Compass Money: Indian Farmers Set Fire to Agricultural Reforms (literally!)

Protests turned violent last week in New Delhi after Indian President Ram Nath Kovind approved three bills aimed to deregulate the agricultural industry. 

Protesters set fire to a tractor in New Delhi and burned effigies of politicians who backed the reforms. Farmers across the country blocked roads and railways in protest, claiming the reforms would leave them at the mercy of private buyers. 

The new bills modify the Agriculture Produce Marketing Committee (APMC) Act passed in 1964, which requires farmers to sell produce to licensed middlemen at government-regulated markets, or mandis. The middlemen help farmers sell their crops to private buyers and state-run companies. Farmers sell their products to the government at the Minimum Support Price (MSP), an assured price floor. 

The new reforms give farmers the option to sell their products directly to private buyers, like food processors and supermarket chains, at a market price, and they remove the limit on stockpiling commodities except during a national calamity (like war or famine). The bills also legalize contract farming to attract private investment in the agricultural industry. 

Indian Prime Minister Narendra Modi’s government has defended the bills, arguing they would stimulate growth in the agricultural sector, which employs about half of the country’s 1.3 billion people. Modi claims that the reforms would increase the share of revenue that farmers receive by allowing them to bypass middle-men. He tweeted, “for decades, the Indian farmer was bound by various constraints and bullied by middlemen. The bills passed by Parliament liberate the farmers from such adversities.”

Economists argue that liberalizing trade is necessary to increase productivity since the current system incentivizes farmers to “grow excessive food grains at the expense of more nutritious crops, which the government does not buy,” according to the Financial Times. They argue that the bills would also boost rural incomes and investment in rural infrastructure. 

Amit Vatsyayan, a partner at the professional services firm EY, explained that deregulation would “ease the flow of investments, creation of critically needed post-harvest infrastructure, and open up market access for farmers for better profits”.

Most farmers remain skeptical. Although the government claims that the mandi system and MSP will remain, farmers are concerned that the reforms will eventually lead to their demise. "First, farmers will feel attracted towards these private players, who will offer a better price for the produce. The government mandis will pack up meanwhile and after a few years, these players will start exploiting the farmers. That's what we fear," Multan Singh Rana, a farmer in the state of Punjab, explained.

The corporatization of agriculture will further depress prices, argues food and trade policy analyst Devendra Sharma. He writes that “farmers are not foolish. If they would get higher prices for their crops, will they protest on the streets amid coronavirus pandemic? [sic]”

“There are a lot of problems in the APMC mandi system, which require reforms,” acknowledges Sharma, “but reforming the APMC mandi doesn’t mean you push the farmers from one set of middlemen to another set of middlemen.”