A Critical Review of the Three Farm Bills, 2020 with a special focus on the Minimum Support Price

India is a country that is built on its agricultural prowess. Since Independence, the national leaders and policy makers have engaged in various activities to strengthen the agricultural sector and make us self-sufficient. Indian agriculture reforms can be classified into four periods (Tripathi & Prasad, 2009) namely,

• 1950s – mid 1960s: Period of agrarian reforms, institutional changes and cooperative credit institutions
• Mind 1960s – 1980: Period of modernization and green revolution with a focus on high yielding varieties and modern technologies in farming. Achievement of self-sufficiency
• 1980 – 1991: Period of diversification. Focus shifted from food crops to other diverse set of farming. Poultry, dairy, fishery, fruits etc. accelerated the GDP growth.
• 1991 onward: Since LPG (new economic policy) there was a significant shift in the agricultural sector. Albeit there wasn’t a direct reform, the sector was affected by the deregulation of exchange rate, liberalization of external trade and disprotection to industry. 

New Agricultural Policy, launched by the Government of India in 2000, is a significant event in the history of agricultural reforms. It shifted focus to sustainability and equity in farming. However, it lacked a structured mechanism as to how the policy is to be implemented. Since the policy document of 2000 no significant change was brought in since 2020 with the three farm bills which has stirred up a huge controversy across the nation resulting in one of the biggest protests ever witnessed, receiving coverage and support from across the world. There are several demands laid out by the protesters towards the new farm bills and one of the significant demands is the reintroduction of a minimum support price and to recognize it as a basic right of all farmers. 

Minimum Support Price:

Minimum Support Price or MSP is a government stipulated price which is guaranteed to the farmers of select crops as a fail-safe mechanism in the event of deflation or loss. The government sets a price with a formula for crops that they would pay the farmer and procure in case of failure to sell it to the market or lack of demand or fair price. It provides a price signal and gives an assurance to the farmers during the time of sowing. However, government generally announce a higher procurement price during the time of harvest such that the price is higher than the MSP value but lower than the market price and issue price. The MSP is set and regulated in consultation with the Commission for Agricultural Costs and Prices (CACP) since its introduction in 1965. Main objectives of MSP are,

• The provide price stability and remuneration to farmers and fosters increased production and availability of goods.
• Increase access to food grains among all the citizens
• Matching the production pattern and economic needs of the nation

In 2018 budget, the then finance minister Arun Jaitley had prescribed a 1.5 times MSP as a positive reform to support the farmers. However, it was later revealed that the price of 1.5 times is not set on C2 formula which would include the interest forgone on owned land and fixed assets. If the calculation were based on the C2 formula then the MSP value is found to be lower than the 50% assured by the government (Sayantan Bera, Livemint, 2018).  

MSP at some points can become a huge burden for the government (according to government officials) and leads to excessive supply of food grains beyond what is required. This results in a significant loss in the economy. This burden of unsold stock on the government is one of the key catalysts that lead to the three farm bills of 2020. In order to break the MSP regulated purchases of the crops by government, the current BJP led government is looking towards privatization solutions in order to increase investment and access to markets through private players. However, corporate interests in basic commodities is a. recipe for disaster. The last thing a welfare state like India needs is a unequal and unjust distribution system that is driven purely by profits. Farmers also have to be cautious of corporatization of post-production activities based on the problems they faced in dealing with privatized fertilizer industry. 

The following are the main postulates of the three farm bills, 2020,

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

• Allowing farmers to trade beyond select areas to any place of production, collection and aggregation
• Enabling electronic trading mechanism
• Prohibits State Government from regulating or levying fee on farmers trade beyond the trade area. 

Criticism:

• State governments would lose their revenue through Mandi system
• It would lead to the end of MSP based procurement by the state. This could lead to instability, especially coupled with the exploitative practices of middlemen and aggregators
• E-NAM is a government initiative that is provided to farmers for electronic trading but is. Heavily linked to the Mandi system. This facility would be rendered redundant
• On the other hand, farmers could have more choice towards their trade, given that they have the knowledge and awareness about these options. However, as it is often seen, the farmers who cultivate in smaller lands are quite oblivious to the complex mechanism and their nuances leading to a situation where they are taken advantage of by the middlemen

Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020

• A legal framework for farmers to engage with private players through pre-arranged contracts with predetermined prices
• Also provides a dispute resolution mechanism

Criticism:

• Contract farming requires both the party to be on equal footing while entering a contract. Often the farmers are unaware and ignorant towards stipulation and sophistication of contracts leading to deceit and legalized cheating of the farmers
• There is no guarantee that the private players will enter into contract with the small-scale farmers as it would lead to operational and financial complications
• Majority of the operation in processing and distribution is taken up by the private corporations and this may hold sway in most disputes

Essential Commodities (Amendment) Act, 2020

• Removes food crops from the list of essential commodities, preventing stockholding except during ‘extra-ordinary circumstances’
• Imposition of stock limit is in relation price rise

Criticism:

• There is not a clear definition of extra-ordinary circumstances and the price that would trigger the fail-safe
• Hoarding by the private companies could lead to them having bargaining power over the future purchase of stock
• There is no clarity over the sustainability of these activities

One could lay arguments at both sides in support and in opposition to these bills. What really matters is the human aspect of this issue. Indian agricultural sector is makes up a majority of the workforce and a plurality of that workforce are farm laborers and not landowners. Laborers do not hold the right over the agricultural commodity and hence do not see their benefits in any reforms that excludes them. Northern India has a lot of small-scale farmers who depend enormously on the Mandi system for their income. Moreover, the exploitative practices of the aggregators and middlemen becks the question of the effectiveness of such a system. We do have to agree that there needs to be a change in the system, but the change must be initiated from the grassroots level inclusively. A change in the way of life and labor cannot be imposed from the top without expecting resistance and it invariably cannot address the real needs of the people. Policy makers and economists who see the farmers and laborers as mere abstractions or numbers cannot truly empathize with their struggles and problems. What we need in India is not an empirical approach to change but a humane approach that goes beyond simple objectivity.