Farm Bill 2020 and Circular Economy

Updated: Oct 19

The Farm Laws [ jointly refers to an amendment to the Essential Commodities Act, 1955, The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020] were recently passed by the Indian Parliament. While there are several elements to the Act and what it seeks to do for the farm produce sector in the country, I will try to briefly examine the new law from the perspective of furthering greater circularity in our food system.

Background

Agrarian economy is of critical importance to our country since more than 70% of the Indian population is employed in the sector and of course, the market outcomes impact our most essential need - food. Further, it’s an especially vulnerable sector as the output of farm and agrarian production is uncertain since it is reliant on multiple factors that are outside the producers’ control. These aspects combined, agriculture and allied activities are highly regulated in the country in line with the intent to protect farmers and agrarian professions as well as the interests of consumers.


The two most important aspects to the regulation of agrarian markets are the Agricultural Produce Marketing Committees (APMCs) and the Minimum Support Price (MSP) system. The APMCs are market places with a designated area where an agrarian producer registered in that APMC may supply their produce and claim a pre-decided and declared price for the same from a registered trader of that APMC. One can imagine APMCs as local, membership-based market-places (called ‘mandis’). The MSP is a system through which the central government declares prices of Rabi and Kharif crops each year, ensuring that fair prices are paid to farmers, considering their input costs. Under the APMC system, price discovery is based on an auction for products available at the time. In this auction, the traders wish reigns supreme, albeit, subject to a price floor for specified produce (the MSPs). Selling to the APMCs were essentially meant to ensure that farmers received the declared MSP for their produce. Although this change was welcomed at the time, in reality, a meagre 6% of farmers could actually sell directly at the APMCs and receive the MSP or the market price for their produce because they would be forced to sell to the local broker. Finally, a network of brokers and middlemen carried out transactions at APMCs. All this while technically no transaction for farm produce should have been possible outside of APMCs. Further, since trade in a certain area was controlled by the local Marketing committee and buyers registered with the APMC, price competitiveness and choice to farmers, suffered. APMCs slowly came to be seen as restrictive bodies that failed to further agrarian interests.


With the intent to fix the failings of the APMC system and to allow greater room for choice, the Farm Laws have been introduced. The key changes relevant to our discussion that these Acts bring about may be summed up as below:-

(i) The amendment to the Essential Commodities Act, 1955 removes the limit on stocking of farm and other agrarian produce unless it is specifically imposed by the government.

(ii) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 allows farmers to sell their harvest outside the notified Agricultural Produce Market Committee (APMC) mandis without paying any State taxes or fees. This Act also removes the restriction on inter-state sale of agrarian produce.

(iii)The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, facilitates farming contracts and direct marketing of agrarian produce through sponsorship agreements where a buyer can agree to procure specified produce or seeds from a farmer/farmers prior to cropping.


The Farm Laws create an entirely new category of actors in our food system, the farm sponsors, while these sponsors will control a significant part of our food generation process, there isn’t a mechanism to hold them accountable for the ‘how’ of the farm production that they commission

Circularity v the Farm Laws


The Farm Laws are one of the most significant legal changes in recent times that will impact our food system and the first-ever reform that creates a definite space for private participation and investment in agriculture. Particularly, positive gains for circularity and sustainability may be possible in quite a few ways as we may collectively nurture a more organised, efficient system where there is the interaction between the producer and buyers through contract farming, the introduction of innovative measures in the sector through direct agreements with farmers and further much-needed infrastructure development, especially with respect to storage and transport of produce.

A word of caution, this piece is going to be an exercise in speculation and merely a discussion about possibilities that may come to be.


Efficiency, but not just economic


Inter-state procurement can be leveraged to commission farming keeping in mind the suitability of growing a certain crop in a certain region. To illustrate, rice is grown in many parts of the country due to an assured MSP, although it is a water-intensive crop that constrains scarce water sources in arid parts of the country. With this amendment, the ability to procure from anywhere in the country coupled with contractual arrangements should allow better allocation of farm produce contracts per regional suitability. Additionally, corporations could use the opportunity to invest in research, testing, collection and analysis of data to develop valuable regional know-how on improving product quality while conserving resources.


The removal of the limit on stocking through the amendment to the Essential Commodities Act, 1955 could facilitate solving the problem of food spoilage and wastage as well. Nearly 40% of food produced in India is wasted and there is consensus that in most instances it is due to the lack of adequate infrastructure. In the absence of a stocking limit, more companies may be encouraged to invest in creating agri-infrastructure, building cold storages, transport units and developing cutting edge produce assessment and processing technology. These could even include AI-based product assessment devices that prevent wastage of food that may appear damaged but are otherwise fit for consumption. The kinds of investments that were hitherto perhaps not as attractive due to a lack of scale and direct involvement of private players in the sector.


The ability to sell agrarian produce freely may also allow producers to sell at prices that are profitable and reflect the true cost of food, including the environmental impact. Agrarian producers’ willingness to sell at a profitable price is almost irrelevant under the current APMC system, they remain price takers. It is possible that less restrictive transactions will now occur, allowing prices to reach a level where farmers can adopt more regenerative agricultural practices and mitigate the damage that each cropping cycle causes to their farm ecosystem. Prices in our current food system do not account for the overall impact of food on our resources like land fertility, water etc, this law may as well be the first step in this direction to allow accounting for these costs. However, this outcome is highly dependent on farmers’ awareness and bargaining power while transacting with private parties. This is especially relevant since over 80% of all farmers in India are marginal (hold farmland of 1 acre or less). It is perhaps naive to think that in the absence of an elaborate control mechanism, we will not see the rise of an even more empowered set of middlemen and corporates who arm-twist producers. In light of these power dynamics, countries that allow similar direct investments in farms, like the United States of America, also have a slew of regulations that balance interests. Further, one cannot discount the fact that consumers’ interests will require that the price of agrarian produce remain low, in this context, the agrarian producer is as much a consumer as any other socio-economic demography.


Sponsorship agreements, may as well for the first time offer the farmer respite from the fear of losing every rupee spent in farming due to crop failure. This freedom, if combined with greater know-how, may allow the adoption of healthier farming techniques and better utilisation of farm waste (such as the crop stubble, infamous for causing smogs in North India). Farmers as immense risk-takers can hope to have a safety net of their guaranteed, minimum sponsorship amount. In the best-case scenario, it can turn out the way that investment along with mentorship help start-ups soar.


Things to think about

The Farm Laws create an entirely new category of actors in our food system, the farm sponsors. While these sponsors will control a significant part of our food generation process, there isn’t a mechanism to hold them accountable for the ‘how’ of the production that they commission. The water, the soil and other resources that this production will impact is not held as their property, yet the produce will be grown for them. How will liability for any adverse effect be attributed or in fact how are private players to ‘pay’ for the cost of consumption of these resources (land fertility, groundwater et. al)? Further, we must ask ourselves, what will be the motivation for the sponsors to invest in the farmer and improved farm practices, considering that it’s a purely contractual relationship which can end at their convenience? While APMCs may not have enabled MSP collection by farmers, in the absence of price regulation, sponsors may also not offer a fair remuneration to farmers. Such critical pieces of the puzzle should be addressed and that too through standard and unequivocal regulations before sponsorship agreements come to be.


That, while this law creates opportunities, stricter safeguards are still required to ensure that agrarian producers remain fully aware of their options and can seek redressal against any form of exploitation. In this light, it is relevant to note that the contravention of the provisions of The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 only comes with a fine of up to INR 25,000 - pocket change for most companies and firms. A stricter deterrent will be required to prevent malpractices. The plight of the contract farmer is likely to be worse, the conditions stipulated under the sponsorship agreements are as such, the only recourse available to them, no penal action can be taken against the sponsor under the law as it exists. Further, the law doesn’t even mandate a written contract, so in several cases, farmers will be acting on faith and the hope that the sponsor will honour their end of the bargain.


Conclusion


The Farm Acts are enabling legislation that creates several opportunities, without setting a laudable trajectory for these opportunities. Although the intent of creating direct agrarian produce marketing channels, furthering greater commercialisation and industrialisation of farming is clear, nothing else is. It is disappointing that the goals of sustainable innovation, prevention of wastage or the promotion of better agricultural practices have not been stated anywhere in the objects clause or in any other part of the Acts. By ignoring to do so, we are making a critical mistake of remaining indifferent to a core factor that adds to the woes of the farmer in our country - climate change. It might be legislation that brings about far-reaching reforms, however, an explicit spelling out of the responsibility of private players vis-a-vis farmers’ interests, sustainability and circularity would have truly made this legislation fit for the times we are living in.

This piece is an effort to spark discussion and hopefully, action in order to leverage this change in the agricultural sector for achieving more holistic goals that will serve agrarians for years to come as well as nudge steps for the promotion of sustainability, regeneration and circularity in our food system.


About the Author

Adrija Das (LinkedIn) is a public policy enthusiast and an entrepreneur with an interest in sustainable consumption and production. She co-founded Sensefull India and is also a former LAMP fellow.


References

[1]https://www.prsindia.org/sites/default/files/bill_files/Essential%20Commodities%20%28Amendment%29%20Act%2C%202020.pdf

[2]https://www.prsindia.org/sites/default/files/bill_files/Farmers%27%20Produce%20Trade%20and%20Commerce%20bill%2C%202020.pdf [3] http://agricoop.nic.in/sites/default/files/219750_0.pdf [4] https://timesofindia.indiatimes.com/business/india-business/agricultural-wastage-is-indias-problem-no-1-here-is-why/articleshow/70974705.cms

[5]https://indianexpress.com/article/india/explained-converting-bites-to-bytes-6617547/

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