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India’s three farm laws: Crisis or opportunity for India’s Agritech?

Image credit: Gayatri Malhotra on Unsplash

India’s three farm laws: Crisis or opportunity for India’s Agritech?

The Indian government passed three contentious farm bills in Parliament last year, with an aim to provide farmers with nationwide market access, storing/hoarding of agricultural commodities, and contract farming. All the three new farm laws have already been stayed by India’s apex court.

Farmers’ Produce Trade and Commerce bill, Farmer’s (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, and Essential Commodities (Amendment) Bill are all awaiting final approval.

The farm legislation increases hopes for the farming community by providing new and expanded opportunities for farmers and agriculture businesses. Startups in the agritech and food supply chain sectors see the legislation as an opportunity to expand their market reach and revamp their business models.

Under the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, farmers would be able to sell directly to businesses if they meet the required quality and consistency standards. It would allow farmers to sell their produce in places other than the APMC-controlled mandis. 

The second bill proposes that economic agents be free to stockpile food without fear of being penalised for hoarding. 

The third bill would create a framework for farmers to engage in contract farming, which is entering into a contractual agreement with a company to produce what the company wants in exchange for a healthy remuneration.

The potential benefits

Sanjay Agarwal works as a secretary at the Ministry of Agriculture and Farmers Welfare. He said in an interview that the three ordinances represent a “major, major change” to the way farmers interact with the wider agri-commodities market.

The new Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance may be the most significant change for agritech businesses. 

This effectively puts an end to state-run or state-authorized mandis (agri-commodity markets) having a monopoly on purchasing produce from farmers and selling it downstream. It also eliminates barriers to interstate agricultural produce selling by eliminating the requirement that buyers be registered locally. 

According to a Bain & Company report titled, Indian Agriculture: Ripe for Disruption, e-selling, digitally-powered logistics, and the utilization of modern technologies in farming will be major components fueling this growth. 

The report authored by Prashant Sarin, Parijat Jain, and Shalabh Singawne, noted that the three new laws introduced will encourage farmers to sell their produce to corporates without any APMC tax, will allow free movement of food items from production to consumption centers, and will allow private investment in storage.

“When the three reforms come into operation, there will be many new business opportunities,” the report noted.

The report also stated that digital disruptions will play an important part in the development of a healthy agritech sector. It stated that digital engagement in farming through digital networks and markets, which is even driving e-commerce, will help farmers in taking a firm stride forward.

“Insurance, credit rating, and loans are contributing to increased funding for the agrarian sector. In farming activities, weather prediction and smart crop management can lead to higher output while sensors and the Internet of Things (IoT) are enabling better tracking and visibility of farming activities.” 

Direct sourcing, demand forecasting, and inventory management are fuelling agricultural produce sales. Digital engagement is promoting the ‘uberisation’ of services, creating online communities and marketplaces and even driving e-commerce,” the report said.

The potential downside

The ‘MSP’ factor 

The minimum support price (MSP) is a price set by the government for purchasing agricultural products directly from farmers. This is not legally enforceable. By definition, this rate protects the farmer’s harvest if the open market price is less than the cost incurred.

Farmers in Punjab and Haryana, where MSPs are more widely used, are afraid of what the markets will offer and how big companies will treat them. According to the most recent Agriculture Census (2015-16), 86 per cent of all landholdings were small and marginal (less than 2 hectares). 

Because these are such small plots, most of the farmers who rely on them are net food purchasers. As a result, when MSPs are raised, the farmers are the ones that suffer the most.

Nagesh Hegde is an author, environmentalist, publisher, and professor who has written over 40 books on science and the environment. He believes that even without the three farm laws, the agritech business can thrive and new agri-startups can still prosper. 

“There are many possibilities. The Agri tech industry can prosper and fresh agri-startups are possible without these new laws. Farmers’ problems do not vanish with just fresh investments.”

He explained that even without the three farm laws, the agritech businesses and new agri-startups can prosper. “Agri tech industry can prosper and fresh agri-startups are possible without these new laws,” he said.

“There are no restrictions to start food (grains, fruits, and vegetable) preservation units even now. Adani has a chain of such granaries. Many cooperatives have set up cold storages. 

“Similarly, there are no restrictions to set up food processing industries. Pepsi and McDonalds have been doing it in Punjab, Gujarat, and Rajasthan for decades now,” Mr Hegde said.

What are the farmers saying?

Farmers’ groups have warned from the beginning that the laws will expose them to the uncertainties of the market and make their situation worse, rather than helping to boost agricultural incomes and productivity, as the government is claiming.

Dinesh Manolia runs an organic polyhouse near India’s northern state of Punjab. He added that he has no idea how this would actually play out in reality.

“First and foremost, we [farmers] will be drawn to these private actors because they will pay them more for their produce.” Meanwhile, the [government] owned mandis will close, and in a few years, they [private companies] will begin exploiting us. That’s what we’re worried about.”

“The Modi government has stated that the mandi system will continue and that the current Minimum Support Price (MSP) will not be removed. But, we are skeptical.”

India’s agrarian economy

India is predominantly an agrarian economy, with 58 percent of the people dependent on agriculture, and given this fact, the country’s agritech growth potential is immense. 

According to India’s Economic Survey 2019-20, agriculture remains one of the country’s most important sources of income, with roughly 70 per cent of rural people relying on it and 82 per cent of farmers being small and marginal. 

Rising rural internet penetration, an increase in post-harvest, growing investor interest within the sector, more funding, and high-quality inputs for farmers have all helped India’s agritech sector grow from 43 companies in 2013 to more than 1000 firms in 2020.

What’s the present scenario?

Following months of protests, the Modi government has proposed changes to the laws, as well as offering to suspend them entirely for up to 18 months as discussions continue. 

Farmers, on the other hand, have refused to back down, stating that they will not accept anything short of a complete repeal of the three laws.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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