On farmer protests and farm laws – Introspeck

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What could a person with a cushy soft work of making hypothesis on listed companies have to say on farmer protests? I had worked on setting up a private e-mandi in Kota, Rajasthan from Oct 2018 to May 2019 and what follows here are the things I understood from this on ground experience –

Kota Mandi / APMC is one of India’s largest grain mandis, especially for wheat, soyabean and mustard. As far as the eye can see, there are large piles of produce deposited by farmers which are individually auctioned every day. It is estimated that at the time of harvest, almost 200,000 tractor trolleys worth of produce comes here.

Now what is so magical about Kota APMC for farmers to flock here? Well, as per the current laws, a farmer can ONLY sell his produce inside an APMC market complex. Let that sink in. These APMC complexes are set up by the state government, and traders need to have a licence to buy from the APMC. These licences are limited and are of high value. So we have a situation where farmers can sell only in regulated APMCs with limited number of buyers. A perfect recipe for exploitation.

In order to access these APMC mandis, farmers have to go through another specie of leeches called aadhatiyas (commission agents), who charge 1.5% of sale value simply to provide market access to the farmers. While they also arrange liquidity and facilitate auctions, opacity in pricing, non aligned incentives and high commission rate lead to low realizations for the farmers. It is perhaps the only marketplace in commerce where the seller has NO IDEA of what his produce is worth. Based on our surveys, we calculated the margin earned by a farmer to 15%. With commission tax of 1.5% and mandi tax of 1.5% (both kota mandi rates), almost 20% of farmers earnings are mooched off by the middleman.

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We are in 2021, and yet this is how a price to the farmer is discovered –

“ooh the rotting grains in government warehouses “ is a favorite govt bashing phrase. This grain is the one brought under MSP (minimum support price) to support farmers incomes and then stored in warehouses. Most of these purchases are loss making since this grain is diverted to the ration shops and are funded by taxpayers money.

“yeah, but its for farmers good” – sadly only 6% of all farmers sell under MSP, bulk of which are in Punjab and Haryana! In fact what we saw in Kota horrified us. Urad dal had a bad harvest and the government introduced a very good MSP for it. Traders would buy significant quantities from small farmers (way below the MSP price – the farmers were desperate and did not have documents required for MSP purchase). Then these traders would sell on MSP posing as farmers making double profits – 1. Buying at low price and selling at MSP and 2. Adding a lot of pebbles and impurities to increase weight by bribing the officials. Everybody lost.

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Let me tell you this very clearly. A lot of “Farmers” protesting at Delhi border are the large farmers, the traders and the commission agents (commission in some Punjab mandis goes to 4% of the produce!) and they DO NOT represent the bulk of the farmers in India.

You see a commission agent and a trader above. While the farmer for this particular trade is –

It may not really take you long to figure out who calls the shots here. Next time you see a wrinkly old bloke with an emotional slogan below it, remember the guy in Nike sneakers above, its probably him.

There was one entity that all the traders in Kota mandi unequivocally disliked – ITC e-choupal. ITC, maker of the Aashirwad aata and sunfeast biscuits, had its e-chaupal nearby which would test and grade the produce, assign a price which was generally higher than kota mandi and make prompt payments. ITC has further helped farmers with selecting high yielding seeds, giving cheap insurance and promising to buy produce even before harvest. I have been unable to locate the market share of ITC in total procurement, but I doubt it would be substantial. The whole argument of corporations exploiting farmers seems redundant based on the current corporate participants and the existing exploitation by traders.

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Im not saying that the farm laws will set everything right immediately. Bihar has been free of APMC Act for years now and yet farmer incomes have not improved considerably, since old power structures take time to die. However, in a country where a bunch of ppl shouting loudly can stop everything, its very important to understand the cause of all that shouting.

For further reading, this is an incredible article – https://vivekkaul.com/2020/09/21/why-farmers-are-protesting-against-laws-which-will-supposedly-help-them/

I realise that this post like many, would be lost in the deluge of content available on web, and yet, getting this out has been its own reward.

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Umang Shah

Umang Shah

Through his writing, Umang shares his perspectives on how he thinks of investing, decision making, books and life in general.
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