The Vagaries of Indian Farming and the Miseries of Retail Buyers of Vegetables and Foodgrain, Explained

 I had very little idea about the mechanics & dynamics of Indian farming and about why layers of middlemen, often with political patronage & backing, push up retail prices of certain vegetables and grains even, to impossible levels. 

I have been learning fast, based on inputs & writeups from knowledgeable & informed folks who don't have an axe to grind in this process.

Am reproducing below two such explanatory notes which are eye openers. 

Note 1:

Why Oppose Farm Laws?

Imagine this scenario. There is a bumper crop of onions and, as a result, the market price crashes since there are no takers for onions. Crony No. 1 of the govt. offers to buy the entire stock at ₹ 2 per kg. He then stores it in his godowns and waits for some time.  He negotiates for the export of the onions in order to reduce domestic supply. 

Assuming the cost of transport and storage is ₹ 4 a kg, 10% of the stock is wastage Adding this to his procurement cost, onions now cost ₹ 6.60 a kg. Onion prices start climbing up  to ₹ 20 per kg for wholesalers due to induced shortage.That gives Crony No. 1 a neat profit of 200% in a time frame of 3 - 6 months or a 400 to 800% profit rate annually. The actual profit is much more because, within a short window, Crony No. 1 will recover his cost of procurement by selling the stock.  The balance stock will be purely held for speculation.

Now imagine if there is no stock holding or export restrictions, and no MRP regulations like for manufactured consumer and consumer durable products, the stocks are simply not released in the market leading to shortage and prices quickly skyrocketing to ₹ 80 or more.  Crony No. 1 makes a killing at these prices. 

Consider the converse, Crop failure takes place and prices are high because there is shortage in the market. Crony No.1 will simply not buy from the local market.  He will import it at a fraction of the cost and release it to wholesalers at a slight discount over the prices for domestic produce.  Farmers will feel the pinch and start selling at whatever prices they can get.  In both cases, the farmer gets screwed.  

These are not probable situations but what has actually happened time and again in the case of onions, vegetable oils, pulses and several other items. Many medium size players were earlier involved in this game. This time around, Crony No. 1,  a pan Indian player with  access to huge funds, is in the dangerous position of determining the fate of farmers and consumers irrespective of whether there is a good or bad crop by simply manipulating purchases, stock and time of disposal. 

The farm bills were drafted keeping his interest in mind and not that of the farmers.  If that was not the case, the bills would have mentioned banning of stock hoarding, MSP prices and maximum retail prices.  Even that is not sufficient because the average farmer cannot import in bulk.  Hence, those involved in agricultural products and their trading locally, should be banned from importing. That clearly is something that the government is not quite willing to do. 

The standard principle is that any transaction based on asymetric access to information and resources between both parties is bound to be favouring the stronger party unless the terms and conditions are strictly defined by the government such as MSP, MRP, hoarding, import regulations and even using import tariff regime as a tool to protect farmers' interests.  Either way the Farm Acts have to be withdrawn lock, stock and barrel. 

(Inputs from Ramana Goda & other sources)

Note 2:

1. The Bill does not allow the farmer to approach the court. If there is a dispute, SDM will decide. If the decision is not acceptable then the farmer must approach the Joint Secretary of central govt.

a. Imagine 2-acre farmer putting up a fight with Corporations and their legal departments in front of SDM OR travelling to Delhi to approach the Joint Secretary.

2. Buyer will draw a contract and if a farmer cannot meet the agreement then SDM can impose a fine of up to 5 lacs.

a. Imagine a farmer reading/negotiating Airtel or Jio contracts.

b. How many of us were successful in getting these service providers a promised speed?

c. Chips producers had a contract with potato farmers in Punjab and later they rejected the potatoes on the ground that the potatoes are not of the same shape or size stipulated by them. Remember potatoes grow in soil and are not 'manufactured' in any cast.

3. Bill waives tax (Punjab 8.5 and Haryana 6%) collected by Mandi boards from private buyers.

a. This removes competition for private players from Mandi boards.

b. This revenue is collected from central agencies to build rural area infrastructure. Who will now fill that tax hole?

4. Bill does not guarantee MSP or mentions it even.

a. Allows private players to buy farm produce at a lower price

5. Bill removes essential commodity act

a. Allows hoardings and the raising of prices for various food items.

6. Bill supporters claim that it removes the middleman (Arthiya).

a. But Bill introduces now bigger sharks removing small fish.
b. Arthiya works on a 1-2% service fee
c. He facilitates purchase from buyer bases on service fee like any other dealership or service provider.

d. There is no mark up in the purchase price

7. The crop being a 6-month cycle, Arthiya is like ATM to farmer providing credit for 6 months cycle for purchases of inputs.

a. Now with Arthiya being removed who will provide credit?
b. Where does a farmer go for money to buy farm inputs and his daily needs?

c. The Bill or the present Government has not created an alternative for this.

8. Why protests are limited to Punjab and Haryana

a. Farming is a state subject. States like Bihar had removed APMC in 2006 leaving only private players. 

b. Punjab and Haryana have developed Mandi system over the years where any produce brought into Mandis cannot be purchased below MSP.

c. Crops like Rice are sold in states like Bihar at prices below the MSP.

d. Farmers from neighbouring states sell their produce at MSP in Punjab or Haryana as these states have better Mandi system which offers MSP.

e. On the ground, the Haryana BJP govt has stopped farmers from other states to sell their crops in Haryana which by itself is a stand contradicting the Central Govt's new Bill. 

If much of this is true (possibly all of it), the present acts need to be repealed & possibly replaced with a new set of regulations. Retail buyers of veggies & certain foodgrains also need protection from market manipulations pushing up prices to impossible levels periodically. 

(Inputs from Radhakrishnan Nair & other sources)

Excerpts from an article in 'The Mint' on the farmer protests. The complete article is linked below.

For more than a week, farmers have been protesting at Delhi’s border, demanding the withdrawal of India’s recently-passed farm bills. Although led by farmers from Punjab and Haryana, the issues raised concern farmers across the country. The government’s seeming reluctance to engage them, even though protests have been going on for three months in several states, has aggravated the situation. Behind this stubborn approach is the flawed understanding that the current protests are localized and limited to the specific issue of a minimum support price (MSP) guarantee.

In reality, the issue is of a sustained decline in farm incomes caused by low prices. The issue is old and was at the heart of the government’s 2014 promise of implementing recommendations of the Swaminathan Committee to raise MSPs to 1.5 times the cost of cultivation. This was also a major issue during the first term of this government, resulting in such major protests as Maharashtra’s long march to Mumbai and an agitation in Madhya Pradesh that saw the killing of seven farmers in police firing. Farmers from Tamil Nadu also protested for 100 days in Delhi, as did farmers in other states.

While farmer incomes have been worsening since 2011-12, their condition has worsened in recent years, leading to a build-up of anger. Their income decline is partly a result of an overall fall in demand in India’s economy, which has pressured farm-gate prices. It is also a result of rising input prices and other costs of cultivation. The Centre’s farm reforms should be seen in the context of these long-term trends. While they are in many ways a continuation of past attempts to reform the agricultural marketing system and open agricultural trade to the private sector, they have come at a time when the farm sector is suffering the twin blows of a slowing economy and the covid pandemic. These have led to a fall in demand for agricultural commodities, not least because of restrictions that have hurt the hospitality industry and catering for weddings and social gatherings.

Most farmers would agree that the agricultural produce marketing committee (APMC) mandis are politicized and need reforms. Over the last two decades, several reforms have taken place at the state level, and none has led to this kind of protest. The reality is also that in states where the APMC system is functional, farmers have been able to get better prices. Farmers see APMC mandis as an institution that protects their interests, despite shortcomings. In their view, the MSP system ensures better prices for crops that are state-procured—mainly rice and wheat. Wholesale Price Index data for October shows that prices of all cereals declined sharply compared to last year, except paddy. Surprisingly, wheat prices, which saw massive procurement and record production, have seen wholesale prices decline for the past three months. But for all other crops, for which procurement is negligible even though an MSP is announced, the prices realized by farmers are much lower. Maize is a good example; the prices received by farmers in most states, including Punjab and Haryana, have been much lower than the MSP. It is worse in states such as Bihar, where an APMC does not exist. Although a guaranteed purchase at MSP is unrealistic, the fight of farmers is to retain the last vestiges of state support in an environment of falling prices and increasing losses.

South China Morning Post (SCMP): Indian Farmers vs. Modi: Protesters Ready to Die in Winter of Discontent

Mint: Farmer protests are a reflection of this sector’s structural crisis.

Swaminathan Committee on Farming Report

Mention needs to be made of the role played by the Indian mainstream media in all this. Much of the zero credibility Indian MSM has been doing its best to downplay and suppress news about the farmer protests. Several of the news publications and TV news channels, which normally act as cheerleaders and propagandists of the present Indian govt., have been involved in maligning and slandering the protesting farmers and occasionally spreading disinformation & fake news, possibly guided by the ruling party's propaganda & publicity divisions, often operating through a dubious opaque body, euphemistically known as the BJP IT cell. The real reason for the capitulation of the MSM possibly can be found by examining the ownership pattern and the shareholding of much of Indian MSM, detailed in this Facebook post and reshared by me.

The real story about the cringeworthy, zero credibility, Indian MSM

Farmer Protests & Media Callousness - As They Sow so they shall Reap

Any regulation which meticulously avoided any prior discussions, inputs and feedback from the real stakeholders viz., the farmers and failed to protect the retail buyer from price vagaries caused by market manipulation indulged in by big buyers & layers of middlemen, can't be allowed to stand and must be rolled back and, if needed, replaced with a new set of laws & regulations. I wish that farmers and the middle-class and poor retail buyers too rise up unitedly against laws which allow them to be fleeced & manipulated needlessly & regularly.