Why We Need More Sensible Laws To Stop Exploitation of Farmers
RN Bhaskar 28 September 2021
The farmers called for a Bharat Bandh on 27 September 2021. It was largely successful.  What is amazing is that, despite the brute force with which the government tried to break the farm protests, the farmers remain defiant. They want the three farm laws repealed (Read: Farmer Protest Perspective: The Fight Is No Longer between the Good and the Bad, but between the Corrupt and the Rapacious).  
 
The Narendra Modi government cussedly refuses to do so. The Supreme Court has stepped in and has stayed the operation of the three laws. In all probability, the laws will be struck down by the Supreme Court, or they will be repealed just before the next national elections.  
Too much is at stake for the farmers.
 
The trouble is that the farmers themselves do not know why the laws must be repealed. In fact, many of the farmer leaders may not like this article – and most certainly politicians across party lines too. The truth is that most farmers have been used and abused. 
 
Despite platitudes, most politicians do not want small farmers to become financially independent. That would reduce their ability to entice farmers with doles. 
 
Exploitation
 
The first two tables tell the story of how little the farmers earn. The first table gives farmer incomes state-wise. The most privileged are the politically well-connected and cossetted states of Punjab and Haryana.  The most progressive are cash crop growers like those who grow spices and rubber (and even sugarcane, but more on this later). That can explain (largely) why farmers in Punjab, Haryana and Kerala remain wealthier than farmers elsewhere. 
 
States like Maharashtra and Karnataka have encouraged sugarcane growers, who get better returns than other farmers. In Maharashtra, however, even though there is less water, governments have permitted sugarcane acreage to increase by over 125% between 1990 and 2020. So, other crops were denied water and irrigation.  
 
But Uttar Pradesh (UP) has seen the worst exploitation of farmers. They are not allowed to form cooperatives – either for milk or for sugarcane. For milk, the farmer gets around Rs10 per litre less than his counterparts in other states. This is despite UP being the largest milk producer in the country. 
 
Last week, the UP government, possibly with an eye on state elections, agreed to give the farmers Rs25 per quintal more for the sugar-cane growth. Even this is a pittance. The political setup in UP prefers keeping the farmers on doles so that their votes could be ‘captured’. 
 
The second chart is about how little the farmers earn. As this table from NABARD (National Bank for Agriculture and Rural Development) shows, the farmer earns quite a bit working as quite a bit working as a wage-labourer. That is more remunerative than cultivating his own field. Wage labour contributed to almost half the total household income. 
 
And do bear in mind that this is the average for all farmers. If small farmers were to be classified separately, the figures for cultivation would become half the figures shown here. 
 
Small farmers – who comprise almost 80% of all farmers – were brutalised.
 
Watch the earnings from livestock. Even a single cow can generate profit (all income less expenses) of Rs100 daily for 300 days a year, provided it is given decent cattle feed. That should have generated an income of Rs2,500-Rs3,000 per month. 
 
But, as said earlier, UP’s farmers get among the lowest milk prices. (Read: Who is Responsible for Keeping Farmers in Bihar and Uttar Pradesh Poor?
 
Rice and Wheat
 
The three farm laws talk about farmers selling to mandis and commodity markets. But they keep silent on the Union government’s wheat and rice procurement policies. Much of the rice and wheat procurement – the only crops procured by the government year after year – clearly favour Punjab and Haryana (see chart). 
 
On paper, the government’s arm, the Food Corporation of India (FCI), which oversees procurement of rice and wheat, does this work in partnership with other state procurement agencies.  
One thing becomes quite clear when you look at the figures – which are the average annual figures for the period between 2014-15 to 2019-20.
 
Farmers in Punjab could ensure that over 85% of its rice and 69% of its wheat got picked up by government procurement agencies. Similarly, farmers in Haryana saw 78% of their rice and 67% of their wheat being procured.  
 
Since rice and wheat procurement prices have gone up year after year without fail, these farmers faced little market price risk. In fact, the prices in India are higher than international prices. So, farmers in these two states, who are extremely well-aligned politically, have little to worry about – free water, subsidised electricity, remunerative and guaranteed prices. 
 
Marginal farmers in Punjab and Haryana may get left out.  But overall, the farmers there are a pampered lot.  
 
Many farmers in these states are known to cheat, despite these benefits. They will persuade the procurement officers to purchase their crop as A-grade grain, even if it is B- or C-grade. The officials usually do so after their palms have been greased.  
 
That is why FCI allows the grain to rot outside the warehouses so that audit of the grain procured is never possible. 
 
Too Little Storage, Too Much Procurement
 
There is another problem which procurement officials see as an advantage.  There is little storage capacity and too much procurement. 
 
Consider the two tables that follow. One is the estimated storage capacity in India. Unfortunately, the government has not given out the latest figures and the figures in the chart have been culled mainly from data collated in 2011. 
 
The next chart is about WDRA approved storage – possibly incremental storage – as of 2011. The WDRA (the Warehousing Development Regulations Act) was promulgated in 2010.
 
The three laws enacted by the Union government do not talk about improving warehousing – critical for the preservation of farm crops – whether they are grains or vegetables and fruit.  
 
All crops require warehouses – and different kinds of crops need different temperature and humidity controls for them.  In fact, the government has kept silent about warehouses and has not breathed a word about strengthening the WDRA which is in charge of ensuring that every farmer’s produce is picked up.  
 
The idea was to have a warehouse 5km or 10km from almost every farm. This way, the farmer could deposit his produce in the designated warehouse – depending on the crop he grows.  At times, the farmer would grow the crop which the warehouse could pick up in his neighbourhood.  
 
The warehouse evaluates the crop, grades it and gives the farmer a dematerialised warehouse receipt. The farmer takes this receipt to the bank and can encash it, based on prices ruling on commodity exchanges. 
 
The WDRA was meant to break the need for mandis to be the sellers but saw their role primarily as aggregators.  It decentralised the farming business into professional roles, reducing the need for political intermediaries. 
 
The three farm Bills do not touch that. 
 
Now look at the numbers.  India produced around 111 million tonnes of rice each year (average) and around 98 million tonnes of wheat (average). Together, they account for over 210 million tonnes. 
 
Now, compare these numbers with the storage capacity. 
 
Unfortunately, the WDRA does not reply to emails, or provide clear figures about the state of warehousing in the country. But a document of 2010 shows that as of 10 July 2020, the WDRA had registered warehouses with a combined capacity of 95,07,621 tonnes (or 9.5 million tonnes).  
 
Yet another document gives the figure of 14 million (see chart). Even if one takes the higher figure, the combined storage of 63 million tonnes, added to 14 million tonnes, would give the country barely 80 million tonnes. 
 
So, you have grain production at 200 million tonnes and storage at just 80 million tonnes of rice and wheat. Procurement (hence, guaranteed prices) accounts for only 30%-35% of this quantity. So, 65% of the crop must be sold at distressed prices. The middleman is well in control. Political favouritism continues as before. In fact, as production volumes of rice and wheat have increased this year as well, the power of playing favourites becomes more potent. 
 
The government does not dare use market mechanisms to reduce production volumes. It dares not tax water or electricity to wean farmers away from rice and wheat.  It is, thus, leading farmers up a cliff till there is no going further. This must stop.
 
New Laws Needed
 
To make agriculture healthier, it needs to do many things. None of them is addressed by the three farm laws. 
 
1. It must wean away farmers from rice and wheat production.  
 
2. It must take all the warehouses (of FCI, SWCs and CWC) and put them with the WDRA. That will enable the WDRA to decide which warehouse is best suited for which crop.
 
3. All procurement by the FCI and state procurement agencies must now be done through the commodity markets. That will ensure that all farmers get an equal opportunity to sell their grain through commodity markets. To protect prices, the government may purchase grain from commodity markets and then give them to the FCI and state procurement agencies for distribution to public distribution shops (PDS) or ration stores. The procurement by the government creates a benchmark pricing that middlemen will have to accept; otherwise, they will lose their farmer customers who will sell to warehouses and through commodity exchanges instead. 
 
4. Permitting contract farming without giving farmers the right to lease out their land can drive them from the village middleman to corporate middlemen like Reliance, Adani, or ITC.  The small farmer may be wooed initially; but, as has happened in most countries, large organisations often compel farmers to sell their produce at low prices. The farmer must have a way out.
 
One way out is to allow him to lease out his land to a bigger player. This way, the farmer gets a minimum rent equal to or more than the value of his cultivation each month. He will continue to augment it with wage labour.  But he retains ownership of his land which he does not want to lose. When he feels confident enough, he will resume farming. Give the farmer a choice to produce independently, or produce on contract, or give his farm on lease for at least five years. The other party needs this time span because it must first improve the land and make the required investments. That will take around a year to do so. It will then try to recoup the cost of investments in the remaining four years. This way, big players can bring in technology (hydroponics is one good example -- https://asiaconverge.com/2018/06/hydroponics-could-be-the-future-of-farming/). Small farmers cannot make such investments which can make even small farms profitable.  
 
5. Focus on Farmer Producer Organisations (FPOs) as aggregators, which can collect small quantities from many small farmers and sell large quantities to warehouses that act as super aggregators for onward sale through commodity exchanges. Most importantly, set up super FPOs – like a federation – for each crop so that they can then, like Amul, set up (directly by themselves or in association with private parties) processing and marketing facilities. Eventually, as Dr Verghese Kurien often said, the farmer is the most crucial player in the food chain and, therefore, his profit must be the largest. The government has forgotten the relevance of that vision. 
 
6. Under no circumstances must the government procure grain or agricultural crop directly from farmers. Just as the government has made assessments faceless for the income tax department, it must make procurement faceless and only through commodity markets. 
 
7. Give the WDRA more powers and time-bound targets. 
 
8. Mandate a minimum statutory price for milk so that farmers from Uttar Pradesh and elsewhere do not suffer. Allow agricultural subsidies and grants to be transferred from the Union government to the states only for cooperatives, not to state government departments. 
 
9. Reduce the acreage of sugarcane in water-starved regions like Maharashtra.  
 
These are things that the three laws don’t do.  
 
At present, the three laws tinker with agricultural produce so that state politicians are cut off from milking farmers. Still, the Union government is permitted to reward politically aligned farmers who grow rice and wheat.
 
This allows the Centre to make money and dispense favours, yet attempting to emasculate state political parties. This one-sided approach will just not do.
 
The three laws must therefore go. 
 
 
(The author is a senior journalist)
joydeep.nondy
2 months ago
An article with lots of data points that are food for thought for anyone who has the interests of farmers (and consumers) in mind. It can't be a zero sum game in favour of well off farmers only. Unfortunately, the headline gives away the bias of the author and the Moneylife team of Sucheta Dalal and Debashish Basu. Haryana, Punjab and Western UP aren't India. Both SD and DB are excellent journalists. I wish they'd be more balanced in their political rhetoric.
sucheta
Replied to joydeep.nondy comment 2 months ago
I would venture to suggest that you need to rethink what you are saying -- the headline is perfect reflection of what is happening to farmers over the past 75 years -- but you have decided that the author is talking about the BJP ....
SRS
2 months ago
The bandh was a "success?" Given that 95% of the country didn't even know that a bandh was going on, you might be operating with a strange definition of "success". The country is more than just NCR and parts of Punjab/Haryana, you know.

That said, the author makes sensible suggestions, but unfortunately, they gore too many oxen and will therefore never see the light of day. Like all other "reforms" in India, we will change incrementally, two steps forward, 1 step back, a few steps sideways, and eventually stumble our way into something that looks somewhat better than the status quo. But don't hold your breath waiting for that to happen.
aktt0112
2 months ago
I agree with recommendations. However when you say Bharat bandh was successful than I think you are not depicting the true picture, and please do not say government used brute force, I think government, Supreme court everyone is ignoring the issues faced by common man due to these protest, I hope I do not need to tell you what happened on 26th January, totally failure of law enforcement agencies, there were many Khalistanis among them and you say brute force.

I think, In India if you have power if you can tame any government, Shaheen bagh and these protest are vibrant example of it.
veereshmalik
2 months ago
Milk has to be moved to NCR all the way from Renigunta and points therein in Andhra Pradesh in complete train loads (Milk Duronto 30 hours transit) to NCR and processing plants serving NCR. The truth on prices of milk from the areas around the NCR lies in that simple fact.
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