In this interview, Professor Chittur Srinivasan, School of Agricultural Policy and Development, University of Reading, speaks to Flora IP about the farmers’ protests in India that started in early September 2020. After inconclusive talks with Prime Minister Narendra Modi’s government, the farmers are protesting three new central government bills (otherwise known as the Farm Bills). The farmers argue that the Farm Bills liberalise agricultural markets and allow private buyers to bypass government-controlled markets that, inter alia, help to ensure farmers receive a minimum price for their crops. The government asserts that the Farm Bills enacted in September, are necessary to modernise the largely state-regulated sector. However, farmers maintain that larger corporate players will misuse the new rules to disrupt the minimum pricing system.
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill allows farmers to deal directly with corporations and private buyers instead of doing business through regulated markets. The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill allows farmers, corporations and private buyers to negotiate contracts with promised price assurance rather than a regulated price set by the Indian government. While the Essential Commodities (Amendment) Bill seeks to modernise India’s food supply chain by reducing stockpiling, removing commodities like “cereals, pulses, oilseeds, edible oils, onion and potatoes” from the current list of essential commodities. It also aims to “drive up investment in cold storages” and give farmers the “freedom to produce, hold, move, distribute and supply” their products.
Flora IP (FI): Can you discuss India’s new Farm Bills?
Professor Chittur Srinivasan (CS): The current issues mainly revolve around the marketing arrangements for farmers’ produce. In many developing countries, the marketing system for agricultural produce has evolved, and it has led to different types of arrangements. In fact, if you want to go back to how these marketing arrangements emerged, you have to look at how the Soviet Union financed its industrialisation. Much of the economic literature will tell you that Soviet industrialisation was financed largely by extracting surplus from the agricultural sector (although this is debated). The Soviet Union did that essentially by collectivising agriculture and then giving the state the monopoly to procure grains. This allowed the state to extract surpluses from agriculture which was then deployed into industrialisation investments. It is perhaps useful to go back in time to understand how existing marketing arrangements for agricultural produce have come into existence in many developing countries.
In most developing countries, the arrangements have been dictated essentially by two considerations. One is that in a situation where you have a large number of small/marginal farmers and agricultural commodity prices are subject to fairly large seasonal variations; you need to be able to provide an assured minimum price for farmers produce to support farm incomes and to provide incentives for increasing agricultural production. The other major consideration has been that governments also operate what is called a public distribution system. To meet the needs of the public distribution system, they need to procure food grains. Unless they can pre-emptively procure food grains, they will not be able to supply the public distribution system – the public distribution system operation generally involves a fairly substantial subsidy. The government buys the produce at a certain price and distributes it through its agencies, through the public distribution system, and that may be at a lower price, which is for the benefit of the urban or other consumers. The difference between the two prices always involves a substantial amount of subsidy. If you want to provide a minimum support price to farmers and you want to be able to procure food grains by state agencies, then what you need to do is that you have to have a system by which farmers can obtain the minimum support price and the government can procure the foodgrains that it wants to supply the public distribution system.
The system that has evolved in India and perhaps in many other countries, where this kind of a procurement operation exists, is a system of markets or “regulated markets.” Most States have a set of Agricultural Produce Marketing Committees (APMCs). These are regulated markets, and farmers are allowed to sell only through these regulated markets. When they sell through these regulated markets, the government can provide them with the minimum support price. If they sell it only through these regulated markets, then the procurement agencies can procure the food grains through these regulated markets, which can be used for the public distribution system. This will not work if farmers can sell their produce to anyone.
If the farmers can sell their produce to anyone, then obviously the state procurement agencies may not be able to procure the food grains. That is why these regulated markets have always been associated with a provision that farmers have to sell their commodities only through the regulated markets. That is how the system has got has come into being. These regulated markets in practical terms operated through a number of licensed intermediaries -they have different names- but essentially, they are licensed intermediaries who can collect the produce from the farmers and then sell it through the regulated markets. They are the so-called middlemen. What happens is that the farmer does not go directly to the regulated market. The farmer actually deposits the crop with the intermediary; it is the intermediary who takes care of the transaction in the regulated markets. That is the system. Because there are certain fees levied on the transactions by the state governments, the existence of these regulated markets is also a large source of revenue for state governments as well. If these regulated markets did not exist, then the state governments would not be able to levy the fees on the transactions. Therefore, they would also lose a large source of revenue. This has been the sort of overall model.
In practice, the system has been associated with a lot of inefficiencies. It is subject to a lot of corruption, for example. Some argue that the practices of the licensed intermediaries who act as the middleman may be exploitative of farmers. There are debates about whether this is ideal for farmers or whether farmers should be allowed to sell their produce to anyone.
The Farm Bills do three things. First, they terminate systems whereby farmers can sell their produce only through these regulated markets, which means they can sell it to anybody. If they can get a higher price than the minimum support price, they can get that as well. Second, these bills also allow for contract farming arrangements. The contract farming arrangements are already allowed, but they make a number of changes to the legal transactions associated with contract farming. The Essential Commodities Act places several restraints on the trade and storage of food and agricultural commodities. Those are all provisions introduced in scarcity times to prevent hoarding and profiteering amongst others, but they also had the effect of ensuring that any given trader could not expand beyond a certain size. The Bills are providing the farmers with the option to sell their produce to whosoever offers them the highest price. Then they are bringing in place certain arrangements through contract farming.
Commercial large scale farming in India is not really possible because there are land ceiling laws. Nobody can have land above a certain ceiling size, and that has effectively prevented the development of commercial farms. Except for certain plantation crops such as spices, you do not have commercial farms in India. Hence the need to use the contract farming route for commercial agriculture. For example, Pepsi gets a certain grade of potatoes that are cultivated by farmers. It uses that to make chips. Contract farming is in some sense, being made easier or perhaps facilitated. The Essential Commodities Act, which prevented a significant investment and expansion of trade by individual trading units, is relaxed. The intention is to provide farmers with the options, and the regulated markets have been associated with a lot of inefficiencies and corruption. For example, the licensed middlemen charge some commissions. Then there may be corruption around weighing food grains and the classification of food grains. You can get your grain classified in different ways as a result of corruption. There are a lot of inefficiencies which creep into the system.
The question is that if this is all the intention of the laws, what exactly is the rationale for the protests? Why are farmers up in arms against this?
There are several reasons. One of the reasons is that the farmers fear that the system will lead to a decline of regulated markets. Put differently, if you can sell your produce to any trader, the volume of business in the regulated markets will decline. That will affect the interests of the licensed intermediaries. But the farmers also feel that this is perhaps a prelude to doing away completely with the minimum support price system. The farmers feel that this is just a prelude, one step away from discontinuing the minimum support price. If the regulated markets decline and the minimum support price gradually falls into disuse or is gradually withdrawn in one form or another, the farmers will have to depend on the private trade for selling their produce.
There are a lot of corporates who are interested in commercial agricultural trade. The farmers are afraid that they will be at the mercy of corporates because they will not be in a position to match the market power of corporates. The corporates may come in through large contract farming type of arrangements. Like we have here with the milk producers who supply supermarkets in the United Kingdom, you do not have much of a choice regarding what price you get and the terms you accept. You either supply to supermarkets on their terms, or you do not. Along with the anticipated gradual withdrawal of the minimum support prices system, the farmers generally feel that they will be left worse off.
The other related aspect is that although these intermediaries are considered to be in some ways exploitative, in actual practice, these intermediaries are not just commission agents. They provide a whole ecosystem of services. They also, for example, advance inputs and credit to farmers. They pay the farmers when they get the grain from the farmers, but the intermediaries may be able to recover the money from the sale in the regulated markets only after a certain lag. They facilitate consumption smoothing. They are also, in many cases, moneylenders. They advance credit and therefore, to repay the credit, the farmer has to sell his produce to the particular commission agent. Accordingly, if you eliminate the middleman, you are also eliminating the ecosystem of services that they provide. Even if you are unhappy with the intermediaries’ services, you may still be apprehensive about what they are going to be replaced with.
It is almost a question of the known intermediation system (with its advantages and disadvantages) versus the unknown systems and actors that farmers will have to deal with. There are some studies which suggest that the intermediation process is quite efficient. The intermediaries argue that they charge a commission of about two and a half per cent of the total transaction value. But they also have costs to bear. For example, they have to incur informal “transaction costs” in the regulated markets. As such, their income is only a small fraction of the two and a half per cent commission charged.
From the government’s perspective, the Farm Bills are intended to provide farmers with options and choices for their benefit, but farmers are apprehensive that the Bills could go against them. Furthermore, the regulated markets do not operate in the same way through all the States. In some States and for some crops, the regulated markets and licensed intermediaries process a very large part of the agricultural commodities that are sold. In other states, they barely have an impact, and in some states, these regulated markets are non-existent. Depending on the importance of the regulated markets in the agricultural commodity trade of different crops in different states, the resistance or the opposition to it varies. It is a complex issue.
FI: In addition to the marketing arrangements that engendered the farmers’ protests discussed above, the structure of India’s seed system is also a significant subject. Please share your thoughts on India’s seed landscape and any changes that you would like to see.
CS: India is still operating a seed certification and seed regulatory system developed in the 1960s. It provides for seed certification, but seed certification is not mandatory. Seed certification is mandatory only in respect of what are known as notified varieties. That is, those varieties which have been formally released and made available to farmers. Notification is a process by which those varieties, which are expected to be extensively used by farmers, are brought under the purview of the quality control system. A lot of the private varieties need not necessarily come under the purview of the seed certification system. They have this category of what is called truthfully labelled seed. A lot of the private varieties are sold under this truthfully labelled category.
There is a dual regulatory system as far as quality control is concerned. A lot of the issues are about how effective the quality control system is. Even the seed certification agencies that they have – every State has State level certification agency, which is distinct from the State seed corporations or the other agencies which produce seed because they are supposed to be independent of that – cover only a small fraction of the commercial seed transacted in the State. The development has to be in terms of improving the quality assurance infrastructure. The overall system, as it has been designed, is fairly adequate. The quality assurance provided through the seed certification system needs to be improved.
Truthfully labelled seed provisions were essentially brought into place in the 1960s because the seed certification system was not expected to have the capacity to handle the entire commercial seed sales in the country. Only the so-called notified varieties were brought under the purview of the seed certification system. It was felt that the seed certification infrastructure could not simply cope with the demands which would be placed on it if the entire commercial seed sector was brought under its purview. But that was almost five decades ago, and even today, we are perhaps making the same argument.
Many of the private seed companies have developed their own quality assurance systems. In some cases, they may be better than the official seed certification system, but there is a wide range, and there may be a lot of fly by night operators who will be selling substandard seed. The seed quality assurance system may have to move towards the more comprehensive coverage of the commercial seed sales. The seed certification system is also fragmented because each state has its seed certification system, and there are a lot of frictions when there is this inter-State transactions or sales of seeds. There is perhaps a case for having a more uniform system which can reduce a lot of the transaction costs in the commerce for seeds.
For more on the farmers protests in India, see:
Shiney Varghese, ‘The Indian Farm Bills to Force Farmers to “Get Big or Get Out”?’
