After-effects of new farm laws: Why is there chaos in the mandis

The first kharif season after deregulation of the agriculture market is underway. The government has started procuring paddy at minimum support price, even before the designated period. For the largest private trade in India, this is a time of anxiety. 

By Shagun
Published: Friday 13 November 2020
Labourers clearing and grading paddy brought at the Sirhind Mandi in Fatehgarh Sahib district, Punjab

The kharif harvest season this time was not only unusual, but also unprecedented. Unusual, because the Union government advanced the procurement of kharif paddy from the usual October 1 to September 26. Unprecedented, because this is the first marketing season after the government deregulated the agriculture market, now being celebrated as “one country, one market”.

The rapid pace at which the markets were deregulated was also unparalleled. On September 20, 2020 Parliament passed three agriculture-related Bills:

1) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, which allows the sale of agricultural produce outside the mandis or markets regulated by the Agricultural Produce Marketing Committees (APMCs) and constituted by different state legislations.

2) The Farmers (Empowerment and Protection) Agreement of Price Assurance and the Farm Services Bill, 2020, that facilitates contract farming.

3) The Essential Commodities (Amendment) Bill 2020, that deregulates production, supply, distribution of food items like cereals, pulses, potatoes, onion and edible oilseeds. Among the three, the first two are being contested intensely by farmers, political parties and traders.

In less than 100 hours of Parliament passing these laws amid disruptions in both the houses, the President of India approved the laws. In less than 48 hours of the President’s assent despite petitions by Parliament members not to do so, the Union government published them in the gazette on September 27.

In these hours, farmers were out on the streets protesting against the laws. They fear dilution of the government’s minimum support price for crops and procurement regime and a potential takeover of the market by corporate bodies. Political parties held massive rallies; and, the ruling National Democratic Alliance even lost support of an alliance member, the Punjab-based regional party Shiromani Akali Dal.

Such was the pressure on the government that it advanced the procurement date for paddy to divert the attention of protesting farmers to procurement centres, particularly in Punjab and Haryana. Procurement of crops like paddy, maize, soybean, pulses and oilseeds is going on in different states of the country.

The government has claimed it has procured more than 1.5 million tonnes (MT) of paddy from Punjab, Haryana and Uttar Pradesh till October 6. Down To Earth (DTE) correspondents travelled to the government markets in Punjab and Haryana to assess whether the markets are now favourable to farmers and whether the laws are delivering a fair deal to farmers? 

No assured support

In the last few days of September and in the first week of October, one witnessed unusual scenes at the APMC mandis, or markets, in Haryana. Freshly harvested paddy entered the markets in hoards, but few left the yards.

The produce was not being sold due to a strike called by rice millers and arthiyas (procurement brokers) over differences with the government on the procurement process. Chief Minister Manohar Lal Khattar had announced direct procurement of crops by procurement agencies and its transportation to the rice mills.

Labourers weighing paddy at the Patiala Anaj Mandi, Punjab

Earlier, millers would buy the crop on behalf of government procurement agencies such as the Food Corporation of India (FCI). The other problem was demands made by rice millers to reduce the quantity of rice milled from paddy. The millers want the quantity to be reduced from 67 kg per 100 kg to 63-64 kg. All these issues introduced a bar-rage of problems for farmers.

DTE visited two APMC mandis in Karnal and Kaithal districts of Haryana on September 30 where most farmers were left without buyers and had to dump their crops at APMC yards. As the crisis spiralled into a full-blown strike, farmers stayed put in yards with their crops that began to rot. Under normal circumstances, the produce would have been sold within 24 hours of being brought to these markets.

The change in the procurement rule has also had unusual side-effects. The permissible limit for moisture content in paddy is 17 per cent. Under the previous arrangement — when rice mills would buy the crop on behalf of the state government — either the crop was dried in the yards or sold with high moisture content with a price cut.

With the direct procurement rule, government officials measure the moisture content level before approving the sale. “A government inspector rejected my crop saying it had 22 per cent moisture content. So I asked them to cut from the MSP for excess moisture, but he didn’t budge. It’s just an excuse. We don’t have any facility or space to dry our paddy or keep the moisture in check,” said Harish Bhatia, a farmer from Kachhwa village in Karnal.

He added that earlier, the arthiyas would negotiate with the millers on farmers’ behalf, who would then buy the crop with high moisture at a reduced price and dried it themselves. “But this time, government officials have been citing high moisture content. They are not buying the crops,” he said.

In the case of Narwair Singh, a farmer from Karnal’s Gonder village, this delay in negotiating with government officials meant his crops lost weight. “I must have lost 500 kilogrammes. The government says farmers can sell their crops anywhere as per the new laws. But when nobody is buying from the government market yards, then who is going to buy outside of it?” Singh asked.

On September 30, after pressure from farmers, the state government increased the permissible limit of moisture content for paddy procurement to 19 per cent. But farmers’ union bodies have demanded it be increased to 22 per cent.

The new way of procurement is also turning out to be a logistical nightmare. The government had a tough time arranging transport, labourers and gunny bags. During one such procurement processes at the New Anaj Mandi in Kaithal district, 64-year-old Palla Ram’s 30,000 kg crop got listed during a visit by district authorities and Haryana State Warehousing Corp.

But he received no information on when it would be lifted. “When will they arrange for the transport; when will they lift it? These logistical issues should not have troubled the farmer. Till last year’s marketing season, all these issues were taken care of by the arthiyas along with the rice miller. I don’t trust the government. I am not going to let them lift my crop unless they hand me my money,” he said.

The arthiyas (agents) too have been protesting. Krishan Mittal, president of Kaithal’s New Anaj Mandi Arthiya Association, said the state government’s move to directly procure produce from farmers was made to remove arthiyas from the mandi procurement system chain. The state rice millers’ association has also said they would strike till their demands about quantity of rice and lifting of paddy are met.

The online system under Meri Fasal Mera Byora (My Harvest My Details) scheme, which seeks registration of farmers and issues them e-passes to mandis, has also hassled farmers. Farmers claimed that the portal allows lower yield for sale than what they grow.

The Haryana chief minister on September 26, however, directed officials to ensure that if a farmer brought 10 per cent additional paddy to the mandi than the prescribed quota, it should be purchased. The limit, which was earlier 25 quintals per 0.4 hectare, has now been increased to 33 quintals (1 quintal equals 100 kg).


Source: Commission for Agricultural Costs and Prices

The portal also doesn’t allow farmers the flexibility of time to bring the produce to the mandi, they claimed. “What if I can’t bring my crop during the stated period? What if my crop is not ready or if it’s raining or if I have some other work? The portal worked fine during wheat procurement in the last marketing season, because wheat doesn’t get damaged easily. But paddy requires immediate sale,” said Bacchitar Singh, a farmer from Kacchwa village.

Amid this, the Haryana government initially banned farmers of non-basmati paddy (which is procured by government) from Uttar Pradesh to sell their crops in the state — an odd development at a time when the new laws aim for a pan-India market and farmers’ freedom to sell anywhere. Every year, many paddy growers from Uttar Pradesh sell their crops in APMC mandis of Karnal and Kurukshetra as they don’t get an assured MSP in their own mandis.

At the grain market in Haryana’s Hodal, a town adjacent to Uttar Pradesh, farmers from many villages of Chhata tehsil of Uttar Pradesh had gathered with their paddy crop, but were unable to sell because of the new rule of registration. The Haryana government belatedly clarified that it meant that every farmer, whether from Haryana or Uttar Pradesh, will have to register on the government’s Meri Fasal, Mera Byora portal.

In Punjab’s Rajpura Anajmandi, the situation is no different. The rice millers are not lifting the crop as they are demanding the government to reduce the quantity of rice milled from every 100 kg paddy.

According to agreed terms, for every 100 kg paddy that the procurement agencies procure, millers have to give 67 kg rice. The millers have asked this limit to be reduced to 64 kg as they are unable to process above this limit.

Farmers Bhupinder Singh and Parvinder Singh reached the Rajpura mandi on October 2, but there was no word from their arthiya about when the procurement process would start. Their arthiya, Darshan Kumar, has been on phone calls with the rice millers for more information.

“I don’t know why this is happening this time. We didn’t even get enough bardanas (gunny bags). The government is saying they will only provide 70 per cent of the total gunny bags, the farmers will have to manage the rest. We never faced such problems before. Usually the produce gets sold on the day we bring it or the next day. This time we are being harassed,” Parvinder said.

Nevertheless, farmers are getting a taste of what it would be like if the mandi system collapses, especially in Punjab and Haryana, where the set-up is strong. 

Procurement practices

The APMC structure and MSP were introduced in the 1950s and 1960s for a number of reasons like ensuring food security through production of key crops, assuring guaranteed prices and an assured market and a minimum price standard to farmers in case of volatile open markets.

The Centre currently fixes MSPs at 1.5 times the cost of production, interest on working capital, and, imputed value of family labour for 23 commodities — seven cereals, five pulses, seven oilseeds and four commercial crops — based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). However, procurement on MSP is mainly done for rice and wheat and sometimes for oilseeds, cotton and pulses.

The National Sample Survey Office’s (NSSO) data shows the percentage of sale at MSP to total sale was at 27 per cent for paddy, 2 per cent for bajra, 8 per cent for maize, 32 per cent for potato, 6 per cent for soybean, 12 per cent for cotton, and 1 per cent each for arhar, urad, and moong.

Labourers clearing paddy at Rajpura Mandi, Punjab, while gunny bags filled with the produce wait to be lifted by procurement agencies

However, a recent report from CACP recommending downsizing procurement from Punjab and Haryana has added to fears. The CACP report for 2020-21 marketing season has recommended that the government restrain procurement and sale of government buffer grain stocks in the open market. The CACP has also recommended that agencies must dispose of the extra stock, even if it is to be used as cattle feed.

Another drastic recommendation is to discontinue the bonus given by states above MSP that has distorted the market and discourages private sale. CACP has also asked the government to “restrict procurement from states like Punjab and Haryana where substantial groundwater depletion has occurred and other states that give bonus”.

Farmers have always found MSP for crops and procurement at this rate a cushion against unfavourable markets. A pan-India primary survey of farmers, traders, and retailers done by the Reserve Bank of India in December 2018 said around 51 per cent farmers found MSP for crops to be the most beneficial of all policies, including de-notification of products from APMC.

But not all farmers are benefitting from MSP. In the ongoing procurement season, in states like Maharashtra and Madhya Pradesh, farmers are being forced to sell their soybean crop to private traders at prices below MSP. Green gram and maize in Telangana were also being sold much below their MSPs. While the MSP for soybean crop was Rs 3,880 per quintal, farmers in Maharashtra were getting around Rs 3,200-Rs 3,300.

“The government has announced MSP, but it hasn’t started the procurement process. Every year it starts it late and till then, small farmers like me, who don’t have storage facility, are forced to sell it to private traders at a lower price,” says Khandu Wakchaure, a farmer from Akola district, who owns around 2 hectares.

He hasn’t harvested the crop yet this time. In Madhya Pradesh’s Mandsaur district, according to media reports, a strike in APMC mandis forced farmers to sell the soybean crop at prices as low as Rs 600 per quintal. In Telangana, the market price of both maize and green gram is currently much below MSP.

But are mandis the primary marketing channel for the majority of our farmers? According to NSSO data (70th round), of all the paddy farmers who reported sale of paddy during July-December 2012, only 13.5 per cent farmers sold it to any procurement agency (during January-June 2013, this ratio for paddy farmers is only 10 per cent), and in the case of wheat farmers (January-June, 2013), only 16.2 per cent farmers sold to any procurement agency.

Local private traders and input dealers comprised around 49 per cent sale of paddy, 36 per cent in the case of wheat, 58 per cent for maize, and 43 per cent for potato. This shows that a lot of trade already happens through private channels.

“The laws assume that private players don’t exist today and the APMC is a monopoly which is not correct. Private players and farmers who sell outside the mandi look to the APMC for a reference price. So, how does the idea of getting rid of the inefficient APMC hold in this scenario,” said Sudha Narayanan, associate professor at the Indira Gandhi Institute of Development Research, Mumbai.

“The first issue that we have with the government is that they are not even taking the MSP seriously that they are announcing while they are discussing the benefits of the new laws,” said Kiran Kr Vissa, national co-convenor of the Alliance for Sustainable and Holistic Agriculture.

It is possible that with the new laws, farmers may initially get a better price outside the mandis. “Then the traders may also move outside and subsequently, mandis will lose their relevance,” said Rajinder Raheja, an arthiya and a rice miller operating in Karnal’s New Anaj Mandi. With more trade bound to happen outside the mandis, the government has not created an alternate price setting mechanism.

“So, gradually if the APMC system collapses, then these laws don’t envision any alternative for a large market that can set the price signals,” said Narayanan.

Before the new laws came into force, at least 21 states had already reformed their APMC Acts to allow private players to set up market yards or purchase directly from farmers and 19 states had included provisions of contract farming into their APMC Acts. Maharashtra has already done what the new laws are aiming at.

“But we haven’t seen any model of private investment in these states in the agricultural marketing infrastructure outside the APMC mandis. Any private investment that has happened is just a drop in the ocean,” said agricultural economist R Ramakumar. Very little private investment is likely to be forth-coming after these new laws.

Farmers checking moisture content in their paddy crop in Hodal Grain Market, Haryana

Historically, if you see the experience of private players in agricultural marketing, private sector has always found it economically less viable to purchase commodities directly from farmers because India predominantly consists of small and marginal farmers. As a result, most farmers produce small quantities so every private player would have to go to each farmer to buy.

“That would entail administrative cost, labour cost, transport cost, loading and unloading. At present, in the APMC framework, these transaction costs are associated with the local trader. That’s why so many farmers in India don’t sell to the APMC market directly; they sell it to local traders,” said Ramakumar.

The trader consciously or unconsciously plays the role of an aggregator. If you don’t have mandis, the role of the aggregator has to be played by somebody else. Even big chains like Reliance Fresh or Big Basket find it more profitable to buy at APMCs.

“That’s the reason why private players and the government want more FPOs (farmer producer organisations) because they want the FPOs to perform the job of aggregation for these private players. They know aggregation is a problem,” said Ramakumar.

In fact, while two states — Kerala and Manipur — don’t have an APMC, Bihar repealed the APMC Act in 2006. In the case of Kerala, it has a predominance of spices and plantation crops. They have been running auction centres since the 1950s, which are well-established markets.

But the experience in Bihar doesn’t offer much confidence. It revoked the APMC Act to invite private investment, creating new mandi infrastructure for better price discovery. It’s has been 13 years and the situation has worsened.

“The situation is so bad that the farmers are not even getting MSP in the absence of a regulated market. Unscrupulous traders come to Punjab and Haryana to sell their produce,” said food and agriculture policy analyst Devinder Sharma.

“Why couldn’t new competitive markets come up in Bihar or anywhere else till now? Because private players are not interested in setting up new market infrastructure but just want to feed off the laid out structure of regulated APMC markets,” he said.

The laws claim to provide a favourable “terms of trade” (ToT) for farmers, which is the ratio between the prices incurred by farmers for their inputs and the prices they receive for their output. The benchmark is 100 and if the ToT is less than 100, it means farmers were not receiving decent prices.

“Since 2011-12, there is a clear shift of trade against agriculture,” said Ramakumar. In other words, prices farmers have been receiving are falling.

This also means there are far less incentives or avenues to invest in agriculture. The argument for introducing the new laws is that when mandi tax disappears, it will accrue a higher price for farmers. Or when contract farming comes, it will give a better price. But that is not likely to happen.

If APMC disappears, a new broker will emerge. The transaction cost of the broker will take the place of mandi tax. The question that needs to be asked is that can transaction cost be lower than the present mandi tax. Only then will farmers get a theoretically better price.

With inputs from Raju Sajwan

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