Passing of the farm laws: The three-act play

When the process of law-making lacks purpose and communication breaks down, it begins to resemble the theatre of the absurd. The manner of the passage of the three farm sector legislations, and the unseemly behaviour of the Members of Parliament that ensued, must compel us to reflect. It can be likened to a three-act play that divides this important public policy discourse, as in fiction, into three parts: the set-up, and the confrontation played out by the government and the opposition at the Centre, respectively; with the third act, the resolution, left to the states. The states, doubtless, will be left to their own devices; and the farmers arguably, left to the fragmented and uncoordinated, private agricultural markets. This draws attention to the sorry state of our representative democracy, and worse still, the risks and the long-term implications of the states being regarded as subalterns. For after all, in the Constitution, ‘Agriculture’ has been placed as Entry 14 in the State List.

It is axiomatic that efficient markets are important for agricultural growth, food security, and broad-based development. Taking agriculture to the market is critical, especially for the small and marginal farmers who constitute 85% of agriculture-based households, if we are to advance equity, economy and efficiency in India’s farm sector. It is clear as day that political economy factors are blindsiding the government, while playing politics is blinding the opposition. From a reforms perspective, as a result, in this battle between Tweedledum and Tweedledee, the genuine farm market problems are in danger of remaining unaddressed, even while the long-term implications for supply chain management will continue to confound the small farmer. The question to ask is: how will the three acts help advance the agricultural marketing system -- aggregating small lots, handling, storage, transport, marketing and export -- already subject to multi-layered intermediaries?

A good starting point is to understand the nature of the problem and who faces it. Expanding smallholder market access is central to agriculture market reforms. The small farmer market access is constrained by high levels of risks, and vulnerability to shocks. The question to ask is: whether in the absence of market information, market infrastructure and the resources necessary for seamless and timely supply chain management, the farm sector legislations will help expand smallholder market participation. The related question that arises is, who benefits most from the food procurement and minimum support price system extant. Procurement is primarily of wheat and paddy, predominantly from farmers who have irrigated land, and who constitute, together with the intermediaries and the parastatals like the Food Corporation of India, entrenched, well organised and politically connected lobbies. There should be no surprise that any agitation that spills over into the streets will be driven by this political-economy force.

Therefore, this should not be mistaken as representing the market travails of the small farmer. Indeed, the vast majority of small and marginal farmers in India have never benefited from either government procurement or price support. If anything, for all practical purposes, most crops or agricultural produce, have remained outside the public procurement system, and for that matter the public distribution system. High transaction costs and deeply entrenched rent-seeking in the system best explains why small farmers are unable to respond to fluctuations in demand or prices. Vulnerability to risk and the non-economic size of the agricultural produce are thus key determinants of the forms of agricultural production and marketing that small farmers engage in. Logically then, two conditions ought to have been built into the legislations: first, a well-designed regulatory mechanism that serves as an independent, impartial market arbiter, and protects the interests of the small agricultural producer. Such an ombudsman must be at arms-length from the government, not arm-twisting length as the legislations provide for. Second, safeguards to ensure that the private market players, whom the legislations extol as the future of trade in agriculture, underwrite the crop risks for those crops that most small farmers grow, just as government has been underwriting the risks of the paddy and wheat kulaks at considerable cost.

In this backdrop, the pithy statements of intent in the legislations just rushed through, without as much as a consultation with the states or discussion in Parliament, represent at best, pious statements of intent. At worst, they signal to the states that this is now their problem, and they must do what they will to mediate between the small farmer and the market conglomerates. What might the states do under the circumstances? If ever there was a divergence between the intent of a legislation and its impact on the ground, these laws might well be the case in point. Simply put, the new laws will perhaps exacerbate rather than mitigate the problem, at least for the small farmer. Market transactions occur under a high degree of uncertainty, and are costly for small farmers. Greater market participation can lead to greater uncertainty as the safety of subsistence is replaced by the insecurity of unstable markets and adverse price conditions.

The Centre would have done well to discuss the meaning and purpose of the legislation with the states. In the ultimate analysis, it is easy to legislate, far more difficult to implement the law to achieve the public good that it seeks. It will be the states that have to implement the new laws, and therefore will have to ensure the right institutional architecture, standards, and processes, if their objectives are to be met. It is uncanny that the agricultural marketing reforms roadmap that the three legislations seek to enable mimics a World Bank template. There is nothing wrong with that, provided it best serves the needs of those most in need of help. But does it? Will it? In a delicious irony, the brouhaha in the wake of the legislations; the demand of the opposition, the assurance of the government, and the calls for agitation centre on just one question -- of continuing government procurement of, and minimum support price to, wheat and paddy. This tells its own distortionary tale. So much for agricultural market reforms.

(The writer is Director, Public Affairs Centre)