Blogs are opinion pieces and reflect their author’s views

Agricultural Reform in India – Farmers versus the State

Written by: Karen Spencer

Simpson Centre New Growth:

Reviews of Current Ag Policy Research and Articles

Source: The Lancet

Summary: We review two articles in our blog. First, a recent research article discusses three new agricultural laws introduced in India in September, 2020. The author explores the source of prolonged farmer protests that have continued since last year. As counterpoint, we also review a related government paper describing the new laws, the agriculture system history in India, and what led the government to pass the three new laws.


Some basic information for the reader:

From 2010 to 2020, the percentage of India’s workforce in agriculture fell from 52% to 41%.[1]  For comparison, Canada’s percentage workforce in primary agriculture is 1.5%.[2] India’s economy has grown substantially in the service sector, with the agriculture sector’s share of GDP falling through the years: it contributed 41% of the GDP in 1960, falling to a share of 17% by 2010, and remaining relatively flat since then with primary agriculture comprising 16% of the GDP in 2019.[3] By 2008 there were about 140 million farms in India, with the number increasing at essentially the same rate as the rural population, reflecting India’s inheritance pattern, which leads to farms divided between multiple heirs.[4] In 1976-77, the average farm size was 2.00 hectares, and by 2015-16, that had decreased to 1.08 hectares.[5] This is inherently unsustainable.

The Indian government has supplied farmers with input subsidies and price assurance for some products for many years, and has been working on various attempts at agricultural policy reform for decades.

The three new laws:

The new Farmers’ Produce Trade and Commerce Act (FPTC Act) offers farmers the choice to sell their produce within existing APMC (Agriculture Produce Market Committee) markets or outside them, to private channels, cooperatives or other. This is designed to put pressure on current APMC markets to become more competitive.

The new Farmers’ Empowerment and Protection Agreement on Price Assurance and Farm Services Act (PFAS Act) is designed to provide for guaranteed prices and a source for inputs and technical services if the farmer wants to sign up with a sponsor as a contract farmer. Farmers are not required to do this, but it sets out terms by which contract farming with small farmers will occur, and prohibits the sponsor from having any mortgage or call on the land or premises of the farmer.

The third law is a modification in the Essential Commodities Act for a group of agri-food commodities. In the past, if a commodity was deemed “essential” there could be an imposed stock limit on it. These decisions in the past have sometimes been seen as arbitrary, and the modifications give a transparent criteria in terms of price trigger for imposing ECA. ECA is triggered on a high price, and this modification sets a much higher limit for rise in producer prices before the government takes action on stock limits. It is felt this modification will attract more private investments in agriculture by offering more stability in the market.

The new Central Act, encompassing these three changes, is designed to remove many levels of market fees, commissions, and other private costs currently incurred by farmers, while keeping their access to a fixed price assurance mechanism, if they so desire.

Paper No. 1 by Chatterjee: [1]

Thousands of Indian farmers have been camping on the outskirts of New Delhi for the past four months, in protest of three new agricultural laws passed by the Indian government in September 2020. The three laws were designed to create a unified national market by connecting agri-food supply chain actors directly with farmers, reducing reliance on traditional intermediaries. The government believes the laws offer farmers more choice in what they grow and who they sell to and can help attract needed private investment into the sector.

Farmers fear the minimum support price (MSP), a price guarantee set by the central government to purchase selected crops directly from them, will disappear. Farmers believe there is huge power asymmetry and they have little bargaining power. The author notes agricultural economist Sudha Narayanan, who states “the three farm acts are not ‘farmer-centric.’ Rather, they are focused on the ‘ease of doing business of supply chain actors, with the premise that these actors will deliver benefits to the farmers.” The author is skeptical the benefits will go to the farmers.

Currently, there are no safeguards in place to ensure competition or prevent collusion among private buyers in the new trade area. Various previous government policy directions have been detrimental to socio-economic prosperity for farmers in the past. The well-irrigated regions of India where the Green Revolution of the 1960s massively increased yields are now experiencing severe groundwater depletion and falling productivity for the same inputs. The Green Revolution model of monoculture rice and wheat was adopted by farmers in the 1960s-70s because there were input subsidies and output guarantees (minimum prices, or MSP) given by the government. The technical implementation however has resulted in increasing chemicals, declining soil fertility, falling groundwater levels, and rising input costs. MSP applies to rice, wheat, and a number of other crops, but not all, imposing an unintended consequence of the past policies, by imposing more risk on some types of farm operations. Even with the hardships seen with MSP-applicable crops, many farmers will not choose to take the price and production risks of considering other crops.

Some suggested improvements to the new laws include moving away from individual contracts toward group contracts, utilizing farmer cooperatives. Another is ensuring there is some protective insurance for farmers if there is not the MSP as had been a fallback for part of the market in the past. The author’s assessment is the three farm laws do not address the environmental challenges in agriculture at all. Marketing reform has been seen in the last decade, but there is a call for reform in the areas of input price subsidies and procurement as well.

The author notes the biggest challenge is the lack of trust between the Indian government and protesting farmers, and the only way forward is a meaningful dialogue where trust between stakeholders is restored.

Paper No. 2 by Chand:

The author notes many reasons for the legislative reform: the country has been accumulating a large surplus of commodities, while at the same time importing other fruits and vegetables, edible oil and pulses. The country could be more self-sufficient if its agriculture sector was more diversified. With global forecasts of supply and demand, India needs to improve its price competitiveness in order to enter those markets. Growth rates in markets with no MSP such as horticulture, milk or fishery, show 4-10% annual growth rates, while the growth rate in cereals, where MSP and other interventions exist, remain at 1.1% from 2011 to 2016. The author notes liberalized markets with less government interventions, therefore, show higher rates of growth. The very small scale of farming in India means most farmers do not have the resources to take risks such as price risk, and the new legislation is suggested as a means to offer price assurance to encourage diversification to higher-value crops. The author states the distance from farm to retail shows a large margin due to the numbers of actors and the vertical fragmentation of the market. Traditional supply chains involve six to seven transactions between the production point and end-use (farm to fork).

Government attempts to implement many reform efforts in the last twenty years have not been very successful, and many market reforms are only applicable in one state, remaining piecemeal, patchy, diluted, and slow in application.

The author maintains the new laws give the freedom to sell and buy farm produce at any place in the country, either within the existing mandis (local government markets that will buy all farm products at set prices) or outside them. It is forecast that it will not take long for farmer producers or their cooperative groups to become “price dictators” rather than remaining “price takers.” The new laws are designed to compress the value chain, eliminating excessive intermediate parties and allowing farmers to sell their produce directly to consumers.

Previously, farmers in many states were required to sell agricultural commodities through the APMC acts. Initially, this worked well, with market growth much higher than crop output growth. When production growth outpaced market facility growth, however, farmers became dependent on the APMC markets. The states also treated the APMC markets as revenue generation sources rather than service infrastructure for farmers, with increases in commission charges seen over the years with little justification. The new legislation will give some states the requirement to bring down marketing charges substantially.

The author notes some estimates show only 7% of farmers rely on the MSP for their products. The new trading act is proposed to create an environment where private buyers will pay MSP, since they will save user charges, commission charges and many other costs. It will allow APMC mandis (markets) and private channels to compete and work side by side.

One of the new acts, the Agreement on Price Assurance and Farm Services, restricts relationships between farmers and sponsors to attempt to limit the power imbalance between contract owner and the farmer, in the case of contract farming.

The third major modification to the existing laws includes adding a transparent criterion to limit stock of products depending on price signals seen in the market.


As can be seen, the agriculture system in India is facing major challenges, and with the regulatory changes, the government is clearly recognizing this and attempting to improve the situation. However, as evidenced by the numbers of protesting farmers and their persistence, the proposed new statutes may not be the ideal solution. India is still a developing country, with its changing rural and urban demographics, and its growing middle class. Both authors successfully argue why change is needed, but the outstanding question remains: how to find common ground?

For further reading, the two full articles are located in the reference below.

Article Links:

[A] Patralekha Chatterjee, “Agricultural reform in India: farmers versus the state,” The Lancet, Vol. 5. April 2021.

[B] Ramesh Chand, “New Farm Acts – Understanding the Implications,” National Institution for Transforming India (NITI), Government of India, November 2020.



(1), “India: Distribution of the workforce across economic sectors from 2010 to 2020.” Accessed May 6, 2021.,other%20sectors%2C%20industry%20and%20services.

(2) Statistics Canada. Table 14-10-0023-01 Labour force characteristics by industry, annual (x 1,000).

(3), “Agriculture, forestry, and fishing, value added (% of GDP) – India.” Accessed May 6, 2021.

(4) Vishnu Padmanabhan, “The Land Challenge Underlying India’s Farm Crisis,” mint, October 15, 2018.

(5) Ibid.

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