3 Farm bills and Free Market Economics

The 3 Farm Bills and Free Market Economics:

The three acts include:^[8]

1. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 ^[3]
   • expands the scope of trade areas of farmers’ produce from select areas to “any place of production, collection, aggregation”.
   • allows electronic trading and e-commerce of scheduled farmers’ produce.
   • prohibits state governments from levying any market fee, cess, or levy on farmers, traders, and electronic trading platforms for the trade of farmers’ produce conducted in an ‘outside trade area’.
2. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
   • provides a legal framework for farmers to enter into pre-arranged contracts with buyers including mention of pricing.
   • defines a dispute resolution mechanism.
3. Essential Commodities (Amendment) Act, 2020
   • removes foodstuff such as cereals, pulses, potato, onions, edible oilseeds, and oils, from the list of essential commodities, removing stockholding limits on such items except under “extraordinary circumstances”^[11]
   • requires that imposition of any stock limit on agricultural produce be based on price rise.^[8]

The 3 Black laws passed through the parliament of India without speaking to the farmers have created a large controversy and agitated farmers around the nation. Farmer Protests have been active and live since this bill came into existence. The problem is, like always most of us know very little about the actual law and it’s effect on the real farmers. We support the sentiment of the protester as a gesture of sympathy and since it does not affect us we fail to actually understand the reason of the protest by and large.

The present way farm produce reaches the end consumer in India:

1. Monopoly of the APMC Market –
   1. The APMC markets are run by the State Governments.
   2. All dealers in the APMC market are licenced by the State Government.
   3. A regular citizen cannot go and buy farm produce from the farmer. The farmer has to sell his produce to one of the few licenced traders at the APMC.
   4. This itself creates a plethora of questions and doubts in my mind.
   5. The Minimum Selling Price (MSP) mandated by the govt. is easily scrapped by these traders via cartel economics – if no trader buys your products at the MSP, you as a farmer are forced to sell your perishable farm produce at a lower price anyways.
2. A chain of useless middlemen that drive up the prices –
   1. The farmers approach the APMC market and need commission agents to sell the produce to the trader.
   2. The farmer cannot decide the price of his produce. The commission agent and the dealers decide the price without consulting the farmer and inform him of the said buying price.
   3. Most of the time the farmer has no option but to sell it at their price.
   4. The farmer also pays the commission agent and market taxes.
   5. Traders add profits and forwards the produce to other traders who do the same and eventually the retailer add his profit and sells it to us – the end consumer.
   6. The farmer might get INR 7/- per KG for his hard work, labour and perseverance. We consumers pay INR 70/- for the same. Now who do you think is the victim here?

3 Bills – What changes it will bring around the overall system:

1. Free Trade out of the APMC Monopoly
   1. The farmer can legally sell his produce to anyone
   2. If he sells out of the APMC structure, he does not pay the taxes and commission agents
   3. The final retailer / food processor and other larger players can source farm produce directly from the farmer.
   4. Contract farming is possible – A businessman can sign a legal contract with a farmer to produce a said verity of crop for a pre-determined price.
   5. Both the farmer and the buyer are entering into a good business where both their interests are served. The Farmer gets paid for his produce and the buyer gets what he wants at a comfortable price.
2. Free Market Pricing:
   1. There is no MSP. MSP was anyways not honored by the traders of the APMCs. Price is fixed based on the demand of the produce.
   2. A batch of farm produce that fetches INR 7/- at he APMC might go for the same price or higher or lower.
   3. Keep in mind that a farmer will now grow his crops based on the market demands. Farm Produce in a country like INDIA has tremendous demand. The problem is the APMC supply chain that hikes up the prices and fails to deliver it to the consumer.
   4. There is a possibility of large corporations buying the produce at INR 9/- from the farmer and selling it to the end consumer at INR 45/- The end consumer is still paying half of what he or she was paying earlier.
   5. More players selling the produce due to free market will increase quality and make everything better.
3. Market prices for basic food items – removal from essential goods.
   1. Onions, potatoes, dals and oil seeds that form the basic diet of us Indians were included in the essential commodities act. This meant that the govt. controlled the prices of these items to prevent artificial higher prices. We all know how efficient the government is in doing this. 
   2. Any government be it congress or bjp, has failed miserably in maintaining a stable price for essential food items. 
   3. We might be better off with a free market system that is only checked by the government to bring food to our table at a low cost. 

United States and other Free Market Nations have used these systems to facilitate farm business. Looking at them, there are a few problems that also should be identified.

Problems that have already occurred in the west using this system:

1. High prices for perishable farm produce:
   1. Free Market economies can be hijacked by titan sized businesses and corporations. They contract as many farmers they can for a specific farm produce and sell the items at a high price to the consumers.
   2. Lets take the example of Potatoes – Potato farms are mostly run by contract farmers. Potatoes are not sold loose in the USA.
   3. Most potatoes are processed to increase shelf shelf and sold at a higher price to the end consumer
2. Food Desserts:
   1. The United States is grappling with the problem of Food Desserts. You wont find a single fresh vegetable vendor for miles and miles, that too in large cities. Citizens are forced to feed themselves with McDonalds and other cheap fast food that is available.
   2. Fresh vegetables are so expensive that people can’t afford them.
3. Large scale obesity:
   1. Due to the above reasons, people have to eat junk food that causes them to go obese. They also face numerous health problems caused by obesity like diabetes and other chronic problems.
   2. This in-turn increases their medical expenses and overall cost of living.
   3. Education and other important expenses turn into a luxury.

Would these problems be mirrored in India?

1. Population size and density:
   1. India’s biggest problem and strength is it’s large population.
   2. Large population results in higher demand which the USA lacked
2. Higher Raw Vegetable Consumption Rate:
   1. Unlike other nations, Indians buy more vegetables and raw food than processed/cooked.
   2. 60% of Indians live in a rural setting that won’t prefer to buy cooked or processed produce
3. It would more profitable for the company to quickly sell off raw vegetables than invest more into processing them, market them and then sell.
   1. This is mostly due to the high recurring demand for such items. A family will buy and consume potatoes everyday. You can hence sell potatoes everyday.
   2. This will result in a stable market with stable prices as demand and supply points will meet each other.

Conclusion –

The overall conclusion is that this new system ushered into the Indian Economy could solve the problem of farmer suicides. The British Raj was built on the backs of the Indian farmers. The APMC system also exploited the farmers and growers. Farm Produce is the most important commodity for any civilization and the farmers should have control over it’s price based on market forces.

Once this is achieved, the government needs to create laws that induce a healthy business environment for the small retailers in every nook and corner of this nation to purchase the stocks and put it in the plates of each human within the nation of India.