It’s Chiefly Rent Seekers Who Oppose our Farm Reforms

Context: Recent farmers' protest against agricultural reforms is well-calibrated minority having vested interests.

Benefits of the reforms:

• Ends the monopoly of the Agricultural Produce Market Committee (APMC):

• Farmers can sell their produce directly to warehouses, cold storage units, agricultural processing plants, or consumers like restaurants and households.

• It eliminates the monopoly control of middlemen.

• Eliminating fees and other charges: State governments are now prohibited to levy fees and other charges that they levy at APMC mandis

• Majority of India's agricultural community will benefit: Currently, the mandi system is captured by a politically well-connected minority within the farming community

• Will expand the size of the market for farmers produce: Current system reduces the size of the market for farmers' produce due to restrictive APMC mandi system and requiring licences to operate.

• Benefit to the consumers:  Under the new system, consumers can directly buy from farmers and will gain greater control over their supply chains.

• Opportunities for Contract farming: Creates a framework for contract farming between farmers and potentially large buyers.

• Stakeholders can contract specific quantities and prices for products to be delivered on a future date, assuring the farmer of an agreed-upon price.

• Opposers of the reforms are challenged by the Transitional Gains Trap: It states that a transition from an inefficient system to an efficient one is not easy because a small minority, which has paid money to access special rents, will try to block the change.

• Various Opposers are:

• Middlemen, along with a minority within the farm community: They created a lobby to make it difficult to eliminate the old system.

• Recent licence acquirers:  They paid a lot of money to get the licence, but the steady income stream associated with these licences is now at risk.

• Large farmers in states covered by large government procurement systems: 

• They fear that this is the first step towards eventually eliminating government procurement of food grains and minimum support prices (MSPs).

• According to the Department of Agriculture's Price for Kharif Crops (2020), more than 95% of rice farmers in Punjab and about 70% of rice farmers in Haryana are covered by the government procurement system. 
• But only 11.8% of all the rice farmers across the country are covered by the procurement system.

Way Forward: 

• Buy-out the losers blocking the reforms: In the case of farmers, this would entail working with state governments and ensuring MSPs for a few years before phasing them out.