Indian Farm Bills Seek to Liberalise Agricultural Markets

23 September 2020 Mervyn Piesse, Research Manager, Global Food and Water Crises Research Programme

Background

A series of three farm bills were introduced to the Rajya Sabha (the upper house of the Indian parliament) on 20 September. Opposition lawmakers protested the passage of the bills, with eight of them suspended for seven days due to “unruly behaviour”.

Currently Indian farmers sell their produce on wholesale markets (known as mandis), which are governed by the Agricultural Produce Market Committee (APMC) in each state. The APMC sets the price for agricultural goods and has historically provided a degree of market certainty for farmers. The new legislation, if it becomes law, will allow farmers to sell their produce outside of the APMC system, which could lead to them receiving a better price for their goods.

Comment

Opposition legislators are concerned that the push to liberalise agricultural markets could weaken the minimum support price (MSP), which sets a minimum price that farmers will be paid for their produce. The opposition Congress Party is worried that the bill does not contain a clause stating that farmers will be paid above the MSP, regardless of who they sell to. The new legislation will not shut down mandis or remove the MSP, but opponents of the bills suggest that they are the first step towards weakening the guarantees that are designed to support Indian farmers.

The Indian Prime Minister, Narendra Modi, stated on Twitter that his government will continue to support the MSP:

I said it earlier and I say it once again: System of MSP will remain. Government procurement will continue. We are here to serve our farmers. We will do everything possible to support them and ensure a better life for their coming generations.

Opposition parties claim that the government did not follow parliamentary rules in passing the legislation and that it acted against the interests of the country’s farmers. Eight opposition members of parliament were suspended from the Rajya Sabha for unparliamentary behaviour after they mobbed the Chair, threw paper, tore rulebooks and broke microphones. A number of opposition parties, led by Congress, walked out of both houses of parliament and have stated that they will continue their boycott until the government introduces another bill to make it illegal for private marketers to buy food below the MSP.

The vast majority of Indian farmers own less than one hectare of land and are net buyers of food. That means that most Indian farmers do not necessarily benefit from the MSP, as they are forced to purchase food at market rates that are often substantially higher than their earnings. That situation has contributed to large debts in the Indian farm sector, which is the predominant cause of farmer suicide in India. The reforms could allow farmers to negotiate better prices for their crops and reduce their need to go into debt.

Agricultural sector reforms could also encourage farmers to grow a more diverse range of crops, rather than rice, wheat or millet, which are all covered by the MSP. A lack of nutritional diversity is one of the major impediments to greater food security in India and, if the liberalisation of the sector encourages farmers to produce different crops, could improve food security outcomes.

The liberalisation of the Indian agricultural sector could allow farmers to sell their produce at more competitive prices. It could also encourage them to produce a wider range of crops, which would have the added benefit of improving Indian food security by lifting nutritional diversity.

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