I didn’t think I’d be writing two back to back articles on rural India. This short article, just like the previous one, has nothing to do with politics.
If you can understand Hindi (or better yet, Punjabi) watch this and you can skip reading the next three paragraphs. The ones after that are important though.
Video – Farmer’s concern: These bills allow private companies to buy from farmers at any price. So huge corporates (Reliance Retail and DMart types) shall enter agri-procurement. They’ll build fancy procurement centers and treat farmers very well. Maybe even pay them Rs. 100 – 150 more than the MSP for their crops! This sounds awesome, doesn’t it?
Well it is. For the first 1 – 2 years. Then just like the telecom giants dying from the Free Jio effect, all of the Adhatias (Traders) in the govt Mandis will vanish. If no one’s selling to them, they won’t keep sitting in the Mandi because they have a family to feed and a profit to make too. So the government Mandi shuts down – after all, no one’s sold anything to the traders there in two years because MegaCorp pays more and has air conditioned waiting lounges!
This is when the fun starts. Traders gone = MSP gone. In the third year you have to sell to MegaCorp at a slightly lower rate, 4th year – even lower, 5th year – you’re making half the profit you used to… it keeps declining till the point that you’re just surviving. Year 10 – you essentially have zero profits. The other traders have been gone for 10 years now, they aren’t coming back to save you. You protest every year for MSP, but you also have to sell because you have a family to feed (India ain’t got no farmers who can just store their produce and not sell!)
Bonus point, that might just happen: Since all the procurement is done by MegaCorp and maybe a MegaCorp 2 & 3, their oligarchy now controls all the supply too. This means only one thing – increased prices for the consumer! The rate they set for wholesale is the rate the local Kirana (Grocery Store) has to buy at too. Not like your neighborhood shopkeeper will take a truck directly to a Punjab farmer and buy a truck full of rice to sell to you at a rate less than MegaCorp.
Bonus point 2, and this is just me saying it: After seeing the operation of MSP in Bihar for a few years now, I guarantee it won’t even be as civil as MegaCorp just competing out the Mandi Traders. They’ll literally pay Mandi officials Lakhs to sit at home and not buy from farmers at MSP. Official gets suspended for not buying, he gets a bonus bag of cash from MegaCorp. It’s a very well tested model.
Now this is the part where I’ve truly felt some outrage. Too many city folks who’re comfortably working in AC offices think the bills are great. They believe the farmers will have more choices and free markets are the awesomest!
Here’s a shocker: It’s not like farmers aren’t trying to make money! And they aren’t even stupid. There’s a reason they barely survive after months of toiling…
It’s literally that agriculture has TOO many producers with ZERO pricing power. MSP is literally the only thing preventing a pricing collapse. We live in an excess food world, so in a true free market the price of produce will be much lower than MSP (and it is in states where the govt just doesn’t buy at MSP, read – Bihar.)
Economics 101: In a free market, equilibrium comes about because producers exit the market when prices become unprofitable. And as the supply declines because of producers exiting, the prices rise to the equilibrium point.
In the case of agriculture, there are A LOT of extra producers (the farmers). What exactly are the free agriculture market proponents proposing we do with the extra (surplus) farmers? We have some cushy office jobs lined up for them, right?
The End, mostly.
PS: The agriculture procurement system needs to change. I’ve been an advocate of it for years and I hate the APMC Act as vehemently as I presume I’d hate getting hit by a bus. The current bills are terrible though, and the farmers will certainly pay a price. In all likelihood, you as a consumer would too. Please feel free to disagree with everything, but at least put in some efforts at understanding why farmers are protesting (it’s not because they hate our glorious leader).
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Also, a quick video explainer of Equilibrium Pricing in case you’re interested in the economics of it all: https://www.youtube.com/watch?v=7eZcPs9z9OA