How Much MSP Does A Farmer Need?

“The Evil One sowed discord among them, and they could not agree.“
– Leo Tolstoy, How Much Land Does A Man Need? (Method later adopted by the Supreme Leader)

When Rihanna tweeted, “Why aren’t we talking about this?!” with the hashtag #FarmersProtest – the world was introduced to the biggest farmers’ protest in recent history, and possibly all history. The ongoing protest, which marked its one-year anniversary on August 9, 2021 (officially), has mobilised millions of farmers, servicemen, transport unions, political parties and ordinary citizens against the enactment of the three new farm laws by the Government of India. With over 248 casualties, this movement has struck the ruling party at the grassroots, on the country’s political stage, and on the diplomatic front globally. In this article, we’ll take a closer look at these laws and what they actually mean.

Key Terms:

APMC – Agricultural markets in India are(were) mainly under the control of the Welfare State – and mostly regulated by state Agriculture Produce Marketing Committee (APMC) laws. APMCs ensured fair trade between buyers and sellers and gave a fair price for the farmers’ produce. APMCs provide licenses to buyers, commission agents, and private markets. They levy market fees or charges on trade and provide infrastructure within the markets to facilitate the trade. (Source – PRS)

MSP – MSP is the price fixed by the Government of India to protect the farmers against a fall in prices due to increased supply during bumper production years. The Minimum Support Price is guaranteed for every produce by the Government. In case, the market price for the commodity falls below the MSP, government agencies purchase the entire quantity offered by the farmers at the announced value.

On the first week of June 2020, the GoI promulgated three ordinances (temporary laws). These were all added in the Essential Commodities (Amendment) Act, 2020, which contained three laws. These were introduced and passed by the Lok Sabha on September 15 & 18, 2020. The Rajya Sabha passed them on September 20 & 22, where the Government is in the minority via a voice vote – ignoring the opposition’s requests for a total vote. The President of India signed it on September 28, converting them into Farm Bill 2020. The legality of the acts has been questioned since both agriculture and markets come under State List – that is, the areas of legislation where the State Legislative Assembly has the jurisdiction.

Highlights of the Ordinances: (Source – PRS Legislative Research)

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 allows intra- and inter-state trade of farmers’ produce beyond the physical premises of APMC markets. State governments are prohibited from levying any market fee, cess or levy outside APMC areas. 

The Farmers Agreement Ordinance, 2020, creates a framework for contract farming through an agreement between a farmer and a buyer before producing or rearing any farm produce. It offers a three-level dispute settlement mechanism: the Conciliation Board, Sub-Divisional Magistrate and Appellate Authority.

The Essential Commodities (Amendment) Ordinance, 2020 allows the central government to regulate the supply of certain food items only under extraordinary circumstances (such as war and famine). Stock limits may be imposed on agricultural produce only if there is a steep price rise. 

What the Government aims to achieve (officially):

In one sentence, the government is promoting a ‘free market’ – where the government is not present to monopolise the APMC buyer markets. As such, any private buyer can approach the farmers to buy their produce at higher rates than the ones fixed by the government. On paper, this will increase the availability of buyers – since the farmer is free to trade without any license or stock limit, plus the increased competition among the buyers fetches the farmer a better price for the produce. Hence, the agricultural market finds itself in a more ‘liberal’ trade.

The reasoning behind the new farm laws came from the recommendations of the Standing Committee on Agriculture (2018-19) (See report). To ensure better remunerative prices for the farmers, it remarked that a new, transparent, accessible and efficient market platform needed to be created. It further claimed that most farmers couldn’t access the government procurement facilities and APMC markets (also known as Mandis), hence smaller rural markets can be created as an alternative solution equipped with infrastructure facilities to provide this ‘much needed‘ access to the small-scale farmers. (See report)

What will eventually happen:

The freedom to buy produce directly from a farmer outside the APMC markets is granted to private buyers. This allows the transactions to take place without any licenses or paying any fees to the APMCs – and facilitates a lot of transactions, especially with individual smaller farmers with smaller total produces, to take place without having to pay taxes to the state or central governments. The framework provided to buyers and farmers will allow them to enter into contracts before or after the crop season, and a price will be fixed for an assured supply. The point that is not foreseen is that the price that is set does not have to be, in any way, correlated with the MSP of the produce or the rate the APMC usually offers. The third Ordinance provides stock limits for agricultural produce, which would only be imposed when retail prices increase sharply. However, this exempts value chain participants and exporters from any stock limit. So not only do big corporations get to buy the produce in bulk, but now they would be able to drive market prices by controlling the entire supply chain.

This policy has had its fair share of history. In 2006, the state of Bihar did away with its APMC Act with similar objectives. In such an unregulated market, the farmers faced issues such as high transaction charges and a lack of useful information on prices and the arrival of the produce. The Standing Committee on Agriculture (2018-19) recommended developing infrastructure in states without APMC markets, with prices in APMC markets serving as the benchmark, but no such action has taken place yet.

What is the bare minimum the Government can do?

Most farmers lack access to infrastructure and institutional structure, government or otherwise. Small and marginal farmers make up around 86% of agricultural landholdings in the country but have little to no access to courts, markets, transport and other facilities. They are dependent on ‘aadhtis‘ (middlemen) who provide them with all such services. So no, when the Supreme Leader claims this will remove the middlemen in agriculture, it will not. It will remove service providers from the supply chain. And with no control over supply, no legal recourse in courts, and no guaranteed MSP – it is hard to find what good the 86% of the farmers will get out of these three laws.

Also, the next time a BJP supporter supports these laws – show them this:
(Credits – LSTV, TEN NEWS and Late Smt. Sushma Swaraj)

Edited by Apeksha Patrick