Worried about ordinance : The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020-II

In the previous article, we discussed the point mention in The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020. We will continue the previous discussion. 

1) Seeds

Before continuing the previous discussion, let's discuss about Protection of Plant Varieties and Farmers' Rights Act, 2001. The main aim of this act was to protect the plant varieties, the rights of farmers, and plant breeders so that they can be encouraged to develop new varieties of plants. This is very important as it upholds the farmers' right to save, use, exchange the seeds as well as gives the right to claim special forms of intellectual property rights over their varieties. Now keep this thing in mind and discuss the experience of contract farming in India. The potato contract farming by Pepsico in Hoshiarpur District of Punjab mentioned the following terms and conditions: 

• Parent seed of a certain variety, which is the exclusive property of  Pepsi  Foods  Limited,shall be provided by Pepsi Foods Limited.
• It is agreed between the parties that the total potato produced by the grower shall always be the property of  Pepsi  FoodsLimited.  Further, provided that the seeds, the plants sprouting from the seeds, and all other parts will remain the exclusive property of  Pepsi  Foods  Limited.

And that's a problem. The seed is the main part of the production. Losing a right over the seeds is very dangerous. We have witnessed a long battle for rights over seeds and farmers are still fighting big companies like Monsanto. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 doesn't exclusively talk about this issue. 

2) Intermediaries, middlemen 

The proponents of this act (and contract farming) argue that this new farming mechanism will remove the middlemen and will directly buy the agricultural commodities from farmers. But is it really possible for big companies to establish direct contact with farmers? Singh (2006) finds that in Thailand, contract farming was dominated by brokers. In Thailand, companies prefer to employ a broker instead of working directly with farmers and farmer groups. There is no much difference between broker and middlemen. Like middlemen, the broker is only between farmers and companies (buyers). In some cases, companies exclusively deal with brokers only. Figure no. 1 can help to understand the structure of contract farming in Thailand. Markfed (Punjab State Cooperative Supply and Marketing Federation Limited), a cooperative engaged in contract farming in the Hoshiarpur District of Punjab, was dependent on the middlemen for the contract as well as for procurement (Singh, R. (2009)).
Therefore no reform will ensure the middlemen free agricultural system. 

Figure no. 1

Source: Singh (2006).

3) Trust vs Formal Rules. 

Indian Agriculture is highly dependent on trust (trust between farmers and middlemen, trust between farmers and informal lenders, trust between farmers and local leaders, etc.). Trust plays a very important role from the very beginning i.e. from the exchange of seeds to the exchange of agricultural commodities. The informality part of the system has damaged the farmers' wellbeing but trust has helped farmers. Like providing credits without collateral, (sometimes middlemen has helped to arrange the credits for farmers), providing seeds on credits, providing the storage facilities in a worse situation. Yes, there are problems. The informality part of the system exploits farmers. What we need is to regulate this informal part. But the new system will formalize this system with less regulation and will replace the trust with "terms and conditions". The point I am making here is: for big companies, not continuing the contract with the previous farmer will not affect the big companies but for traditional middlemen, not engaging with "already connected farmers" means loss of the social capital (i.e. loss of trust). 

When there is a risk then formal rules will work efficiently but when there are uncertainties then formal rules can't work. When there are uncertainties, the clientization (the establishment of the relationship among partners due to repeated exchanges). This is a very imperfect system but without reducing the uncertainties just converting or replacing these exchanges to the rule-based exchanges "among all partners" will harm more. Therefore if we want to have the formal rule-based exchanges "among all partners", then uncertainties should be replaced with risk meaning we should have the calculations related to the occurrence of the potential outcomes (probability in a more formal way). And then we should have fair coverage of the insurances. We are far away from these things. Therefore replacement of an existing system with any other system will damage more, more than the existing system. 

References:

Singh, R. (2009). Effectiveness of Contract Farming Practices for Agricultural Development and Equity: A Case of Hoshiarpur District in Punjab. Consortium for Trade and Development.

Singh, S. (2006). Contract Farming and the State: Experiences of Thailand and India. Gyan Publishing House.