Farm Bill 2020 is a combination of 3 bills; Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill and Essential Commodities (Amendment) Bill. It is a big structural change attempted by Modi government. The idea is to encourage corporate investments in agricultural ecosystem to make it lucrative for farmers.
5 things you must know about the Farm Bill 2020
Here is what you must know about the Farm Bill 2020 passed in the Upper and Lower House of Parliament.
- The Farm Bill envisages providing farmers an alternative platform to sell. Since it will be outside the APMC Mandi, the transactions in such “trade areas” will not be charged APMC market fee or cess.
- The APMCs will not stop functioning but will now have to compete with these alternate platforms since farmers will have a choice. It is like allowing private competition in banking, insurance or telecom.
- The Farm Bill does not envisage discontinuation of the current MSP-based procurement of food grains. The modalities of how the mandi purchase will co-exist with alternate platforms remains to be seen.
- This bill gives the farmer the power to sell directly to the corporate or exporter buying in bulk from the farm gate and can enter into forward contracts too. Even the barriers on inter-state sale are removed.
- In 2019-20, government agencies procured 201 lakh tons of wheat and 227 lakh tons of paddy at MSP from Punjab and Haryana worth Rs80,300cr through commission agents (Arhatiyas). These Arhatiyas will lose their 2.5% commission and interest on loans.
Government believes the Farm Bill 2020 can transform agriculture and double farm incomes by 2022. The freeing of the farm sector should eventually help in better pricing. When corporates and exporters directly engage with farmers, it will incentivize corporates to invest in the agri ecosystem and gives farmers better access to modern technology.
The Bill removes cereals and pulses form essential commodities list. Technically, FDI can be attracted in these areas. That should be value accretive for agriculture.
Farmers are sceptical about the bill; and for a reason
Farmers are apprehensive of getting MSP for their produce, notwithstanding assurances from the government. Farmers also fear that large retailers and corporate houses (in alliance with MNCs) could dominate Indian agriculture with money power. Ironically, many of the Arhatiyas are large farmers who will lose their commission and interest income.
Farmers fear that APMC may become unviable and have to shut down if trade moves substantially to alternate platforms. To give an analogy, the farmers expect the mandis to become redundant like BSNL and MTNL and the likes of Jio and Bharti may benefit.
Forget the rhetoric, it will be testing time in October?
The real impact of the Farm Bill 2020 may be visible sooner than expected as October happens to be the peak month for Kharif crop arrivals. Here is what to watch out for.
- If Mandi arrivals drop by over 25% compared to Oct-19, it is a signal of trade shifting out of APMC Mandis to take advantage of zero taxes and fees in the alternate platform. The challenge for the government will be to evaluate the welfare impact of transactions that are undertaken outside the APMC mandis without a central database.
- Wholesale prices must be closely monitored to gauge the impact on farm gate prices. Prime Minister has assured that farmers will not be denied procurement at MSP. Whether it is a verbal assurance or an actual guarantee of off-take by the government remains to be seen in the coming days.
- October will also test how the government procures food grains in key states like Punjab and Haryana, outside the APMC. It is unclear how the government will protect MSP in non-APMC transactions. If the normal procurement process gets disrupted, it could create further unrest.
- It will be interesting to see how the shifts in the Essential Commodities Act will impact food inflation. That is an important input for the RBI in setting its interest rate targets. In the past, private players have indulged in hoarding food grains to manipulate retail prices. That remains a challenge!
- Finally, there are two areas of caution for the farmers, government and the consumers. Firstly, corporate interventions in agriculture markets need to be monitored closely, even when they invest in value chains. Secondly, FDI is now possible in cereals and pulses. In the midst of the Indo-China stand-off, it poses a major risk.