The Three Farm Laws

and Their Impact on the Peasantry

Prof. Sukhpal Singh

What were the three farm laws and why were they resisted
with such fervour and determination by the farmers? For
readers, who are not familiar with the content of the three
farm laws, we start this volume with a brief introduction
to those laws and their likely impact on different sections
of the peasantry by Prof. Sukhpal Singh. We think this will
help us comprehend the anxiety and rage that triggered
the unprecedented farmers' relbellion.

The Editorial Team

Three ordinances were passed by the Narendra Modi

led central government in June 2020, which would have
a huge impact on agriculture in India. In September they
became the three farm laws' - the Farmers Produce Trade
and Commerce (Promotion and Facilitation) Act, the
Farmers (Empowerment and Protection) Agreement on
Price Assurance and Farm Services Act and the Essential
Commodities (Amendment) Act (ECA), which amends the
Essential Commodities Act, 1955.
 Rebellion
24 The Journey of the Farmers'
Commerce
1. The Farmers Produce Trade and Act
(Promotion and Facilitation)

According to the Indian Constitution, the

governnent cannot enact laws related to agriculture. Itcentral
is mentioned in Article 14, 26 and 28, and in the Seventh
Schedule of the Constitutionthat only the state government
There are three Jiste
can enact laws related to agriculture.
State List, Union List and Concurrent List. Agriculture falls
underthe State List. It is stated that the central government
may provide a model based on which states can formtheir
central
Own laws. However, in this particular case, the
government did not provide any model; it directly passed
the laws. This new Act basically bypasses the Agricultural
Produce & Livestock Market Committee (APMC) Act
and in order to make a law, the central government h28
intentionally added trade and commerce to it. However
the farmers do not directly engage in trade and commerce
and they produce natural grain and not food-stuff. In this
regard, this law is both unconstitutional and anti-federal
The law aims at providing freedom of choice to the
farmer and the trader. This means that the farmer can go
anywhere to sell their produce to anyone. However, even
before these laws, the farmers had the choice of selling their
produce to anyone and anywhere. With this law the ambit
of freedom to sell extended toinclude private players also.
On the one hand, the central government says that it aims
to create one nation,one market, one religion, one vote. On
the other hand, this law creates two markets in agriculture
aprivate market and a governmentmarket. The government
says that both will function simultaneously. However, there
is an important difference that the private markets willnot
levy any tax, whereas the government markets levy atax,
which will ultimately lead to an end of the government
market. For example, in Punjab, the state government
 The Three Farm Laws 25

charges 8.5 percent tax, of which 3 percent is for rural

development funds, 3 percent is market fees and 2.5 percent
is commission of agents. This tax is levied by all
the states.
Theburden of paying these taxes lies with the
purchaser of
the agricultural produce and not with the farmers. So,
this fundamental difference that there is no tax given
on buyers
in the private market, they will be able to offer
lucrative
prices to the farmers, who will then sell their produce in
the private market. For example, there is an
tax of Rs 150-175 on one quintal of wheat orapproximate
paddy. As
long as the buyers are able tooffer a price greater than that
offered by the government mandi (agricultural produce
market) by less than the tax amount, it will be beneficial
for both farmers and the buyers. Slowly, the
will introduce targeted procurement, limiting government
the amount
of produce procured by the government, and then this will
put an endto the regulated markets and public
at Minimum Support Price (MSP).
procurement
Another important aspect related to this Act is that it
gives farmers the freedom to sell anywhere. However, our
data tells us that agricultural markets are already integrated
and interlinked, and small traders have played an important
role in achieving this integration. With these laws, the
small traders willbe replaced by companies. This is the only
difference that these laws will be able to achieve. It will
not have any beneficial imnpact on farmers as 86 percent of
Indian farmers are smalland marginal,who do not have the
means to arrange to sell in any desired market. Currently,
this is being done by small traders; after these laws,this will
be done by the companies. In all, this will put an end to
the regulated market system, MSP and state procurement,
and only a handfulof private companies willremain in the
market as the main buyers of agricultural produce.
 T

Rebellion
26 The Journey of the Farmers'
Protection)
2. The Farmers (Empowerment and
Agreement on Price Assurance and Farm Services Act

Contract Farming Act.

Inshort.this is calledthe
tothe law, there can betwo forms of contract farming that
total there are :
According
can be implemented in practice. In
different kinds of contract farming systems. However, in
most countries the following twO are followed: first, when
there can be a contract on the basis of the farm produce arnd
second, when the company leases the land from the farmer.
provided with
Within thefirst form, the farmer will be
package of inputslike seeds, fertilisers, technological inputs
how to produce
and directions on what to produce and
be fixed within
The price of the final produce will also
this contract. One issue with this is that the kind of crop
of the
to be grown will not be decided by the requirements
that the
people but that of the company. Another issue is
company also fixes the price based on certain parameters
like size, quality, grading, etc. "The company in contract
with the farmers will make specificdemands to the farmers
with regard to the produce. For example, they may want a
Specific size and colour of tomato, potato or chilly. However.
agricultural commodities are produced naturally and fixing
such parameters leads to various problems, the biggest being
wastage of the produce. Across most developed economies,
the agricultural sector is not able to meet these parameters
as its product is not an industrial product, rather a natural
product that renders each single commodity different from
the other. So, the company only procures the products from
the farmers that meet these strict quality parameters, and
does not purchase the rest. One may arguethat the farmer
then can sell the remaining produce in the market. But that
too isnot possible since the contract does not allow farmers
to sell their products in the market. A large proportion of
the produce that the company does not purchase and that
 The Three Farm Laws 27

the farmers cannot sell in the market gets wasted. On the

one hand, a shortage in supply leads to price rise, and on
the other, it leads to wastage of food while there is a huge
population facing starvation. Even if there is demand for
food, the contract restricts the farmer from selling in the
market.
The second form of contract farming is when the company
leases the land from the farnmer. Initially companies lure
farmers by giving long-period contracts (like five years)
and paying higher rents. Since the first law tries to bypass
the APMC Act and farmers are not able to avail the MSP,
they are induced to engage in contract farming to get higher
rents as compared to the income from cultivation. However,
whatever is the rental value of the land according to the
contract, there is also 18 percent GST (Goods and Services
Tax), an indirecttax levied by the Indian government. This
is deducted from the rental amount paid to the farmers.
For example, if the rent for one acre of land is Rs 50,000,
the farmer will receive only Rs 41,000 as rental amount
after deducting 18 percent GST (Rs 9,000). It is possible
that the company will reduce the rent that it pays on
the land simply by taking advantage of the fact that the
farmer will find it extremely difficult to start cultivation
after a gap of five years. Moreover, there might even be
new technological advancements that have come in the
interim. For example, before the Green Revolution, bullock
carts that were majorly used in the cultivation process got
replaced by tractors. With the enactment of the three farm
laws, the use of tractors may become less important due to
the advancement in artificial intelligence, which is likely to
introduce a high-tech mechanised system in highly fertile
areas of Punjab, Haryana, Western UP and the entire Indo
Gangetic plains, which are the areas that benefited from the
Green Revolution. No farmer will dare use tractors. Today
we cannot imagine a farmner using bullock carts since it is
 The Journey of tlhe Farmers'
28
Rebellion
more expensive to use outdated technologies dv.
factors, the
of agricultureand wil beforced to)farmer
unit cost. Due tothese will be
sellthe land high
ranks of labour. anddrijvoeinn tothe
Another important claim being made by
government is that these laws aim the
aim to remove the m
central
In effect, anew kind of middleman will
Ones. The new middleman will belong to th
forexample, there will be suppliers,
replace the
the companies, mid leman.
franchisees, even Farmer Producer processors, (Faggents,
Organisations
Across Europe and America, it is largely (onesFPOsthat.).
accepted
suppliers are the main exploiters as they are the
monitor and enforce quality parameters.
happened, such problems have surfaced. Wherever this has
Itisargued that if contract farming can work for
commodities like milk, why can't it work for other perishable
items like grains, fruits and food
sector in major milk producing vegetables? However, the milk
etc., is largely dominated by states like Punjab, Gujarat.
Amul which are cooperatives like Verka and
the price leaders in the
unless the government market. Until and
of
agricultural intervenes in leading price
discovery
the market, commodities and provides
contract farming may not really competition in
agricultural
and technicalcommodities. In fact,
work for these
Contract farmingpapers documented
testify how farmers
earn less than the who
examples
enter into engage In
interests ofcontracts.
the Contract farmingfarmers who do not
apredominantly under companies. Punjab and basically
other serves
states
tne
agrarian
cultivatediontomodel that would economi that fall
Compar other also es should promote
the
capacity to providsectors, generate
e only
employment.
the
agriculturalemplsector
oymenlhas.
 The Three Farm Laws 29

3. The Essential Commodities (Amendment) Act (ECA)

The Essential Commodities Act (ECA) was enacted in

1955 to provide food at affordable prices to the people. There
are several items like drugs, chemicals, fertilisers, seeds,
fodder, vegetables and fruits, petroleum, etc., mentioned
in this Act. Within this Act, it is prohibited to store these
essential commodities. With the 2020 amendment in ECA,
agricultural commodities have been removed from the
essential commodities category, which will now allow the
storage of these commodities. There are certain emergency
situations under which storage is not allowed, for example,
if the price of highly perishable commodities increases by
100percent or the price of grains by 50 percent. However,
even under these circumstances, there are certain areas
where storage is allowed. If you are a processor, exporter
or a supply chain agent (distributor, providing storage,
transporter or any other part of this chain), the storage of
agricultural commodities is not prohibited. If the prices
rise beyond 50 percent or 100 percent, even then storage
is allowed, depending upon the export capacity, processing
capacity, etc. It is not mentioned clearly whether this
capacity is measured monthly or yearly. In agriculture,
prices increase in the month before harvesting. Since there
is no prohibition on storage, they will store the commodities
and put upward pressure on the prices. This will majorly
impact the working class because if the price of food
commodities increases by 50 percent or 100 percent, then
a major proportion of their income willbe spent on food. It
has been estimated that as a result of the price rise, for 90
percent of the people in India,total annual expenditure on
food out of their yearly income (for the entire family) will
increase by Rs 31,000. While this happens, their incomes
are not going to rise. Rather their incomes will decrease as
unemployment will rise because of these laws. Thus, a rise
 Farmers' Rebellion
30 The Journey of the
in price will lead to a fall in their real incomes and these
line. Whenever there in
peoplenmay fall below the povertyagricultural commoditiee
of
a small increase in the prices increase in the
there is always a corresponding population
living below the poverty line. income of the labour
Asignificant proportion
of the class
onpurchasing food, In
both in urban and rural areas isspent are bad - monopsony
that
the market there are two situations
monopoly. When there are only one or two buyers in
and
the market (monopsony), they will be able to purchase at a
because there are a few buvere
low price from the farmers
farmers are willing to sell their
to whom alarge number of companies selling
produce. Also, there willbe a handful ofThe laws will create
agricultural commodities in the market.
there are on]y a
where
these worst situations in the market
farmers) and only
few buyers of agricultural produce (from
commodities; in short
afew sellers(to consumers) of these
consumers and farmers.
the companies will exploit both
government has extended the logic that the Public
The will keep
Distribution System (PDS) willcontinue and they buffer
order, to maintain
onpurchasing under this system in Security Act.
stock as well to provide food under the Food
required
However, the government may start purchasing the sell their
will
quantity from the private market. The farmers
will then
produce to private markets and the government
There
purchase the commodities from the private market.
wheat is Rs
willbe no hue and cry about this. The MSP for
includes
1,925 per quintal, but the economic cost (which
distribution
what the farmer gets, the procurement cost and
cost) is Rs 3,000 per quintal. So, the government will
purchase from Adani and Ambani (and may even distribute
through PDS) and no one will object to this arrangement.
Earlier there was universal PDS, later it was converted to a
targeted PDS system, under which only 67 percent of the
population is eligible to receive food.
 The Three Farm Laws 31

There are four major agri-business companies called

A.B.Cand D(ADM, Bunge, Cargill, Dreyfus)that control the
world agri-business market. We know that the world's most
profitable business is the pharmaceutical industry followed
by agri-business. These companies want to enter India and
tap this large market. Similarly, domestic companies like
Ambani and Adani want to enter the agri-business market.
However, since they don't have the technical knowledge,
they want these major global agri-business companies to
enter India in order to collaborate with them. In this way,
the domestic companies can control both the input and
output market in the farm sector.

Professor Sukhpal Singh is Principal Economist in Punjab Agricultural

University, Ludhiana. The content of this article has been taken from
his interview conducted by Workers Unity on 30 March 2021 at
Ludhiana.