How New Farm Laws will Impact Food Processing Industry?

New Farm Laws

The Parliament of India passed three ‘Agriculture Bills’ in September 2020. The President of India gave his assent to the bills in the same month, making them as acts.

The three acts that are aimed at bringing structural reforms in agriculture in India include:
1. Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.
• Provides multiple marketing channels to farmers by allowing inter-state or intra-state trade of agricultural produce beyond the APMC markets
• Abolishes the market fee for trading outside the APMC trading areas
• Facilitates the e-trading of agricultural produce
2. Farmers (Empowerment and Protection) Agreement on Price Assurance Farm Services Act, 2020.
• A national framework for contract farming through an agreement between farmers and buyers
3. Essential Commodities (Amendment), Act, 2020. 
• No limits on storage/holding of items such as foodstuff such as cereals, pulses, potato, onions, edible oilseeds and oils, except under extraordinary situations like war, famine, natural calamities, etc.

These laws have drawn a lot of criticism from a section of farmers in the country, particularly farmers from the states of Punjab, Haryana, and Western Uttar Pradesh.

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As per the Government of India, these laws help to transform the agriculture sector and increase the income of farmers. These laws empower farmers to sell their produce outside the government regulated APMC markets to private players. It allows them to fetch better prices, given the competition among the buyers in the open market conditions. Farmers can also enter into a legal agreement with private persons and corporate companies through contract farming.

Why are farmers protesting against the new farm laws?

However, the farmers fear that with these reforms, the government would put an end to the MSP. Under the current system of MSP, the government provides price recommended by the Commission of Agricultural Crops and Prices to farmers for the procurement of certain crops. The government provides MSP to over 23 crops such as paddy, wheat, maize, pearl millet, barley, groundnut, sunflower, etc.

But, in reality, not many farmers are benefiting from the MSP system. Though MSP is given for 23 crops, only wheat and paddy are majorly procured by the government.

Farmers from Punjab and Haryana, who primarily produce wheat and paddy, are the major beneficiaries of the MSP system. The government procurement mechanism(APMCs) in these states is very good when compared to other states in the country.

In 2019-20, the total procurement of wheat under the MSP from Haryana and Punjab through APMC markets is80% and 72%, respectively, out of the total production, while the total procurement all over India is just 33.7%. In2019-20, the total procurement of paddy under MSP in Punjab and Haryana is 108.76 lakh metric tonnes and 43.07 lakh metric tonnes, respectively, while from West Bengal, one of the major paddy producing states, it is just 18.38 lakh metric tonnes.

So farmers are asking the central government to repeal these acts. Another major demand of the protesting farmers is a written guarantee from the government on the continuation of MSP. The government is working on alternatives to repealing the laws and reach consensus with the protesting farmers.

Currently, the government is not legally bound to provide the MSP. But still for various reasons, the government pays MSP to the farmers during the procurement. In fact, there is no mention of MSP in any of the recently enacted acts. These laws only provide multiple options for farmers to trade their produce and get better prices.

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How will these laws shape the future of the food processing industry in India?

Notwithstanding the concerns of farmers, it is an undeniable fact that the new agricultural laws provide a lot of benefits to farmers. The laws allow farmers access to open markets across the country by abolishing the barriers of restricted local APMCs.

Apart from the farming community, these also benefit the food processing industry in many ways. As these laws allow private players to purchase from the farmers directly, it will be easy for them to conduct their business. These reforms also help bridge the gap between the corporate and big players in the food processing industry and the farming community through contract farming. With a national level legal framework for contract farming, it will be easy for the agri-businesses to get agricultural raw materials bypassing the government regulated APMC markets.

An efficient agriculture supply chain is crucial for seamless operations in the food processing industry. Owing to the lack of proper storage units and other supply chain infrastructure, Indian farmers witness huge post-harvest losses every year. The new farm laws help to bring in a lot of investments into the agriculture sector. This leads to the development of cold-storage units, warehouses, and other supply chain infrastructure in the country.

India is an agricultural country. Agriculture and allied activities are the primary source of livelihood and income for more than 50% of the population in the country. India is the largest producer of milk and second-largest producer of fruits and vegetables in the world. Considering the extent of agriculture in the country, the Indian food processing industry is yet to realize its full potential.

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In the context of protests against the new farm laws, it is vital to note that the policy reforms in 1991 also met with similar criticism when they were implemented. Unfortunately, those reforms did not cover agriculture for unknown reasons. However, it is because of these reforms that India entered the club of the fast-growing economies in the world from the Fragile Five, primarily driven by non-agriculture sectors. All these reforms intended to bring structural changes in the agricultural sector would provide renewed stimulus to the Indian food processing industry, encouraging new entrepreneurs to invest in the industry.

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If you are planning to enter into the food processing industry, then kindly register with SolutionBuggy and get access to expert food consultants. With a network of 1000+ food consultants, we help you start your food processing business by addressing your challenges. Till date, SolutionBuggy completed more than 350 consulting projects in the food industry for its clientele spread across the country.

Sources: PIB India, Crux, Invest India

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