Three months ago when Parliament was not in session, the Government of India issued three ordinances. Normally ordinances are issued only as an emergency law, and they have to be converted into proper legislation as soon as Parliament reconvenes. These three ordinances were about agriculture and farming. All three were in the spirit of ‘reforms’, i.e. removing shackles from the farmer. Now one of the ordinances has been passed in the Lok Sabha. The other two are in the pipeline. You would imagine that farmers would welcome any reform that gives them more freedom.

But this ‘granting of freedom’ has met with a big backlash. Farmers in Punjab and Haryana have come to the streets. The agitation may spread to Rajasthan, Madhya Pradesh and Uttar Pradesh too. It has spilled on to highways. Opposition parties too are criticising the ordinance, but that is expected. The ruling party in Punjab is opposing the new law, but asking farmers to not blockade traffic. The most awkward thing for the ruling party in Delhi was that the Union food processing industries minister resigned from the cabinet. She resigned in protest because she claimed that the new law is anti-farmer. But in the four-page resignation letter written to the prime minister she did not spell out how, exactly, the new reformist law was anti-farmer. She belongs to Alkali Dal, a coalition partner to BJP.

Why are the farmers so upset, and how come the Centre is still pushing this new law? Agriculture is notoriously shackled by all kinds of laws, which control price and quantity. Hence the system is sought to be compensated by subsidies to the farmer. It has been difficult for successive governments to break out of this syndrome.

The present law dilutes the power of the middleman. The farmer is now free to sell his produce to whoever he wants to at whatever price he negotiates. It basically removes the middleman, the adhtiya, who operate in the mandi, i.e. the Agricultural Produce Marketing Committee (APMC). Of course, the option of selling in the APMC is still there. So the farmer has more options, and how can that be a bad thing?

It is because of what happens to the future of Minimum Support Price (MSP). Every year the government has a massive procurement programme to buy large quantities of wheat and rice and other crops at the MSP. This is done only through the mandi. This past rabi season, which ended in April, the government procured five million tonnes of wheat in just one state, Punjab. Farmers got assured price of 1840 rupees per quintal. That was reasonably good income. The state government too collected handsome mandi tax of 8.5 per cent of total value. In fact the state of Punjab crucially depends on mandi tax revenue, which is above and outside the GST. If the mandi and APMC system is diluted, or dismantled, then there is no guarantee that the farmer will get assured minimum price. Only when government procurement is done, that too through the mandi, does the farmer get full price. The prime minister and his government has assured that the MSP system will continue, but it is not clear how this will work in practice. For instance in Bihar, not even 1 per cent of targeted procurement of wheat happened at MSP. In fact APMC was dismantled in Bihar in 2006, and it has not really benefited the farmers. For sale that happens directly between farmer and private buyer there is no way to ensure MSP.

The government procurement system acts as a safety cushion, and adds to the bargaining power of the farmer. If the mandi system collapses, the farmer cannot credibly tell the customer: Give me the MSP or else I am going to sell my produce in the mandi or APMC. As such only states like Punjab and Haryana scrupulously fulfil the targeted procurement. Other states are more lax. In Maharashtra a couple of years ago, the state government told traders that they had to pay farmers MSP for toor dal. The trades simply boycotted, despite threats of imprisonment. So MSP can be enforced only through government intervention, which requires the mandi system to coexist along with private trade outside. Incidentally with fall in mandi sales traffic, states like Punjab will also lose mandi tax revenue. So they too are upset.

Now you see: Farmers are agitating because they fear that diluting the mandi and APMC system would mean eventual closing down of the MSP system. As such the latest basmati rates have plunged by 35 per cent in the free market. To add to this, while the government says we are allowing free market access, it has banned the exports of onions, which could have proved lucrative to farmers. So all this mixed messaging is why the farmers are nervous and agitating.