Case Analysis II: Farmer Agitation in India: Deciphering Marketing Lessons

Effect of Politics on Economic Decisions

The case portrays clearly how politics affect economic decisions. The Central Government of India, being overtly pro-reforms and in favour of liberalization and privatization had garnered the strength, guts and gumption to move ahead of the reforms that it thought were necessary to realize their election manifesto as well as serve the interests of its loyal constituents. Agriculture was one of the last bastions to fall due to the forces of reforms aimed at liberalization and privatization of the economy. Quite evidently, the forces of reforms could be unleashed only through the control of the marketplace.

The prolonged agitation by the farmers demanding the repeal, and nothing less, of the three farm laws passed by the Indian Parliament, seemed to be centred on the issue of control of the marketplace. Translated from Hindi, mandi simply meant ‘marketplace’. In India, it referred to the kinds of regulated markets seen all over the country, generally open, large and sprawling areas with facilities run by the state governments. It was in these marketplaces or mandis that the farmers auctioned their farm produce—crops and livestock. Apart from being a place for selling and buying agricultural products, a mandi also symbolized the government’s contract with the farmers. At the crux of the case, there was the issue of the control of the mandi by farmers, who feared that with the enactment of the said laws, the government might have an upper-hand.

On the surface, it appeared to be a fight between politico-economic ideologies. The questions like how much the government would do itself, how much free rein the market ought to have, how capitalist Indian sectors, in general, and agriculture, in particular, wanted to be. The Modi government’s farm laws and the subsequent farmers’ protest over the proposed reforms had also shown that economics was contingent on politics.

Bargaining Power of Buyer/Seller (the Roles the Government and Farmers Play)

In any buyer-seller dyad, the question of who exercised more power in the transaction is critical. It was an important factor in many other decisions like those on price, promotion and, at times, also on the product, especially when the product was a commodity with variable quality standards. Historically, the marketplaces or mandis were created to manage the food security issues arising out of in-built weaknesses in the Indian agricultural sector. The vagaries of the weather, the general poverty of the land-tilling mass of people, and the vulnerability of that farmer class to the extortion by middlemen and brokers, who ensured that the former lived in perennial penury and subsistence, while the latter gained immensely from the price arbitrage they enjoyed in the downstream marketing channels.

Over some time, however, farmers, particularly the big ones from the high-production states like Punjab, Haryana and parts of Uttar Pradesh had worked around that control by the government. In fact, many of the big farmers turned into brokers operating in the mandis. New stability had been achieved in the relationship between the farmers and other market operators, so much so that the new laws were believed to be distorting the market. This balance of power would further tilt against the farmers since the large corporates with deep pockets were feared to be playing against the interests of the farmers since they could afford to influence the government.

The three farm laws were expected to disturb this stable state. The laws would force new relationships and working models to be developed, and the balance of power was feared to be tilted back again in favour of the government. While the covenants explicit in the laws were supposed to help the farmers, the latter believed that the government had some ulterior motives, and therefore should not be trusted. This lack of trust between the government and the farmers is the root cause of the fight for bargaining power.

This case can be viewed as a situation arising out of differing perspectives of the value of a new law, like a new product. While the government sold the laws as reforms that would liberate and energize Indian agriculture, the protesters saw them as a gateway to a corporate takeover of farming. With growing competition in the processed food market, the channel partners who were either near the end-consumers or the ultimate resellers or had access to the source of food, which was farmlands, enjoyed growing bargaining power, thanks to their superior understanding of the buying motives of the target customers and power to manoeuvre cost of procurement of farm produce. The growing bargaining power of downstream channel partners quite naturally would squeeze margins of the primary producers of agriculture produce further.

Market Efficiencies and the Question of Market Failure

Market efficiency ensured both sellers and buyers got maximum perceived value. The stated purpose behind those deregulations brought about with the promulgation of the three farm laws, was to make agricultural procurement by the government more efficient, and to let farmers discover the best prices for their produce. However, outside a mandi, arguably, any company could buy directly from the farmers, doing away with middlemen like commission agents. Farmers could sell anywhere they chose. It was feared that contract farming would be the order of the day, but it certainly offered an assured stream of income to the multitude of poverty-stricken farmers. However, paradoxically, in spite of increasing production and productivity, the vast majority of the farmers have remained below the poverty line.

The existing framework, in vogue from the 1960s, involved providing farm-credit to farmers to invest in new technologies, with the output being procured by the Food Corporation of India (FCI) and sold through the Public Distribution System (PDS)—a model accepted by all, and found too stable for anyone to even think of destabilizing. The MSP and the Agricultural Produce Market Committees (APMC), the backbone of the trading arrangements, had somehow failed to alleviate the lives of the farmers. Also, there were doubts about mere liberalization bringing or leading to enhanced private investment in new markets, like agriculture. Instead, massive fund requirement for the expansion of the APMC market system; removing the trade cartels; providing farmers good implements, seeds, roads, logistics of scale and real-time information was necessary for market efficiency, which were not clearly spelt out by the government. In addition, it was feared that unregulated agricultural markets could raise problems related to uncertainty in terms of demand-supply, equity among farmers, collusion among the corporate and some big farmers, lack of quality control, asymmetric information, lack of economies of scale, difficulty in contract enforcement and abuse of non-economic power—all leading to potential ‘market failure’.

Channel Conflict Faced by Farmers

In marketing, channel conflict happened whenever a new channel was introduced and the existing channels’ interests were hurt in terms of either supply constraint or demand reduction. The new farm laws essentially created an alternative system for the sale of agricultural produce. Farmers feared that with the three farm laws the government was destroying the established system of providing MSP, and once they are implemented, farmers would be at the mercy of traders, a classic case of unintended consequence. The very problem which the government wanted to solve would be the effect of the government’s move. This was also a serious design thinking issue, requiring out of the box solution to the wicked problem of farmers’ low income or the concentration of wealth among a very few farmers at the top rung of the food chain. So, perhaps the government failed to apply design thinking fundamentals in its hurry to enact the laws.

Also, though government procurement forms a miniscule percentage of total agricultural commodity sales, mostly dealt in the mandis, further reduction in uptake by the government might throttle supply for the public distribution system, on which along with millions of Indians many farmers who are net consumers of food depend for their survival. Also, while the government is committed to ending the monopoly of APMCs, farmers, especially in Punjab and Haryana, were not very convinced about the ‘freedom of choice to sell to anyone and anywhere’ argument. They feared that channel conflict would finally make the large corporate houses prevail over the gradually sick APMCs.