In May this year, the government announced important reforms in agricultural markets. These included deregulation of farm foods from the Essential Commodities Act (ECA). Farmers were also allowed to sell their produce outside government-regulated markets, or Agricultural Produce Market Committees (APMCs). Another set of changes allowed farmers to enter contract farming. While the government claims that these reforms will help farmers in getting a better price for their products, farmers’ groups have been agitating against these changes. Why are farmers opposing policies which are designed to help them? There are three factors which could explain these protests.

Farmers do not trust big capital, and for good reason

The entire logic of abolishing the monopoly of APMCs is that they artificially depress prices for farmers; allowing corporate players will guarantee better returns to farmers, the argument goes. Whether or not this happens cannot be said today. But farmers have a good reason to be circumspect about claims of growing presence of corporates being unambiguously good for them. Agricultural input markets , such as seeds, pesticides etc. have seen a large-scale corporatisation in the past decade, but this has been accompanied by a sharp rise in prices of intermediate inputs in agriculture. Data from the ministry of agriculture shows that a rising cost of intermediate goods has been the biggest reason for stagnation and eventual decline in terms of trade for farmers. Given this experience, the suspicion towards growing footprint of big capital leading to a squeeze in earnings cannot be dismissed just as dogma. It is not very difficult to understand why this happens. Farmers are often hard-pressed for resources against traders and end up selling their output when prices are lower. Replacing local traders with big capital will only increase this gap in bargaining power.

Chart 1: Terms of trade for agriculture  

Farmers were never very anti-APMC to begin with

The claim that agricultural markets were completely shackled before these reforms is factually incorrect. A National Statistical Office (NSO) report based on a 2012-13 survey found that farmers have been selling large part of their produce to private traders outside APMCs even earlier. For 31 crops sold between July 2012 and June 2013, local private traders were the single biggest buyers in the case of 29 crops. Mandis, not all of which were under APMCs, were the biggest buyers in just two crops; arhar in the kharif season and gram in the rabi season. Except in soybean, the share of farmers selling their crops to mandis did not even exceed 25% for any crop. In fact, farmers want more rather than less government intervention. A Reserve Bank of Indiastudy based on a survey of farmers and traders in 2018 found that more than 50% farmers found Minimum Support Price for crops to be the most beneficial scheme for farmers. This number was just around one-fifth for e-NAM, a pan-India trading portal introduced by the Modi government. Even on the priority list of measures that may help in right cropping decisions/better price realisation and abolition of intermediaries (which is what doing away with monopoly of APMC would achieve) was ranked way below facilities such as reliable weather forecasts and storage facilities.

Chart 2: What helps farmers  

The political economy of big-farmer protests

There is merit in the criticism that the prevailing APMC model perpetuates some form of rent-seeking behaviour, both public and private, especially in the so-called green revolution areas. APMCs levy commission on the produce which is sold on their premises. This is a source of income for both governments and licensed traders. States such as Punjab and Haryana charge a higher commission than others. For example, the Shanta Kumar committee on restructuring the Food Corporation of India noted that Punjab and Haryana were charging a commission of 14.5% and 11.5% on wheat while this was just 3.6% in Rajasthan. This commission is a valuable source of revenue for these governments. The local elite, which have diversified interests in both farming and trading also benefit from the process. Any move to suddenly do away with these benefits, irrespective of its merits or demerits, is bound to trigger a political backlash.

The resignation of Harsimrat Kaur Badal of the Shiromani Akali Dal (SAD) from the union cabinet is a case in point. According to the CSDS-Lokniti National Election Study, in the 2014 Lok Sabha elections, the SAD-BJP alliance had a lead of 25 percentage points over the Congress among Jat-Sikhs in Punjab. The SAD-BJP had the biggest support among this community, which represents the landed elite in Punjab, and which has also been the traditional supporter of SAD’s politics. By 2019, this massive lead had turned into a four percentage point deficit vis-a-vis the Congress. Also, in the 2019 elections, the SAD-BJP alliance polled the most votes among Hindu upper castes, who are more of an urban demography in the state. With the Congress government in Punjab attacking these reforms, the SAD clearly fears losing its support among its traditional loyalists, the Jat Sikhs.

See Chart 3: Punjab Community wise vote share  

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