Farmers shout slogans during a protest against the central government's recent agricultural reforms, ... [+]
India has enacted new laws that lift restrictions on where and to whom farmers can sell their crops. Why are then Indian farmers protesting instead of celebrating their new economic freedom? The reason is that farmers perceive the new system to be risky and favoring big corporations. They suspect the government’s motives, especially the haste with which the new laws were enacted. They fear that if new laws make family-owned farms unviable, they will not be able to find jobs elsewhere, given the poor job creation record of India’s manufacturing sector. It is not surprising that farmers want to stick with the existing system, even as they recognize its problems.
Until the 1960s, India was a food deficit country, dependent on aid from the United States (PL 480). In 1974, Garrett Hardin, who is well known for coining the idea of the “tragedy of the commons,” wrote a rather shocking piece, Living on a Lifeboat. In this article, he argued against the U.S. giving away its farm surplus as food aid. He saw aid allowing India’s population to expand beyond its “carrying capacity.”
Hardin did not appreciate that around the same time he published his essay, Indian agriculture was undergoing a major transformation, the Green Revolution. The new technology allowed Indian farmers to dramatically increase agricultural productivity. By demonstrating that their land could feed many more, Indian farmers disproved Hardin’s assumption about India’s fixed “carrying capacity.” The Green Revolution transformed India into a wheat and rice surplus country. Punjab, Haryana, and Western Uttar Pradesh were the initial sites of the Green Revolution, which has now diffused to other parts of India.
Features of the Green Revolution
The Green Revolution technology required farmers to use high-yielding seeds along with fertilizers and lots of water. Because farmers purchased seeds and fertilizers (as opposed to using their crops for seed), they needed the assurance that their harvest would fetch a fair price. The federal government promised a minimum support price (MSP) to achieve this objective. But MSP, like any other policy, needs boots on the ground. Thus, the government stationed purchasing agents across wholesale markets (called the Agriculture Produce Marketing Committee, APMC) to buy any quantity of grain that farmers may offer.
This purchasing system served another important purpose. The government was assured the supply of grain for the public distribution system, a program to supply staples to the poor at subsidized rates. The government was able to collect enough grain because it mandated that farmers sell their harvest to a designated APMC. This, of course, also meant that farmers could not sell outside the APMC where they might have secured a higher price for their harvest.
If the new laws free farmers from the clutches of APMC monopolies, why are they protesting?
A Primer on Three Agriculture Laws
In its 2020 Monsoon session, the Indian Parliament enacted three laws which allow farmers to: (1) buy and sell grain outside the designated APMCs, (2) enter into contracts with firms to sell their harvest, (3) stockpile grain without being prosecuted for hoarding.
Farmers view these laws as laying the groundwork for big corporations to takeover the farming sector. For them, markets are rigged and do not allow them to negotiate as equals with big firms. Hence, farmers prefer sticking with the inefficient, but reliable government-led purchasing system, instead of embracing a more “efficient” laissez-faire model.
In particular, farmers fear that the MSP will become ineffective in the absence of a mandatory APMC-based procurement system. Recall, MSP serves as an effective price floor because farmers can always sell to the government’s purchasing agent. But if grain collection at APMCs declines, the government will want to introduce “efficiency” by stationing purchasing agents in select APMCs only. Without government agents, private actors may not honor the MSP on flimsy pretexts. As one farmer noted: “When large multinational companies, such as Pepsico, contract with us to buy farm products, say, potatoes, at the time of harvest, they reject half the produce saying the quality is poor. They say the size of the potato must be exactly 12 inches, or the moisture content must be exact to this specification, and so on, which we cannot give them. They then reject half the produce.”
During the harvest time, farmers are desperate to sell their crops and take new loans for planting the next crop. Given the high cost of transporting grain, farmers typically cannot shop around for the “right” APMC. This is why farmers want the existing APMC system to continue.
Protests Reveal Political Distrust
Given its absolute Parliamentary majority, the BJP government enacted these laws without adequately consulting the farming community. While too much consultation can cause policy paralysis, too little invites a backlash.
Farmers’ unhappiness about the political process overlaps with declining agricultural incomes. It is no secret that agricultural productivity is stagnating. But India is not creating enough jobs in the manufacturing sector to draw labor force away from agriculture. For reference, agriculture contributes 17% to India’s GDP but employs 55% of the workforce. Because the rural population has few options outside agriculture, the government’s attempts to tinker with existing farming arrangements have a political fallout.
In the 1990s, governments across the world unleashed economic reforms by privatizing government-owned companies, lifting restrictions on foreign trade, overhauling labor laws, and inviting foreign direct investment. In the last decade, there has been a growing backlash against these reforms. A key reason is that the rich have cornered the gains at the expense of the middle and working classes. Policy reforms have, therefore, entered a more difficult territory. As citizens feel disenfranchised, they are resorting to street politics.
The ongoing farmers’ protests reflect this broader global trend. Although the Green Revolution model is in trouble, it is not clear how to reform it. Because jobs outside agriculture are hard to come by, farmers defend what they have. The Indian government’s failure to build political consensus, and the haste with which the three laws were enacted, make farmers suspicious about the true motives behind this reform.
