if the export gets cancelled, who would bear the cost? What should be the consequence if the traders are buying produce in less than MSP?

Findings in the new Farm Bill

On the other hand, the newly passed farm bills will give farmers the freedom to trade across states and empower them to turn into traders of their own products and be in control of the process. The intent behind these three bills is that the new regulation will create an ecosystem where the farmers and traders will enjoy the freedom of choice of sale and purchase of agri-produce and promote barrier-free inter and intra-state trade and commerce outside the physical premises of markets notified under State Agricultural Produce Marketing legislations. Practice similar to the new farm bill has already been adopted by some states in India such as- Karnataka, Bihar and Maharashtra. These states have figured out a remedy of paying penalty for the foul on part of traders to buy produce lesser than MSP and also they talk about paying remuneration to farmers. The agriculture sector is pretty much monopolised, hence it is the need of the hour that the government should withdraw its involvement because a monopoly for that matter is not healthy for any sector. It is a well-established fact that monopoly benefits only a certain section of people and it eradicates fair play.

Why are some states exceptionally vociferous?

Moving on to see the disparity in the intensity of revolt in various states, for which we need to understand that post-independence, not all states have developed at the same level or at the same pace, hence, some states are referred to as rich states such as Maharashtra, Gujarat, Tamil Nadu and Karnataka whereas, some states are referred as poor states such as Punjab. Therefore, for the development of a particular state, the funds are partially raised by the state themselves and some amount is donated by the Centre.  But this donation is not equal for all states. Suppose, all the States and UTs in India pay Rs. 100/- to Centre, now centre after collecting this amount has to redistribute it while redistributing it will not return Rs. 100/- to each state rather some states may get Rs. 15 or Rs. 40 or Rs. 150, depending on their requirement to develop so if it’s a poor state it may get more than it contributes i.e. more than Rs. 100 and on the contrary a rich state may end up getting lesser than-what it contributed, in this example, less than Rs. 100/-

The amount unreturned from the Centre could have been used for the State’s own development. Now let us apply the same logic in agricultural income. For its development, a States relies on its own income and contribution from the state, but we have noticed that during redistribution some states get less than what they contribute, so the States has to fill the monetary gap created by the Centre. The unreturned amount could be used by the state in its rural development, keeping this in mind, let us see case by case analysis.

Say in Punjab, in turn only Rs. 40 comes in lieu of Rs. 100, but it does need funds to develop its state, for this purpose State levies taxes on mandis, this tax is highest in Punjab, for the current year its value was 1750 crore.

It must be noticed that the tax amount is obtained from the mandis but the new system talks about eradicating the mandi system and creating a sort of ecosystem and the tax levied will not be credited into the state’s piggy bank leading to sufferings in the state development. In 2015, Shanta Kumar Committee gave a finding, which said there are only 6% of the farmers who are actually receiving the benefit of MSP. 94% of the farmers are not even aware of the concept of MSP.    

More than half of all government procurement of wheat and paddy in the last five years has taken place in Punjab and Haryana, according to Agriculture Ministry data. More than 85% of wheat and paddy are grown in Punjab, and 75% in Haryana, is bought by the government at MSP rates. Farmers in these States fear that without MSPs, market prices will fall.

Deduction of power to make law on “Agriculture”

The Seventh Schedule of the Constitution contains entries upon which Centre, State or both together can make laws in relation to any issues (i.e. Union List, State List and Concurrent List). List II; Entry 14 of the Constitution specifically provides power to the State for making laws in any matter relating to agriculture. 

Now, on the other hand, the Constitution provides power to the Union under Article 248 to legislate any matter which is of the State List, in the National Interest. This Article breaks all the distinguishing powers and barriers given in List I, List II or List III and provides ultimate power to the Union for making any law in any respect if they ought to believe that it is in the national interest.

On the basis of my understanding, two questions remain unanswered: 1st, what are the criteria to calculate a matter to fall under National Interest and 2nd whether the constitution-makers, while inserting this Article wanted to shadow List II under the power of Union?  

Recently Union with the assent of the President passed the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and The Essential Commodities (Amendment) Bill 2020 by the use of Entry 33 in the Concurrent List. This is a clear example of the crossing lines and misuse of the power vested under Article 248 of the Constitution by ultimately weakening the power of the State to make law under List II on the matter relating to Agriculture by maintaining the supremacy of the Union to make laws over matters of Agriculture. In the past also by using Entry 33, List III, the Union passed the Essential Commodities Bill, 1955.

To conclude, the farm bills (now Acts) look beneficial on the face of the farmers but it will be fruitful at the cost of state development. Also, the farmers may not be able to sell their produce at MSP since it will not exist anymore. At the same time, the government must do something to educate the farmers regarding their rights and benefits. Farmer’s reforms and farmer development must not be limited to passing bills but letting it reach them too.