In over 200 years of British colonization, India faced a systematic extraction of wealth, imperial land taxation, regulated market pricing for raw materials, numerous famines, and millions dying.
Economist and Nobel laureate Amartya Sen wrote in his book Poverty and Famines: An Essay on Entitlement and Deprivation (1981) that the famines in the British era were not due to a lack of, but due to the inequalities in food distribution. He linked the disparity to the undemocratic nature of the British Empire.
Upon Independence, a socialist - dirigisme took a strong political hold. It shaped the principal policies of the Indian Government and played a direct role in indicative planning, state-directed investment, and the use of market instruments (taxes and subsidies).
For the 74 years since Independence, India has gone through cycles of growth, and yet the farmer has never had the same opportunities as everybody else in the nation. Over the following sections we will look at farming in India, and the context under which it functions.
Post Independence + Green Revolution
When India became independent in 1947, 90% of its population lived in 600,000 villages and depended mainly on subsistence agriculture. For the few centuries prior, Indian agricultural practices had remained unchanged under colonization, without any technological or scientific advantages. The farmers used indigenous seeds and animal-powered energy. With the partition, India, Pakistan, and present-day Bangladesh all lost their ability to feed their citizens, with each having to import expensive grain.
Faced with post-colonial social inequities, the Indian Government passed land reforms that broke up large imperial farms and gave the land to the peasants who worked on them. These new landowners were now responsible for feeding the nation. They were encouraged to adopt new agricultural practices that increased food yields, but few had the education or money reserves.
Around the same time in 1954, the Dwight D. Eisenhower administration started the Food for Peace program, which aimed to use food grain surplus in America to further foreign policy and American exports of agricultural products globally.
In 1955, the Govt. of India passed the Essential Commodities Act (more on this later), and in 1956, it started importing wheat from the United States. This further depleted national reserves and none of this was sustainable. To save reserves but increase the yields of cereals grown within the country, Indian stakeholders came together with the donors to "modernize" Indian agricultural technology and practices.
The Govt. of India was aware of the work being done by Dr. Norman Borlaug with wheat in Mexico. Since time was of the essence, he was invited to help Indian agriculture increase its yields. This time of transformation was called the Green Revolution. While Dr. Norman Borlaug's methods resulted in high yields of food-grain, their success hinged on the adoption of modified foreign seeds, heavy use of chemical fertilizers, pesticides, large-scale irrigation, and mechanization; resulting in unintended long-term consequences.
The green revolution was mainly applied to three states of India, Punjab, Haryana, and parts of western Uttar Pradesh. These were the plains, and the farmers here were made responsible for producing enough wheat and rice to feed everybody. The narrow, alien genetic base of the wheat and rice strains introduced by Dr. Borlaug didn't play well with indigenous seeds in the field, so the revolution promoted their monocultures. These resulted in reduced genetic bio-diversity, depletion of soil nutrients, and an increase in soil toxicity, making it unproductive over time.
The not-so-very green revolution converted forest land to agricultural land. It increased dependence on mechanization and promoted overgrazing. The adoption of modified varieties of foreign seeds also resulted in ever-increasing pesticide use which leached toxins into the water-table and food-chains. Plus, introducing rice strains to terrains not naturally suited to them increased the need for artificial irrigation systems, compounding groundwater depletion.
By taking on debt to chase crop yields, farmers sometimes had no other choice but to sell their lands, or in extreme cases, commit suicide.
The Essential Commodities Act
In 1955, during the time of massive food scarcity and when the country was dependent on imports and assistance (such as wheat from the US under the Food for Peace program), the Govt. of India legislated the Essential Commodities Act aimed to stop any hoarding or proliferation of black markets. It was a way to ensure all people could access and purchase food rations at affordable prices. Since then, the Government has used this law to regulate the production, supply, and distribution of a whole host of commodities that it declares essential.
Today, however, India no longer faces scarcity in food yields. The Ministry of Consumer Affairs, Food, and Public Distribution show in their 2020 report that production of wheat has increased ten times (from less than 10 million tonnes in 1955-56 to more than 100 million tonnes in 2018-19), and the production of rice had increased more than four times from 25 million tonnes in 1955-56 to 110 million tonnes in 2018-19. Additionally, the production of pulses has increased by 2.5 times, from 10 million tonnes to 25 million tonnes. India now exports several agricultural products. With these increased yields, the Govt. has had to involve itself in storing surplus in its own (often mismanaged) warehouses. The EC Act appears to have become out-of-date.
The Agriculture Produce Market Regulation Programme (APMCs)
The concept of a regulated agricultural produce market in India also dates back to the British colonial era. Raw cotton being the first farm-product to attract the attention of the British Government. Anxious to ensure Indian raw cotton would continue to be available to Manchester's textile mills (UK) at reasonable prices, the British rulers established regulated markets.
This model became precedent for states all over the country, and during the 1960s and 1970s, most of them enacted and enforced Agricultural Produce Market Regulation (APMR) Acts. Any assembly for primary wholesale was brought under the purview of these Acts. Well laid out market yards and sub-yards were constructed, and, for each market area, an Agricultural Produce Market Committee (APMC) was constituted to frame the rules and enforce them. Thus, organized agricultural marketing came into existence through regulated marketplaces built on the market models of the British colonial era. India does not, and has never had a common national agricultural produce marketplace, agriculture has always fallen under the purview of the individual states.
There are two principles on which APMCs should operate:
- All food produce must first be brought to a market yard and then sold through auction.
- Ensure that intermediaries (or money lenders) do not exploit farmers.
Each state that operates APMC markets (mandis) establishes its markets in various places within their state's borders, geographically dividing it. There are approximately seven thousand regulated APMC markets in India and 120 million farmers. Farmers may only sell their produce via auction at their regional Mandi to licensed traders operating within. Wholesale and retail traders (e.g., shopping mall owners) and food processing companies cannot buy farm produce directly from the farmer. They must go through a Mandi. If a farmer ever attempted to sell their produce outside of the APMC Mandi or stocked their produce, they would be violating the law of the land.
Since the APMCs have held continued power over a farmer's right to sale and the sale price for over 70 years, the farmers have been at the grace of every agent there. APMCs are state-controlled and different states have different rules by which they operate their mandis, charging various fees and taxes. Compounded with the deteriorating condition of perishable produce, the final amount a farmer may receive usually falls below the Govt. recommended minimum support price.
Minimum Support Price
Between the years 1950 and 1964, when the nation faced food insecurity and the farmers were working to increase their farm yields, food commodities' prices fluctuated. When the results were low, the prices soared, and when they were good, the prices fell. The farmers worked so hard and yet faced difficulties in making their ends meet. To help them, the Food Grain Price Committee was set up in 1964.
The Govt. of India believed that farmers should get at least as much money for their produce that they break even. For the first time in history, in 1966-67, the Committee declared a minimum support price (MSP) of wheat and paddy.
The MSP was not a law but a recommendation by the Govt. and it continues in the same manner today. While the recommended Minimum Support Price is the same across the country for each crop, it cannot be enforced. Under this system, even if the price falls in the market, the Government of India promises to procure the crop at the MSP from the farmers so as to shield them from losses.
Inequities & Challenges
Since the central Govt. cannot enforce the MSP, the state-run Mandis have free rein to set their preferred rate. Everything depends on the benevolence of the intermediaries running operations. As you may see the state-run Mandis, and the rules around essential commodities along with assured procurement at MSP by the Central Govt. has created a largely opaque and complex market system with the state market agents on the top pulling strings between the farmers on one side and the Central Govt. on the other.
Punjab and Haryana are two states (from the green revolution) that have continued to produce mostly Wheat and Rice, and their commodities rank high on the essential commodities list. The farm + trader communities from these two states have benefitted consistently from the assured procurement at a guaranteed price scheme of the Govt. In contrast, farmers from the rest of India have had to primarily rely either on the smarts of the traders at their state Mandis or the grey trade areas outside of them.
The lack of a transparent national price discovery mechanism and platform has kept farmers literally in the dark and this opacity across state Mandi operations has been harmful to the farmer, who has always been vulnerable to the negotiation power of the APMC network. Despite yields & produce prices rising steadily in retail, farmer incomes haven't increased.
In 2016, the Govt. of India introduced an electronic National Agricultural Market platform to create some national transparency around how state Mandis are pricing their produce; the platform was launched to connect all the APMC Mandis and their member farmers and traders. Unfortunately, today, only 1000 APMCs from the 7000 in the country are registered, and eighty percent of trade in agricultural commodities is done offline. The underlying opacity of market information has worked against the farmer's financial interests for as long as India has been independent, if not longer.
Observations & Reforms
The Standing Committee on Agriculture (2018-19) noted that the APMC laws are not being implemented in their true sense and need urgent reformation.
- Most APMCs have a small number of traders operating, leading to cartelization and a lack of competition
- Excessive deductions in the form of commission charges and market fees are being made.
- traders, commission agents, and other functionaries organize themselves into associations to stifle competition.
The Standing Committee (2018-19) also recommended that the central Government constitute another Committee of Agriculture Ministers of all the states to arrive at a consensus and design a legal framework for agricultural marketing. Seven Chief Ministers were invited to set up a high-powered committee in July 2019.
- Adoption and time-bound implementation of model Acts by states, and
- Changes to the Essential Commodities Act, 1955 (which controlled the production, supply, and trade of essential commodities) to attract private investment in agricultural marketing and infrastructure.
The most recent laws passed by the Govt. of India in 2020 consider these studies and expert recommendations over the years to rectify the compounded damage caused to farmer livelihoods by all preceding dirigiste policies. It appears that the Central Govt. has realized that depending on the states to reform their APMC Mandis, is only causing delays and further hurting the farmer, and so the new laws aim to create a secondary marketplace where the states have limited power.
The three farm acts of 2020 are as follows:
The Essential Commodities Act Amendment of 2020
The Govt. of India notes that although India has become surplus in most agricultural commodities, farmers haven't been able to get better prices due to a lack of investment in cold storage, warehouses, processing, and exports. The regulatory mechanisms in the Essential Commodities Act of 1955 are also overwhelming and discourage entrepreneurs from getting involved. To attract new investors and create a space for inclusive collaboration, the Govt. passed an amendment to this act that deregulates these commodities' stockpiling.
The recent amendment states that the central Government may regulate the supply of specific food items, such as cereals, pulses, potatoes, onions, edible oilseeds, and oils, only under extraordinary circumstances of (i) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave nature. Plus, a stock limit may only be imposed if there is: (i) a 100% increase in the retail price of horticultural produce; and (ii) a 50% increase in the retail price of non-perishable agricultural food items.
This amendment will free up the farmer to stock his produce without any limit until they can get the price they want and be free to grow various crops in rotation to create a stocked inventory of high-value crops.
The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020
This act allows intra-state and inter-state trade of farmers' produce outside: (i) the physical premises of market yards run by the state APMCs and (ii) other markets notified under the state APMCs. Trade can be conducted in any area outside of a mandi, such as a place of production, collection, and aggregation of farmers' produce, including (i) farm gates, (ii) factory premises, (iii) warehouses, (iv) silos, and (v) cold storages.
The act permits the electronic trading of all farmers' produce (agricultural produce regulated under any state APMC Act) in any specified trade area, established and operated by (i) companies, partnership firms, or registered societies, or (ii) a farmer producer organization or agricultural cooperative society.
The act finally prohibits state governments from levying any market fee, acquis, or levy on farmers, traders, and electronic trading platforms to trade farmers' produce conducted in an 'outside trade area.'
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020
The third act provides space for a farming agreement between a farmer and a buyer before producing or rearing any farm produce. A minimum period of any agreement will be limited to one entire crop season or one livestock production cycle, with a maximum time of five years unless the crop's production cycle is more than five years.
The act states that the price of the crop being purchased must be mentioned in the contract. For crops subject to fluctuation, a guaranteed price and an apparent reference for any additional amount above the guaranteed price must be stated in the agreement. Further, the process of price determination must be included in the contract.
Finally, recognizing the need for dispute resolution mechanisms, the act illustrates a three-level system, the first at a board level, the next at the level of a Sub-Divisional Magistrate, and the third at the level of an Appellate Authority. The act states that both the Magistrate and Appellate Authority will be required to resolve any dispute within thirty days, and while the Magistrate or the Appellate Authority may impose specific penalties on the party contravening the agreement, no action can be taken against the agricultural land of the farmer for the recovery of any dues.
The new acts do not repeal the existing APMCs laws or system but limit their regulation to the physical boundaries of their markets.
We believe that these new acts increase competition. Creating a secondary marketplace will hopefully also push the APMCs to become more efficient in providing cost-effective marketing services. We are also convinced that for farmers selling their produce outside the APMC markets, the prices prevailing inside the APMC markets will serve as a benchmark, helping in better price discovery. This positive effect is already being experienced by cotton farmers selling in the open markets of Guntur, Andhra Pradesh.
We also see, that a secondary, direct marketplace allows farmers to shift their thinking from quantity per hectare to value per hectare. An impetus for creativity, innovation, and bio-diversity. This new space gives each and every farmer in India to take pause and begin healing their soils.
Finally, we hope that these acts serve the Indian farming community by bringing them unhindered market access, enabling them to practice soil-sovereignty, grow valuable produce, charge what they deserve, and build their direct customer base. We believe that a right to market access is a right to livelihood and India deserves all of its citizens to have equal rights to make valuable-living.
MINISTRY OF LAW AND JUSTICE,. (2020, September). THE ESSENTIAL COMMODITIES (AMENDMENT) ACT, 2020 (NO. 22 OF 2020). http://egazette.nic.in/WriteReadData/2020/222038.pdf
MINISTRY OF LAW AND JUSTICE. (2020b, September). THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) ACT, 2020 (NO. 21 OF 2020). http://egazette.nic.in/WriteReadData/2020/222039.pdf
MINISTRY OF LAW AND JUSTICE. (2020b, September). THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES ACT, 2020 (NO. 20 OF 2020). http://egazette.nic.in/WriteReadData/2020/222040.pdf
Staff, S. (2021, February 7). Andhra Pradesh: Cotton Farmers In Guntur Avail Benefits Of Open Market, Prefer Private Traders To Traditional Buyers. Swarajyamag. https://swarajyamag.com/insta/andhra-pradesh-cotton-farmers-in-guntur-avail-benefits-of-open-market-prefer-private-traders-to-traditional-buyers
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Hits and misses of the new farm laws: Off the Cuff with Shekhar Gupta. (2020, December 16). [Video]. YouTube. https://www.youtube.com/watch?v=r9xgLWDRrls
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