India is an agricultural economy with 67% of its population, which equals to 900 million people, dependent on the public distribution system (PDS). The new farm laws which affect more than half of the population of india need to be discussed and the protest by the stakeholders themselves are justified in every sense. Besides the public distribution system all of us depend on price control mechanism over food. That is one of the reasons why we are all conditioned to protest against the government as and when prices of onions escalate in the market and become the hot topic of discussion in every household.
The PDS and the price
control mechanism
The Minimum Support Price (MSP) that is so much under discussion basically covered only rice and wheat in the past but it now covers a series of other food crops as well, including pulses and oils. The state procures specified produce at a “minimum support price” announced at the beginning of every season. The farmer is and has always been free to sell his produce elsewhere. The MSP, where provided, acts as a sort of floor or basic price for the market. The government uses the produce procured to do two things: it distributes a portion of the stock through the PDS and other welfare schemes and retains a portion of it as “buffer stock” or strategic reserves for situations like wars and famines.
This buffer stock is highly important as it acts as a security against a food scarcity event, but it also acts as a price regulation tool. When prices in the market escalate, the government releases a portion of these surplus stocks to inflate supply and bring down price. The very existence of the surplus protects us from hoarding and no one wants to hoard when they know the government can always flood the market and control the price through its own acquired stock.
The government also imposes stock limits under the Essential Commodities Act (EMA). If prices spiralled, it could order everyone to sell any stock over a set limit into the open market. The increase in supply would then reduce price.
What farm bills do to this system?
First, they restrict the ability of the government to impose stock limits under the ECA to extreme situations, and also exempt what are called value chain participants entirely from these limits. Who are value chain participants? Well, it’s a broad definition and includes any private player involved in processing, distribution, etc. It means that the Essential Commodities Act can’t really be used anymore to effectively control food price. One can argue that we still have procurement and the buffer stocks to control price? Well, it’s complicated yet again.
Now the government has said it intends to retain procurement and MSP but this could be challenging.
First, the shaky future of the APMCs given the fact that the state relies on these physical marketplaces called mandis to procure from farmers. But a mandi, like any other marketplace, needs a certain level of transactions to survive. In Bihar, after the 2006 laws, mandis gradually shut down.
Bihar had 9,000 mandis in 2016. By 2020 it had just 1,619. Without sufficient mandis, most farmers couldn’t reach their produce to one, and had to accept whatever a private purchaser would give him. The MSP went from being the floor price to the premium price. It was a situation where the farmer had to sell at the given price or let his hard earned foodgrains rot in stores and fields.
And without the mandis, state procurement dropped off dramatically. Today, 80% of the foodgrains disbursed under the PDS in Bihar is procured from other states in absence of mandis.
Secondly , remember that prices are cyclical. Without price controls, the government will not be able to afford to acquire at the peak of the price cycle. Now that doesn’t matter if the government can aquire enough at the lower end of the cycle. Consequently, the private players won’t buy and the farmers will need MSP. But not necessarily.
First, all buyers may not see the produce as an end product itself, which means that for a biscuit manufacturer, low wheat prices are an asset. Without limits on stockpiling, they might prefer to buy and stock up. The industry which acquires to process, package and export, will see the low prices as an advantage. And without the Mandi infrastructure in place, the government might struggle to acquire even when the prices are low.
This now starts to get a bit scary where it will finally affect the consumer and the country as a whole. Without adequate procurement, or a Bihar sort of drop-off in procurement, first the surplus stocks will have to be used for PDS. The reduction in surplus stocks will reduce the government’s ability to control market price by releasing stocks. If low procurement continues, then the government won’t have enough to run the PDS, the same PDS on which 900 million people rely for their daily need and sustenance.
So it might just be the farmers protesting, but remember that they’re also protesting against a system that puts millions at risk of extreme hunger and spiralling food prices. This is not just a farmer’s issue, it’s an issue that affects all of us. The government must immediately shun its ego and talk to the farmers protesting throughout length and breadth of the country to find an amicable and acceptable solution, not only to the farmers but to the entire country. Unless the government wants to abolish the idea of an egalitarian society.

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Junaid Hussain Malik