The Indian agricultural reforms: Protect the small farmer

The protests against the agricultural reforms in India have made headlines in Europe, breaking through the COVID related doom and gloom. Social media has convinced us that over 250 million people are protesting nationwide in India, labelled as the largest protest in modern times, with over 11 Indian opposition parties supporting the farmers and the India wide strike.

The world now weeps for the solitary, poor, Indian farmer and CNN quotes various predominantly Punjabi and Sikh groups who lament how the reform affects the “poor Indian farmer”. CNN asks you to worry, because your spice rack may be at risk as would be your fashion given than India produces 68% of spices globally and more cotton than China. Very few news sites actually explain what the actual problem is and how does one protect the Indian farmer. Most are content at bashing the Indian government.

Internationally, the protests have received strong support, especially in countries like Canada, UK and Italy where the Punjabi and Sikh diaspora are predominant, where pro-Khalistan groups have found shelter.

The agricultural structure so far in India

Over half of the Indian population is engaged in agriculture while generating only 16% of the GDP  85% of Indian farmers manage farms smaller than 2 hectares. The current legal structure is outdated and opposition leaders such as Sharad Pawar of the NCP have in the past criticized the existing legal structure as “outdated”. While these protests politicize the farmers demands, they do little to protect the small, poor Indian farmer who was exploited before and continues to risk exploitation now.

The previous legal framework, including the Essential Commodities Act (1955), is over 55 years old. They were passed when India was a socialist republic, in days of drought, shortages and license raj and originate from British colonial laws which were designed to keep agricultural produce in the control of the colonial government which was why they had colonized India to begin with, for raw material initially for their industries and eventually to keep their armies fed and clothed during the war. So laws which controlled how and to whom farmers sold their produce when made sense during the years of colonialization.

The current laws obliged farmers to sell their produce at the Agriculture Produce Marketing Committees (APMC). The APMC’s are state government-controlled wholesale markets which are run by cartels of middlemen, who buy the produce from small farmers and resell them at higher margins, given that the small farmer neither has the money or the means to transport the produce to the APMC. Over time these middlemen have become a rich and powerful political lobby with strong political links. The APMC’s sell vegetables and several other goods through an auction system, which has been judged by neutral observers are non-transparent and farcical, with price fixing and corruption being rampant.

The second part of this story is the MSP or the minimum support price. Based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), the Department of Agriculture and Co-operation, Government of India, the MSP is declared before every sowing season for 22 commodities on the Essential Commodities Act.  The Food Corporation of India, based on the MSP, buys wheat and rice from the APMC and sells it at highly subsidized rates to the Indian poor. The national government refunds this loss to the FCI, effectively financing billions of dollars making the Indian system the most expensive food procurement and subsidy initiatives globally. Then there are other issues, including the lack of cold storage etc. which create a lot of waste annually and make any exports of surplus by the FCI unfeasible.

What do the new laws do?

The new laws simply allow the farmer to sell across state borders, which was previously prohibited. They allow them to contract with eCommerce platforms, wholesales, buyers, they allow them to pre-contract and be paid in advance. By reforming the contract law, they bring insurance and pre-payment as well as create contractual provisions for farmers protections. They also allow farmers to sell on any platform, electronic or physical and take away the power of the state government to tax the farmer in any way for such sales. They also takes away the powers of the APMC to tax or levy charges on the farmers on crops sold outside the APMC premises.They deregulate the pricing of most essential commodities putting in clear provisions to protect the consumer and farmer in case of rapid increase of market prices within 12 month cycles.

The spirit of the new law is to bring the Indian farmer to the 21st century, allowing him to negotiate directly with the big corporate giants such as Walmart, Amazon, McDonalds and Bigbasket while saving the exchequer billions of dollars of losses from the FCI’s waste of food given its lack of cold storage and modernization. The reform also hopes that this will modernize and empower the small farmer, and this is the government’s first mistake.

Who is protesting and why?

Farmers from Punjab and Haryana have created national lobbies. Given their well-organized APMC’s which spill into their state politics, they have also focused their energies on growing mainly wheat and rice. The FCI’s national procurement purchases 20-25% of produce from the states of Punjab and Haryana, however only 2% of India’s most rural and second most poor state, Bihar. With the guarantee of the government buying rice and wheat at MSP, farmers in the two states, especially Punjab, have not only indebted themselves, but by the extensive use of pesticides and chemicals to increase yield, have rampantly increased the cancer rate in the state. They are the biggest losers in this new deal and hence lead the protests.

This is where the Punjabi and Sikh diaspora and the pro-Khalistan lobbies in Canada, Italy and the UK get involved in organizing protests and sucking in politicians who have no idea what they are actually supporting.

They are not defending the poor Indian farmer, but their rich relatives who are indebted trying to milk a system which does not belong in the 21st century, which hurts the poor Indian farmer. The state governments also lose a lot of political power because the farming sector is no longer under their control. This means in the vote politics; state governments no longer have the bargaining chip of pushing for subsidized procurement. This weakens the Shiromani Akali Dal in Punjab and Sharad Pawar in Maharashtra, whose primary supporters are these agro-lobbies.

The poor Indian farmer actually welcomes this ray of hope which breaks the control of the informal middleman, the evil lala who has been immortalized in Bollywood movies of the 60’s and 70’s. Bihar, which had its assembly elections in October, a month after the reform passed the parliament, voted in Modi’s and BJP’s favor. The BJP won 20 seats more than it had in the last assembly elections.

Can this go wrong?

While the spirit of the three new laws is in the right place, the Indian consumer and farmer have been assaulted by big tech which is now focused on feeding the Indian masses. By allowing pre-contracts and stocking (previously known as hoarding), both the small Indian farmer and the Indian consumer risk dealing with rapid rise in prices of essential commodities, fresh vegetables and fruits, which are key to a largely vegetarian nation.

While the reform opens the agricultural sector to digitalization, the government has not yet brought together the technology players with the farmers to encourage and empower the small farmer on the ground, give him the capacity to directly deal with the corporate world.

This will only happen, if the government, engaging megaliths such as Ambani and Adani, create a public private fund with all the big tech players to increase training and capacity building in villages creating marketplace assistance hubs for farmers.

For the reform to actually percolate to the poor farmers, passing the reform and letting market forces do the rest won’t do, it’s essential that the government proactively engage in human resource development focused at the small farmer as well as transitional protections which will ease him into the system after over 300 years of being at the wrong end of every law and legislation.

What happens if the reforms are rolled back?

Rolling back the reforms benefits only the rich farmers, who continue to exploit the system to sell unnecessary grain to the government at heavy subsidies in order to continue their vicious cycle of debt. The liberalization of the agricultural sector is key under several international agreements India is negotiating, especially its EU Free trade agreement. The EUFTA is under discussion for the past 11 years, with Indian agricultural protection being an important issue.

While the rest of India drives into the 21st century, the small Indian farmer should not be left behind. The current protests neither represent nor protect him but protect the very forces that increase his suffering. It is important the government communicate the spirit of its reforms better and bring together the big technology players and other stakeholders to publicly autoregulate their treatment of the small farmer, declare measures to support and build capacity and create a transitional structure which will really benefit the small poor farmer.

India will truly be free the day the small Indian farmer signs his first deal with the multinationals on his own terms finally winning by closing a cycle which started in 1757 with the East India company, one of the first multinationals to exist. The Modi government, with its majority in the Parliament has dared to open the pandora’s box by passing the reform, it remains to be seen if it will manage to wade through the public pressure and finally liberate the poor Indian farmer.

Note: I have used to check my facts.