Assuring farmers’ income in the context of new farm laws: Issues and way forward

By Dr Arjun Kumar, Ritika Gupta

“The agriculture sector is broadly successful. The public distribution system is functioning well, food security has been achieved and productivity is outstripping expectations. However, the farmers are unhappy, their incomes are abysmally low and cases of farmer suicides are still rampant”. Highlighting this critical conundrum that is being faced by the Agri-sector, Shri P Chengal Reddy, Chief Advisor, CIFA, dwelled on the need for urgent reforms in the farm sector. He highlighted how the other sectors of the economy grew substantially and achieved global competitiveness after the 1991 economic liberalization and remarked that a similar reform in the farm sector has been long due.

Shri Reddy was chairing the session, The State of Employment – #EmploymentDebate based on the topic, “Assuring Farmers’ Income in the Context of New Farm Laws: Issues and the Way Forward”. The discussion was organized by the Impact and Policy Research Institute (IMPRI), New Delhi, Working People’s Charter and Counterview. The key speaker for the session was Dr A Amarender Reddy, Principal Scientist (Agricultural Economics), ICAR-Centre Research Institute for Dryland Agriculture, Hyderabad.

Speaker

Dr A Amarender Reddy opened his lecture by addressing the reasons for the poor income level of farmers. He attributed this to the fact that although the share of agriculture in GDP has reduced significantly, its share in employment has not reduced in comparison to the other developed countries. As a result, the income share of the sector is only 14% and the average income of a farmer is one-third of what an employee from the non-farm sector earns. Secondly, Dr Reddy points out that nearly 90% of the farmers survive on a meagre income which is barely enough to meet their consumption needs. Hence, they are rendered incapable of investing in capital assets, other fixed assets or even in education, leading to perpetually indebtedness. The other pertinent reason for the poor income level of the farmers is the rigidity of the current farm laws which permit only the farmers to sell in the APMC mandi. This has led to a very small private sector investment in the agriculture sector, to the tune of 2% of the GFCF in 2017-18, states Dr Reddy. All of this has given rise to a vicious cycle of low prices, low incomes, increased debts and low investments which in turn lead to low-income levels, remarked Dr Reddy.

Regarding the current status of the MSP regime, Dr Reddy noted that the cost of production of crops varies across different states. The MSP announced has to signal the farmer regarding the competitiveness of each crop in different regions so that they can produce the one which will fetch them a price which is greater than their cost of production. Even the procurement system has peculiar geographical differences with higher procurements in certain regions and of certain crops and negligible procurements in some other regions and some other crops. Also, there are several imbalances and inherent deficiencies in the MSP system due to which hardly 10% of the farmers receive the benefits under it and the rest are exposed to the market weather, estimates Dr Reddy. Therefore, the policy frameworks must aim at improving the marketing efficiency and the marketing system as a whole. The new farm laws will help in achieving this purpose, opined Dr Reddy.

Commenting on the status of the APMC’s, Dr Reddy addressed the non-uniformity in APMC charges with variations across states. He questioned the need to tax agriculture considering that the farmers are already poor and suggested that the APMC’s should not be used as a tax revenue source for state governments. Addressing the apprehension that the new farm laws will challenge the position of the APMC mandi’s, Dr Reddy pointed out that even currently, only a portion of the farmer’s produce is sold in the mandi’s and the rest is sold in the market. In that line, the new farm laws are only legalizing this practise and strengthening the outside markets, he clarified.

Dr Reddy dwelled upon in detail about the interstate differences in government support to the farmers. Extrapolating from the data showing varying levels of awareness amongst farmers in different states about the MSP system, he states that the poor farmers from NE India, Jharkhand, M.P. etc who cultivate the neglected crops receive less support. Whereas, the farmers from the already developed states like Punjab and Haryana receive the benefits from multiple support schemes. This leads to widening of the already existing income divide between the farmers of these states, he cautioned.

Elaborating on the efficiency of the procurement system, Dr Reddy cautioned that the practice of procuring more than stipulated buffer quantities lead to certain imbalances. It necessitates the offloading of the excess stock in the international or domestic market, which could lead to a price crash. Also, it could lead to a loss when the international market prices or the FCI reserved prices are lower than the actual economic cost of the stock which is inflated by the excess expenditure on handling, logistics, storage and distribution of the produce. Such wasteful expenses must be rationalised and redirected to rural and agriculture development, suggested Dr Reddy.

Speaking on the bias against pulses and other oil seeds in the procurement policy, Dr Reddy emphasises that it is economically unfeasible to increase their procurement under MSP. He suggests that some alternate mechanisms need to be built as pulses and oilseeds are poor man’s crops.

Considering all these lacunae in the agriculture sector, Dr Reddy identifies a long period policy paralysis that is existent. The acts and regulations that were put in place in the 1960s to tackle the ‘ship to mouth’ situation that existed back then are still being perpetuated in this era when India is self-sufficient. He also underlined the redundancies of several legislations, the corruption that is built in the system, the presence of a large number of petty traders and the lack of infrastructure in the sector. Dr Reddy believes that due to certain vested interests, several much-needed reforms are hindered from being implemented in due time.

Appraising the context of new farm laws, Dr Reddy contested that for several years the central government tried to prod the state governments to adopt the model agriculture acts. However, there was very little success and hence through the new farm laws, the government seeks to rectify this and build a nationwide common market, encourage private sector participation and provide freedom and choice to the farmers. In such a setup, the farmers, consumers and large corporate houses will stand to gain and the middlemen, state government revenues and APMC market committees will accrue a loss, maintains Dr Reddy.

In his closing remarks, Dr Reddy bats for a shift from an assured price to an assured income scheme. He suggested two alternatives, either a shift to a Price Deficiency Payment (PDP) system, where paddy and wheat could be procured under MSP up to the levels necessary to meet the PDS demands and the remaining 21 crops should be provided PDP. The other alternative he put forth was the modification of the insurance scheme, the PMFBY, which needs to cover the price risk in addition to the yield risk. The AIC should be strengthened and the budget under agriculture subsidies should be pooled under this for providing income insurance. This will prevent market distortion and assure the farmers a minimum income, concluded Dr Reddy.

Discussants

Dr G V Ramanjaneyulu, Executive Director, Center for Sustainable Agriculture, Secunderabad, Telangana:

Speaking about the new farm laws, Dr Ramanjaneyulu underlined the difference in opinion between the government who considers it as a panacea for all ills and the farmers who consider that it will lead to peril. The reality is, however, in-between, states Dr Ramanjaneyulu. He argues that reforms are much needed as times have changed. Today, the farm sector is faced with several new challenges like the simultaneous prevalence of surplus production and poor income levels, falling prices and the rising cost of cultivation, changing consumption patterns and climate change, noted Dr Ramanjaneyulu.

Dr Ramanjaneyulu listed out certain measure to tackle these issues. He advocated for progressive decentralization, where the states are allowed to decide regarding the cropping pattern, market intervention mechanisms, investment etc under the overall guidance of the GoI. He also suggested that the faulty price estimation method under the MSP system should be changed; price distortions should be dealt with; subsidies should be rationalized and non-price distorting direct cash transfer mechanisms need to be explored with proper identification of the beneficiaries.

Dr Ramanjaneyulu also highlighted that farmers are doubly taxed since they pay input taxes when purchasing raw materials as well as pay the mandi taxes when selling their produce. He suggested that this taxation system must be discontinued as it is impacting the farmer’s income levels. Dr Ramanjaneyulu appraised the essentiality of the new farm laws but criticized the way it was formulated by not keeping all the stakeholders in the loop. He added that the government must focus on the effective implementation of these laws and improve last-mile delivery of support services to achieve its underlying aim of revamping the agriculture sector.

Prof Seema Bathla, Professor, Centre for Study of Regional Development, Jawaharlal Nehru University (JNU), New Delhi:

Prof Bathla corroborated Dr Reddy’s observation that the input costs are rising steeply despite the fertilizer, power and irrigation subsidies provided by the government. And at the same time, there is poor prize realization leading to low net returns to the farmer. She adds that this conundrum could be addressed by either regulating the input cost or increasing the output prices. The other alternative towards addressing this issue would be reforming the marketing mechanism, increasing the yield, reducing risk and tapping into the agro-processing sector, she remarked.

With regards to reducing the input costs through subsidies, Prof Bathla addressed the issue of regional bias in providing subsidies and points out that such a bias has been inherent right from the green revolution. And this has led to the poor agriculture development of the eastern states. However, she contests that the subsidies depend on use and states such as Punjab and Haryana utilize a lot of fertilizers leading to this skewed disbursal of subsidies which hardly reach the neediest small and marginal farmers. Also, there is a need to analyse the impact of the increased usage of fertilizers and their impact on land and productivity. Analysing the next alternative of augmenting the output prices received by the farmer, Prof Bathla highlighted the challenges involved in moving to a PDP or a direct cash transfer scheme. She states that it is difficult to estimate with accuracy how much fertilizer is being used in a state, its price elasticity and the impact on overall output. Hence the amount of cash transfer that needs to be given is something that has to be researched thoroughly, she added. Considering these issues in the first two alternatives, reforming the marketing mechanism would seem to be the next viable way forward. However, such reform has certain prerequisites like a high public investment in agriculture, irrigation and rural infrastructure, adds Prof Bathla.

Dr Narasimha Reddy Donthi, Independent Consultant, Policy Expert and SDG Campaigner:

Dr Donthi commended the analysis put forth by Dr Reddy and the observations made thereunder. To add his perspective to this, he singled out the critical issues that need to be addressed on priority. According to Dr Donthi, since the MSP and Procurement policies are not universal, crop diversity is being affected and this calls for reforms in the MSP regime. He highlights the issues associated with modern input technologies like GM crops and HYV seeds which leads to leakage of income and calls for increased deliberations on whether brining in the private sector will solve all the inherent problems. Lastly, he criticizes the poor consultation process that was adopted while bringing in the farm reforms. No space and time are allotted to listen to the voice of farmers, notes Dr Donthi while citing examples from the past in case of cotton, corn, sugarcane.

Dr Donthi opined that there should be a thorough analysis of what should be the role of the public and private sector in ensuring price and market efficiency in the light of the new farm laws. He added that the MSP regime should be expanded as a universal MSP, but in a targeted and decentralized way. He argues that PDP is not an efficient solution given the corruptions and inadequacies in the system and to improve farmers income, there is a need to deliberate on more efficient solutions which will reduce the cost of production instead.

Prof Surabhi Mittal, Member Secretary, International Committee of Women in Agricultural Economics, (ICWAE); Joint Secretary, Agricultural Economics Research Association (AERA):

Prof Mittal appraised the critical points raised by the speaker and the other discussants. Adding another dimension to the topic, she shed light on the need for diversification of crops to improve the income level of farmers. She remarked that focus should be shifted from cereals to high-value commodities.

Commenting on the recent protests by farmers against the new farm laws, Prof Mittal maintained that the protests are fuelled by farmers in few states who are engaged in the cultivation of cereal crops or those cultivating crops which fetch them an MSP. However, she reminds that MSP was originally conceived to facilitate PDS, but now it is being viewed as a right for all farmers, which is not economically feasible. Prof Mittal cautions that this system is not sustainable and to develop the farm sector there is a need for diversification of farming and introduction of marketing reforms. In that light, the current reforms are in the direction of making agriculture sustainable and profitable, where farmers can be seen as entrepreneurs, concluded Dr Mittal.

Prof Vinoj Abraham, Professor, Centre for Development Studies, Kerala:

Prof Abraham raised a very critical point that an efficient market does not mean an equitable market. Efficient markets need not benefit all farmers. Hence, one should exercise caution when thinking about efficient markets as a panacea for all the ills of the agriculture economy, added Prof Abraham. To drive home his point, he draws attention towards the outcomes of the other sectors which were liberalized since the 1990s which show a higher within sector inequality than the agriculture sector. Liberalization may lead to better market outcomes in terms of market efficiency but whether it leads to just solutions for the economy is a question that needs to be pondered upon, emphasises Prof Abraham.

Citing the example of rubber plantation in Kerala, Prof Abraham also notes that before opening the sector to the vagaries of the market, efforts must be made to ensure that productivity and competitiveness rise commensurate to the demand to be able to compete effectively in the global market.

Concluding Remarks and Way Forward

Commenting on the observations and opinions of the discussants, Dr Amarender Reddy agreed that ensuring market efficiency may not ensure equitability. However, he contested that after so many years of agriculture policy paralysis, a reform in this direction is inevitable. He added that and it is the responsibility of academicians and researchers to ensure that mechanisms are in place to ensure sustainability and equitability while achieving market efficiency. Also, the government must intervene to provide some safeguard to this end, remarked Dr Reddy.

With regards to the PDP system, he maintained that it is more efficient than physical procurement. He suggests that the existing infrastructure in place for disbursing the benefits under PM-Kisan can be used to provide PDP. He added that public procurement should continue to meet the needs of food security purposes but beyond that, it must be disbanded. In addition to this, Dr Reddy suggested that the FPO’s should be strengthened and input costs must be contained by adopting new and advanced technologies.

Dr Seema Bathla emphasised on the point that no one solution will solve all the problems, rather there is a need for multiple solutions to tackle the issue of low farmer incomes. Dr Narasimha Reddy Donthi pointed out the need for institutionally developed grading systems for agricultural commodities. He also highlighted the inaccessibility of certain food products like pulses, tamarind etc to the poor people due to their rising prices. He suggested that this must be factored into the discussions on Agri trade, MSP and overall agriculture policies. Going forward, there is need to turn towards ecological farming and focus on local production and consumption, concluded Dr Donthi. Dr Surabhi Mittal corroborated the need for multiple solutions and added that the centre and states must work in tandem to achieve overall development. Prof Vinoj Abraham reiterated that in the pursuit of agricultural growth, one should not lose sight of equity.

Concluding the insightful session, Chair, Shri P Chengal Reddy expressed pleasure over the attempt of the incumbent government for initiating the long due reforms in the farm sector through the new farm laws. He rightly pointed out that the Indian farmers are very much capable of developing global competitiveness.

Acknowledgements: Nikhil Jacob, based in Goa, is a research intern at Impact and Policy Research Institute (IMPRI), New Delhi and is pursuing post-graduate diploma in Environmental Law and Policy from the National Law University, Delhi

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