Farm Laws: The Fallacy of Capitalism - Legal Analysis

We’ve all seen the widespread farmer protests happening against the three ‘reformative laws’ — the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act, But do we really have any idea what they’re all about?

Let’s start by clearing up the meaning of MSP(Minimum Support Price), the most frequently quoted and less frequently understood abbreviation in relation to the protests. MSP was basically created as a net to protect the farmers in case they did not receive fair compensation in the open market, meaning that the government ensures a method of sale to safeguard the farmer to a minimum profit for the harvest, if the open market cannot net them a fair price for the crop. The MSP for a crop is fixed by the Central Government before the sowing season after consultation with the Commission for Agricultural Costs and Prices (CACP) and state governments.

Now, an important thing to note is that MSP is a policy tool and not a law. What this means is that MSP is not mandated under any law, meaning the free market has no obligation to purchase goods from farmers at the MSP. It only acts as a tool to provide the farmer some sort of bargaining power during negotiations and to provide them an opportunity to sell their produce at a fair price if they are not able to receive that in the free market.

The problem with it is that only about 6% of farmers are actually able to take advantage of this, according to a Central Government Committee. A report by ‘The Hindu’ also showed that in 68% of all transactions documented by them in over 600 wholesale markets, farmers sold crops below the MSP. This just proves that farmers are being forced to sell their crops below the declared price, which highlights the major shortcomings of the current implementation of MSP, as nothing more than a policy tool.

This is where the demand of the farmers comes in. They have demanded that MSP be escalated from the status of a ‘policy tool’ to that of a law. Farmers are demanding a ‘Fair Remunerative Price’ such as that of sugarcane be declared for all crops, meaning that any purchase made at a cost lower than declared price would be deemed illegal. What this will do is provide bargaining power to farmers in APMC markets as well as the free market(a market that the Central Government wants to create), ensuring that farmers receive fair prices.

Now that we’ve looked at MSP and its meaning, let's circle back and actually look at those farm laws.

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

This Bill allows the farmers to sell their produce outside the Agricultural Produce Market Committee (APMC) regulated markets without their buyers having to pay state levied tax. APMC markets are government-controlled marketing yards or mandis, where certain fees are levied by unions and middlemen that aid farmers in transport and storage, detracting from their profit. Thus, while this act looks to serve up a pretty sweet deal, the farmers fear that the private market will initially incentivize them to sell to private players outside APMC Mandis by offering better prices and cause the APMC system to crash. This will leave the private sector in a powerful position, giving them the entirety of the buying power while not guaranteeing the farmers a bargaining chip in the form of MSP, which is not guaranteed under any laws. Further, with multi - billionaires such as Adani already having a stake in the agricultural sector, alternate buyers within the free market will also be almost impossible to find, especially for small farmers in small towns or villages. This therefore, rather than empowering farmers, disempowers them by taking away whatever little negotiating power they might have had.

This law also speaks about what is essentially a faulty appellate process, that is elaborated in the empowerment law and will be addressed in the next section.

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

This act seeks to “form a national framework for farming agreements to protect farmers in dealing with buyers.” This refers mostly to contract farming which is when companies or individuals enter into a contract with a farmer, asking for a certain amount of produce of a certain quality in exchange of payment.

Agriculture in India is hugely dependent on weather and due to primitive farming techniques, it is not necessary that the produce will be of the exact quality that was demanded. This means that the buyer can either reduce payment or even deny it altogether. This brings us to the issue of the appeal process.

The issue stems from the fact that while the law provides an avenue for redressal, it is hampered by the restriction of only being able to approach the Sub-Divisional Magistrate and for appeals, approaching the District Collector which comes with the caveat of making the decision in appeals final. Therefore, the law does not allow grievances to reach the judiciary. This is problematic in two ways: first comes the problem of convenience, which is that the SDM and District Collector are just not approachable for most people in rural settings. Adding onto that, the judiciary does not get involved in this. This means that companies and individuals with huge buying power can more than easily bribe officers and get decisions ruled in their favor and since this has no repetitive appellate process, the farmer cannot do anything. This clearly does not allow the farmer the power to receive justice in reasonable time and essentially forces them to have to go along with the price that the buyer states.

A real life example can be heard in this video from Scoop Whoop Unscripted (at 15:16 specifically)

Essential Commodities (Amendment) Act:

This act was initially passed in 1955 and gave the Central Government the power to regulate production, storage, transportation and therefore, supply of certain items into the market to ensure that prices did not fluctuate too much and that they were distributed equitably amongst the population.

However, with the 2020 amendment, the power of regulating storage(essentially hoarding) has been taken away for cereals, pulses, potatoes, onions, edible oilseeds and oils, under all circumstances other than ‘extraordinary circumstances which may include war, famine, natural calamities’.

Why is this an issue? Let us explain that with an example. In a non-APMC market such as Bihar, farmers are getting rates less than half that of states with APMC markets such as Punjab. So, if this system is imposed throughout the country, big companies with a huge amount of financial power can essentially buy produce from farmers at extremely low rates and then stockpile those goods, giving them control of supply into the market. Now, whoever controls supply, controls costs as the demand for foodstuffs such as cereals and oils is going to reduce only under very specific circumstances. This allows those big companies to jack up the price of the produce in the market and thus, receive a huge profit margin while still paying farmers less than the bare minimum.

An argument might be made against this that the amendment also talks about ‘extraordinary price increase’, however, a very simple counter argument is available. The law states that limits can be imposed only if there is a 100% increase in the cost of horticulture products or a 50% increase in cost of agricultural products. What this means is that the government cannot exercise its own discretion in regulating hoarding and has to follow these mandated criteria, limiting the power it has to control prices and to ensure that they do not rise too high.

Having had a brief look at these laws that can increasingly be found in the news today, we can say that the main takeaway is that the Central Government has tried to implement laws that benefit the companies more than they do the individual farmers. Even more, with the clear bias that the current Central Government headed under the BJP has for big businessmen such as Adani and Ambani (Adani already has stakes in the agricultural business with Fortune Foods and other subsidiaries), the question of whether the government will follow its own laws is also raised. The already crumbling image of integrity is further deteriorated with the recent leaks of Arnab Goswami's WhatsApp chats, which squarely put this government in the middle of cover ups and corruption on a grand scale.

The APMC System in India is by no means perfect. It is far from so. From the money that the farmer receives, transportation, labor, storage and even union fees are deducted, with some farmers literally receiving negative payment, as in the costs of the aforementioned services outweigh the price that the farmer receives and thus has to PAY the middleman to take their produce. However, the Central Government rather than empowering farmers by guaranteeing MSP is throwing them into a river full of crocodiles without providing them aid.

What needs to be understood is that an unregulated free market is no way to go in a state such as India, where 10% of the population owns over 70% of the wealth in the nation and over 82% farmers are small or marginal farmers. What is required is regulation of already existing systems along with the distribution of infrastructure that can provide better yields to farmers and a crackdown of exploitation of farmers by greedy middlemen along with the expansion of opportunities to farmers as well as the eradication of deep rooted societal/religious beliefs that for centuries has kept certain communities oppressed and unable to avail any resources.