Crossover for corporates

The three farm Bills green signal corporate agriculture and parting of ways with the nationally-accepted ‘Small Farmer Economy’  

By   |  Dr Ramesh Chennamaneni  |  Published: 27th Sep 2020  12:05 amUpdated: 26th Sep 2020  10:51 pm

Amid strong protests by opposition parties, Parliament passed three agriculture sector Bills recently without meaningful discussion and voting. The opposition parties have called them “anti-farmers”. The genuine issues and fears flagged by them include gradual end of Minimum Support Price (MSP), irrelevance of state-controlled Agricultural Produce Market Committee (APMC) ‘mandis’, risk of losing out land rights under contract farming, reduction in price of farm produce due to market domination by big agri-businesses and exploitation of farmers by big contractors through contract farming practices.

The three Bills have to be seen holistically, as they are interdependent. Their basic objective clearly is to create enabling conditions to establish corporate agriculture in the long run, including foreign direct investment (FDI) in the retail sector. In other words, for the first time after Independence, India is preparing to part ways with its nationally accepted ‘Small Farmer Economy’ concept.

The Three Bills

The key provisions of these Bills are intended to help small and marginal farmers (86% of total farmers), who don’t have means to either bargain for their produce to get a better price or invest in technology, to improve productivity. The Bill on agri market — The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 — seeks to allow farmers to sell their produce outside APMC ‘mandis’ to whoever they want. Most farmer organisations agree that there is excessive political interference and want reform as far as the functioning of mandis is concerned.

The Bill on contract farming — Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 — allows them to enter into a contract with agri-business firms or large retailers on pre-agreed prices of their produce. This is supposed to help small and marginal farmers as the legislation will transfer the risk of market unpredictability from the farmer to the sponsor.

The Essential Commodities (Amendment) Bill, 2020, seeks to remove commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. This means there would be no imposition of stockholding limits on such items except under extraordinary circumstances such as war and natural calamities. This provision is expected to attract private sector/foreign direct investment into the agriculture sector.

Adverse Implications

Agriculture, together with horticulture, animal husbandry, fisheries and agro-forestry, is the main source of income for our population and is the most obvious engine for social equity and economic growth. However, due to small holdings, fragmentation, low investment capacities, lack of access to technologies, credit and marketing institutions, small farming economy is in a serious crisis.

Moreover, agri-food systems are undergoing rapid transformation. Increasing concentration in processing, trading, marketing and retailing is being observed in the production-distribution chains. So, contract farming is seen by proponents as a way to raise small-farm income by delivering technology and market information to small farmers, incorporating them into remunerative new markets. Does this work? In reality, this strategy facilitates agri-business firms to pass production risk to farmers, taking advantage of an unequal bargaining relationship. There is also a concern that contract farming will worsen rural income inequality by favouring larger farmers.

 Though APMCs account for less than a fourth of total agricultural trade in the country, they do play an important role of price discovery essential for agricultural trade and production choices. The vilification of APMCs and the middlemen who facilitate trade in these mandis reflects a poor understanding of the functioning of agricultural markets. In the absence of any collective governance system of farmers, the middlemen are a part of the larger ecosystem of agricultural trade, with deep links between farmers and traders.

The dominant concern regarding MSP has been expressed by farmers of Punjab and Haryana. They are genuinely concerned about the continuance of the MSP-based public procurement given the large-scale procurement operations in these States. These fears gain strength with the experience of States such as Bihar, which abolished APMCs in 2006. After the abolition of mandis, farmers in Bihar on average received lower prices compared with the MSP for most crops. For example, as against the MSP of Rs 1,850 a quintal for maize, most farmers in Bihar reported selling their produce at less than Rs 1,000 a quintal. Despite the shortcomings and regional variations, farmers still see the APMC mandis as essential to ensuring the survival of the MSP regime.

World’s Experiences

As experiences from other parts of the world show, multinational companies are not famous for improving the situation of farmers by paying better prices. They need reliable supplies and, therefore, favour contract farming and large-scale suppliers because they are more reliable, which gags the small farmers and pushes prices down. They will definitely induce more efficient supply chains through improved infrastructure (roads, cold storages) but who will profit from these efficiencies is the question.

They will certainly introduce new technology, more variety in choice, but there is no guarantee that they will source this only from India as the earlier 30% mandatory local sourcing in FDI has been scrapped by this government. They are usually able to achieve price reductions through economies of scale, but certainly at the cost of a huge number of jobs loss in informal traditional sectors. The quality of food produced and the environmental implications of this production are also under severe criticism worldwide.

Shadows of Crony Capitalism

Economic success becomes premised on people’s capacity to harness government power to rig the game in their favour. The market economy’s outward form is preserved, but its basic protocols and institutions are slowly subverted by businesses seeking to secure preferential treatment from regulators, legislators, and governments. This can take the form of bailouts, subsidies, monopolies, access to “no-bid” contracts, price controls, preferential tax treatment, tariff protection, and special access to government-provided credit at below-market interest rates, to name just a few.

Ever since the decision towards 100% FDI in retail market, along with scrapping of earlier condition to procure 30% local sourcing, was approved by the present government in January 2018, the path towards these Bills was clear. Along with favourable conditions for the entry of FDIs, these Bills aim to do away with government interference in agricultural trade by creating trading areas free of middlemen and government taxes outside the structure of APMCs along with removing restrictions of private stockholding of agricultural produce. Given this background, farmers see these Bills as part of the larger agenda of corporatisation of agriculture and withdrawal of government support.

Although the government has clarified that these Bills do not imply withdrawal of procurement by the State at MSP, there is a genuine fear among farmers, their organisations and State governments about the true intentions of the Central government. The mistrust is not unfounded given the track record of this government on many issues, including demonetisation, introduction of Goods and Services Tax (GST), CAA, privatisation efforts of railways, airports, insurance, defence, power and so on. The entry, in a big way, of two of the biggest corporate groups (Adani and Reliance) in food and agricultural retail and their timing have added to their fears.

Collective Action  

The last decades of reforms and privatisation in India have convincingly proved that the market has absolutely little to offer to a large number of producers, savers, consumers and borrowers. These are millions of small and marginal farmers, agricultural labourer, artisans and people working in petty business in informal sectors. In today’s India, where economic reforms and privatisation have shown little or no impact in combating rural poverty, special promotion programmes, collective action and cooperatives undoubtedly have more to offer to economic growth and social development than most other forms of enterprise.

Telangana Chief Minister K Chandrashekhar Rao has launched a comprehensive agriculture policy to support and revive the economic viability of small farmers. Apart from recent introduction of new cropping pattern under which farmers need to cultivate crops in demand as recommended by the government to organise their remunerative marketing through own corporation, Telangana is providing free electricity, direct transfer of subsidies through investment support, free insurance, substantially increasing irrigation, crop procurement and other input facilities as well as extension services and reforms in revenue and administration to farmers in the State. This promotion, which also saw about 40% of budgetary allocations to agriculture and allied activities, ended six decades of agriculture crisis in Telangana and for the first time, small and marginal farmers have started producing large quantities of agricultural output for profitable marketing.

The efforts of the Telangana government to organise farmers and their organisations through their own Rythu Sanghalu to overcome economies of scale address precisely this gap in designing an ideal value chain and disseminating knowledge to them. This enables small farmers collectively to compete in the market through increasing their bargaining power. An ideal value chain looks forward to bring all the stakeholders engaged in production, processing system, financial and marketing agencies.

An efficient linkage of various stakeholders improves production, price realisation and profitability. This inevitably needs collective action by the producers, or in other words, they have to organise their agricultural production efficiently through their corporations, producer organisations or cooperative enterprises. This can be any producer organisation, Producers Company (Companies Act of 1956), Producers Cooperatives, registered Farmers Federations (Rythu Sanghalu), Mutually Aided Cooperative Society (1995 Act) etc.

Cooperative Economies

Today, there is an alternative, secure, stable and sustainable model of business owned and controlled by 800 million people worldwide. Agricultural cooperatives with over 400 million member farmers are responsible for over 50% of agricultural production and marketing in the world. It is a model of business that is not at the mercy of stock markets or corporates because it relies instead on member funds for its value; and is not subject to executive manipulation and greed because it is controlled by local people for local people.

It is a business where the profits are not just distributed to its shareholders, but are returned to those who trade with the business, thus keeping the wealth generated by local businesses in the local community for the good of the local environment and families. This is the cooperative sector of the global economy, which employs 100 million people worldwide. It is no coincidence that the world’s most successful and stable economies generally also happen to have the world’s most cooperative economies. There are a number of successful examples from the US and European community. Specific examples from India and Telangana also endorse this trend.  (See Shining Examples)

So, let us not forget that as an alternative to private, corporate enterprises favoured by neoliberal economic policies, there are indeed viable people-centred economic models to combine efficiency and equity, which are member-driven rather than investor-driven. There can undoubtedly be regionally organised corporations, companies and cooperatives in agriculture, horticulture, fisheries in producer and consumer spheres, artisans as small and medium business enterprises (including textile and powerloom enterprises) etc, thus establishing socio-economic stability to their members as well as the community.

Shining examples of Cooperative Economies

Amul

Dairy cooperative Amul is jointly owned by about 28 lakh milk producers in Gujarat. It is the largest food brand in India and world’s largest pouched milk brand with an annual turnover of $1,700 million.

Telangana’s Mulkanoor

Mulkanoor Cooperative Rural Bank and Marketing Society Ltd of Telangana is another role model. It has a turnover of over Rs 100 crore with total lending in a year exceeding Rs 20 crore and doesn’t have a single defaulter. Its operations range from dairies to a modern rice mill. But few know that Mulkanoor has one of the largest paddy seed growing and selling operations in the country. It consistently places the second biggest request for paddy foundation seeds to the State’s Prof Jayashankar State Agriculture University (after the State’s seed development corporation). Every year, it lifts 40 tonnes of foundation seeds of 13 paddy varieties, for multiplication into certified seeds for sale to farmers. It produces about ten million tonnes of paddy seeds that are sold across the country.

Karimnagar Dairy

Yet another cooperative success story is Karimnagar District Milk Producers Mutually Aided Cooperative Union Limited known as Karimnagar Dairy with 70,000 farmers as members. It has achieved a distinction in the Telangana region with procurement of two lakh litres per day and sales of 1.7 lakh litres per day. This has been possible through their excellent marketing network, introducing hybrid milch animals, promoting growth of fodder, constant veterinary services, etc.

(The author is MLA and Humboldt-Expert in Agriculture, Environment and Cooperation)


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