From

Professor MG Chandrakanth,

Professor & Head of Agri Econ, UAS (Retired) and

Director Institute for Social and Economic Change (Retired), Bangalore, 

mgchandrakanth@gmail.com  

To

Shri Narendra Singh Tomar ji

Hon'ble Union Minister of Agriculture and Farmers Welfare

Union Minister of Agriculture

Government of India, Krishi Bhawan, New Delhi 

Email: ns.tomar@sansad.nic.in; nstomaroffice@gmail.com 

Dec 18, 2020, 4 pm 

Sir:

Sub: Why Centre should not repeal the 3 Farm Laws

As the former Professor and Head of Agricultural Economics, UAS and the former Director of ISEC, Bengaluru, I am herewith submitting 12 reasons as to why the Government of India should not repeal the 3 Farm laws enacted for the benefit of our farmers during Sep-Oct 2020.  

1. Economic History of exploitation at APMC mandies 

FAO  judges the performance of a marketing system with the following measures : (1) farmer's share of the retail price paid by the end user or consumer; (2) gross marketing margin or farm-retail price spread, and (3) proportion of consumer's income which must be spent on food (http://www.fao.org/3/w3240e/w3240e12.htm). Despite 55 years of Market Reforms, our farmers are still receiving a very low share of the Consumer Rupee (Fig 1), as indicated by the Reserve Bank of India study covering mandis in 16 States,16 food crops, 9400 farmers, traders, retailers, reporting 28% in potato, 33% in onion, and the MSP crop rice giving only 49%. Therefore, MSP alone has not and will not assure farmers a greater share of the consumer rupee due to surpluses in the market. In addition market inefficiencies and market imperfections, need to be reduced by injecting competition by widening the farm markets which the three farm laws aim at benefiting the farmers.    

 

Fig 1: Farmer’s share in consumer rupee in different crops: Bhoi, B.B., Sujata Kundu, Vimal Kishore and Suganti, D, Supply chain dynamics and food inflation in India, RBI Bulletin, Oct 2019, pp. 95-111. https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/1SUPPLYCHAINDYNAMICSE29D2F2AC0BF4F1DB05731C6E9B64885.PDF)  

2. Farmers in India in addition suffer from seven more inefficiencies in our APMCs : 

Even after 55 years of regulation in APMCs, farmers are not issued formal receipt by the mandi merchants, who instead issue ‘white slips’ with informal notings, with no commitment by middleman reg price / quantity/ quality (sample reproduced below from a market in Karnataka) (Name removed). The entire marketing activity moves in a informal manner and farmers need transparency in price formation and payment. 

  

• As middleman also do informal money lending, farmers are caught in interlocked markets as they are forced to sell their produce to the same middleman at whatever price offered. 
• The middleman further exploit farmers at times of distress sales
• Middleman realize substantial income from interest earnings from informal lending
• Middleman realize substantial income from illegal, unfair deductions from produce of farmers in the process of buying even after APMC regulation
• Existence of undercover sales, using hand signals under kerchief and in the air 
• Cartels in APMCs leading to collusion among traders depressing the prices causing losses to farmers.

 3. Existence of Superfluous middleman who garner major share of the consumer rupee    

The APMC mandies are fraught with superfluous middlemen who garner their margins at every level increasing the marketing costs and margins. For instance, if a commodity costs Rs. 6 per unit at retail level, the wholesaler would have received 67% of the retail price, the secondary commission agent 50% of the retail price, trader 37% of the retail price, primary commission agent 30 % of the retail price, consolidator 22 % of the retail price and the farmer who produced the crop with his sweat and blood, a mere 17% of the retail price (Fig 2).  

Fig 2: Superfluous middleman masking the agricultural markets

4. Due to excess supplies, in addition to MSP support, farmers need to benefit from widened competitive markets outside APMCs

Due to green revolution technologies, farm supplies have increased which the current APMCs alone are constrained to handle, and is resulting in non-competitive depressed prices. However, when farmers are allowed to sell outside APMCs and buyers are allowed to buy outside APMCs, due to new supply / value chains, buyers are able to offer better prices due to value chains and competition. This will benefit farmers to gain from selling to those who add value to farm products through processing, grading, storage, exports. In addition, the Nominal Protection Coefficients (Domestic price divided by international price) for agriculture is 0.87, implying that our farmers on an average can realize at least 13% higher price by exporting. Our farmers need to be facilitated to export by facilitating domestic markets to be competitive.  

5. Non-infringement of farmers’ rights to sell their produce

Farmers as producers have their right to sell their produce to whomever, wherever, whenever, whatever quantity. And this right cannot be infringed upon. The 3 new laws precisely provide this freedom which was curtailed by the erstwhile APMC Acts. In addition, this allows any buyer to buy farm produce by competing with APMC mandi prices. As the Elasticity of Price Transmission is impressive, the buyers outside APMC mandi will have to compete with APMC mandi and vice versa to attract farmers’ produce, which the new laws aim at. 

6. The 3 Farm acts aim at widening the market to inject competition by not interfering with State autonomy. 

Even though some States have amended the APMC acts and provided for e-trading, the provision for trade and commerce lies with the Centre. Therefore, according to entry 26, States can regulate trade in agricultural commodities subject to entry 33 which is in the concurrent list, which deals with trade with food stuff, cereals and so on.  Thus, while domestic market is in the state list, trade comes under concurrent list. Doubling farm income has to happen with such market reforms. In addition, according to Article 249, the Centre can enact law in  national interest of saving farmers from exploitation  by middleman which has been continuously reported by scores of farmers all the time.

7. Does existence of multiple markets with different regimes result in exploitation of farmers?

The new Farm acts merely facilitate competition by allowing buyers outside APMC mandis to purchase from farmers  at APMC mandi, farm gate, storage, processing spaces. Due to sheer exploitation of farmers under the clutches of middleman in Mandies, neither farmers/consumers are paying competitive prices, nor the marketing margins have reduced. This is precisely due to collusion and cartels in APMCs as in the oligopsony market, which cannot be addressed without opening up markets and setting the markets right. Amendments can at anytime be made to reduce and control exploitative tendencies at any time for the New Farm laws.   

8. Allowing market competition outside APMCs have resulted in 38% increase in price of farm commodities for farmers

Allowing market competition through UMP (Unified Market Platform in Karnataka) for bidders outside APMCs, resulted in an average increase of prices by 38%. This implies that current market prices are in fact depressed to the tune of 38% due to absence of market competition outside APMCs. Thus, competition outside APMC can set bench marks for APMC mandi merchants to offer better prices to farmers. In addition, there can be competition in procurement and distribution cost which can reduce from the current level of 30% to 15% by allowing competition.  

9. Bihar has experienced impressive growth rate after agricultural reforms 

Agricultural reforms were brought in Bihar in 2005, removing the APMC act. Before agricultural reforms, the Bihar economy grew at 5.3% while India’s economy grew at 6.8%. But, after the agricultural reforms, India’s economy grew at 8.3%, while Bihar’s economy grew at 11.7%. The agriculture growth rate after agriculture reforms in Bihar was 4.7% much higher than the corresponding growth rate in India at 3.6%. Therefore, it is crucial to note that that Bihar performed much better than the rest of India after agricultural reforms.  

10. Contract farming Act has empowered farmers much more than buyer

Contract farming enables farmers to sell produce at contractual price. In addition if the market price is above the contractual price, farmer can sell at market price. The contract farming has benefited small farmers more than large farmers since the highest proportion of participants in the contract were small farmers. The income derived from contract crop per acre was the highest for small farmers. Experience of contract farmers in Baby corn and vegetables has shown the benefits reaped since two decades due to discipline followed. There was competition among farmers to enter into contract with contractual firms due to the benefits assured in the process.

 (http://www.toenre.com/downloads/2008_Contract_farming_NN&MGC.pdf).  

11. Indian agriculture marketing is starved of 3Cs, Capital, Competition, Commitment: 

Indian Agricultural Marketing is starved of 3 Cs: 1. Capital, 2. Competition, 3. Commitment. Capital injection postpones the operation of the Law of Diminishing Marginal Returns. The capital injection can come from savings of farmers, investment from Government and Private sector. The investment from savings of farmers has reached the pinnacle through investment in irrigation borewells and pumpsets and currently the Gross private capital formation is 75% in agriculture. The Governmental investment has been through irrigation dams, reservoirs and canal systems. The investment from private and corporates either through CSR activities or direct corporate investments in creating local agricultural marketing infrastructure has rich pay offs to farmers especially in processing and logistics. The political will of the Government in enacting the 3 new Laws is crucial  and hence the Government should not repeal the 3 laws. It is time for agriculture to benefit from corporate investment utilizing the provisions of Essential Commodities Act enabling operation of scale economies in agricultural marketing. 

12. Creation of National overseeing Authority:  

Farmers all alone cannot be left to be taken care by the free will of competitive markets and role of free markets. Therefore, a National body - National Agricultural Marketing Board similar to TRAI (Telecom Regulation Authority) and SEBI (Securities and Exchange Board) has to be created to enhance the bargaining power of farmers on the one hand and to protect farmers, purchasers, sellers and consumers from possibilities of exploitation on the other. 

Yours sincerely, 

MG Chandrakanth

Professor & Head of Agricultural Economics, UAS and Director, ISEC, Bengaluru (Retired) 

mgchandrakanth@gmail.com

 

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