Agriculture

Farm laws: Reform needed but not at expense of small farmers

  • Blog Post Date 21 December, 2020
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Kaushik Basu

Cornell University

kb40@cornell.edu

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Nirvikar Singh

University of California, Santa Cruz

boxjenk@ucsc.edu

Commenting on the controversial farm laws, Kaushik Basu and Nirvikar Singh contend that the government should withdraw these laws, return to the drafting table, engage with farmers and states, and incorporate safeguards for the well-being of small farmers.

 

Both of us have argued in the past that India’s farm laws are antiquated, that the APMC (Agricultural Produce and Marketing Committee) Acts need reform, and that overall the agriculture sector needs to be reformed. On the face of it, we should be happy with the new farm laws, which seem to expand the choice that farmers have. But, on close examination, we are convinced that these reforms, even if they increase efficiency, will hurt farmers, especially small and marginal farmers. 

The faults lie not in the laws’ headlines or even most of the explicit provisions, but in what sits between the lines. First, it is good to expand choice, but with greater choice and freer markets comes risk. There is no indication of risk mitigation policies, especially for poor farmers, alongside these new liberalisation laws. There is reason to fear what the farmers fear, namely, that with the planned deregulation, minimum support prices (MSPs) and government purchases will gradually be replaced by corporate buyers with inordinate market power. The present system has asymmetries of power, but these will be magnified, especially for small farmers.

Second, the nature of the amendment of the Essential Commodities Act – which is admittedly inefficient in its present form – by allowing holding of larger stocks, may facilitate big players coming in and heavily influencing markets via their stocking policies.

Third, reading the fine print, one realises that what at first sight looks comforting – namely, the scope for farmers for dispute resolution – is actually not so. Even if the initial plan to restrict redressal to the level of sub-district magistrates is expanded to include regular courts, any legal challenge will be costly and risky for small farmers pitted against corporations. 

Apart from these kind of specific problems, there are more overarching concerns. This entire exercise of crafting a new regulatory system seems to ignore the fact that farmers, the world over, receive subsidies and protection. This is true of Chinese agriculture and true of US farmers. To dismantle much of the government’s marketing structure without concomitant risk-mitigation support, as is being planned in India, is to further disadvantage Indian farmers — already struggling with small farm sizes and powerful intermediaries — compared to those of other nations. 

We believe that, in general, it is better to give people more choice. But this cannot be without exception. Various types of voluntary slavery, such as the idea of ‘warranteeism’, proposed in the slavery-era American South, ostensibly expand the options of workers, but the real beneficiaries are the slave masters. No one would now advocate this type of expanded choice. 

The reason is, the expansion of choice is an unmitigated good when one side is not effectively without other reasonable options. When that is not the case – such as when we have a monopoly or a monopsony – and the other side faces a survival threat, we need laws to shore up the strength of the small players. The US, bastion of the free market, realised this as early as 1890 when it adopted the Sherman Act, to curb the market power of big corporations. There is now renewed writing by prominent scholars – such as Eric Posner, Glen Weyl, Suresh Naidu, and Cass Sunstein – that in the age of large digital corporations, monopsony power is on the rise and the State has to be active in protecting small retailers and workers. 

India’s reform seems to be going the other way by jettisoning protections for the vulnerable, rather than updating those protections and making them more effective. In the case of agricultural reform, deregulating markets should be accompanied, if not preceded, by a programme that enables small farmers to escape their precarious status, by offering financial support for shifting to higher value-added crops, organising new farmer-controlled marketing organisations to equalise bargaining power, providing training for informed market participation, and expanding access to non-predatory and reliable credit. 

In this context, the claim that those who are protesting represent a small proportion of farmers, and are those who benefit from the current implementation of MSPs and public procurement, needs to be addressed. Indeed, this system has flaws, but the problems have to do with narrowness in geography and range of crops. These features have led to unsustainable groundwater use and increased pressure on small and marginal farmers, even if they are in relatively better-off states. Rationalising and broadening the MSP and procurement system would make sense in this situation, alongside any liberalisation in marketing structures. 

We recognise that our agricultural laws need reform and liberalisation. But the new laws have serious problems, as did the non-democratic process that generated them. Given the profound changes they are set to make, it was surprising that the bills had to be tiptoed past the state assemblies, expert scrutiny, and serious parliamentary debate, and enshrined as law. 

It is not clear that piecemeal amendments can now repair the situation. The government should withdraw these laws and quickly return to the drafting table to create new laws that are efficient and also fair, and incorporate the perspectives of farmers. This new process should also involve the states, which have constitutional responsibility for agriculture, and were already trying to implement reforms suited to their needs. Indian farmers deserve this, not the vilification that has been inflicted on them these past few weeks. 

A version of this post first appeared in The Times of India

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1 Comment:

By: Vaibhav

Even if the government don't relent to the demand for a provision in farm laws stating that private players can't procure below the MSP, they definitely should provide a floor price as not below 20% of MSP rates. This will save the farmers from big price volatility, which otherwise would mostly end up benefiting a few big corporate houses.

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