42. Venky Ramachandran: Grey pill for India farming law changes

Summary of my conversation with Venky about farm laws in India, AgTech, VCs etc.

Hi, if you are new here, I am Rhishi Pethe and you became a member of the “Software is feeding the world” community. You will receive this free weekly newsletter (every Wednesday) at the intersection of technology and agriculture/food systems. I work as a product manager on Project Mineral at Alphabet X, focused on sustainable agriculture. The views expressed in this newsletter are my personal opinions.

This week’s newsletter is a deep dive into the recent and ongoing controversy related to the new farming laws passed in India. I caught up with Venky Ramachandran, to understand the changes, and why farmers are protesting so vehemently against the laws. Having grown up in India, I wanted to start with a story about agriculture in India in my first edition of the deep dive version of the newsletter called “Roots.”

Venky Ramachandran is a thoughtful writer and an agriculture/food system consultant based in India. He is a man of many talents, and first and foremost he is a storyteller. He has the knack of pulling stories from mythology, contemporary culture including movies, and recasting them in the current context. He also runs an organization called Mandram. It is a platform to curate innovative ideas, insights and concepts in native languages through inclusive public discourse.

Venky writes a fascinating and engaging newsletter called Agribusiness Matters. Venky has studied the farm laws in India in great detail. I had a conversation with him in early December 2020,  to understand his viewpoint.

This week’s newsletter is a summary of our conversation about farm laws in India, the Agtech ecosystem, VC investments in India etc. The conversation summary is interspersed with additional writings from Venky and others on the topic. Venky has written more than 10,000 words on this topic, and so he has given a lot of thought to it.

Before we go into the actual details of the conversation, here is a summary of the 3 laws.

The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

  • Expands the definition of trade areas from their local markets (mandis or APMCs) to any place of production, collection, and aggregation.

  • Allows e-trading and e-commerce across state lines.

  • Prohibits state governments from levying any fees for trading outside trade areas.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020

  • Provides legal framework for farmers for contracts with buyers, including pricing.

  • Defines a dispute resolution mechanism.

Essential Commodities (Amendment) Act, 2020

  • Removes foodstuff such as cereals, pulses, potato, onions, edible oilseeds, and oils, from the list of essential commodities.

Rhishi Pethe: So Venky, what is going on with the farm laws in India?

Venky: Well, that is a big question. I have written about this extensively, both from the government’s perspective and from the farmers’ perspective. I have been trying to think of a framework to see if it can explain the positions taken by different stakeholders e.g. farmers, agri-input providers, agri-retailers, and the central (federal here in the US) government.

Venky has summarized the 2 x 2 matrix in his December post “The New Farm Laws and The 'Annadata' (The One Who Feeds) Conundrum

“Those in the right quadrant ask questions pertaining to the ills of industrialization and pose hard questions to technologies on sustainability grounds. They also ask questions of scale and which technologies are appropriate? What is the price we are paying for these technological developments?”

“Those in the left quadrants pursue one or the other form of industrial agriculture and are “true believers” in the power of technology. Whether it is chemically-intensive farming[bottom left] or hydroponics [top left], farming is fundamentally reimagined as a factory.”

Farmer protests in India have touched a raw nerve chord across the country because each of these people in their respective quadrants are interpreting the farm laws differently. I have mapped their responses to the farm laws from their respective positions!

I hope this framework (among others) helps in explaining the transition happening in the industry and sketching a cultural map of agriculture at large and the beliefs espoused by different groups involved in agriculture.

Rhishi Pethe: So why are farmers protesting?

Venky: In a nutshell, farmers are protesting because a massive structural change in agriculture is being implemented without adequate dialogue or consultation. And so, this naturally creates a trust deficit. 

Before we go into whether this change is right in the long term or not, we need to understand where we are today.  If I were to reductively spell the ground context of where agriculture in India is, I would boil down to these set of equations.  These equations come from the fascinating work of a french economist Bruno Dorin who studied the evolution of agriculture in India over the last five decades since its political independence in 1947. 

*These are the other equations Venky mentions for Indian Agriculture, in his essay Unpacking the #FarmBills controversy: The Story of Indian Agriculture So Far

Food = Rice + Wheat

Productivity = Irrigation + Fertilizers

Food Security = Public Procurement + Redistribution.

Employment =Small Firms

Subservience = Imports + Foreign Capital

The way Indian Agriculture has grown over the last 60 years, since the “Green revolution” in the 1960s and 1970s were primarily driven by two crops:rice and wheat These crops ushered in an era of high productivity gains, but with a heavy environmental price: higher use of irrigation and fertilizers (see his second equation). Over the last few years, the productivity growth has slowed down in the northern states and they have been faring badly on soil and groundwater indicators. Those states which had taken the lead during the early decades of the green revolution have now become victims, and are caught in the middle, unable to move beyond, and suspicious of big structural changes. 

A key part of the agriculture in India is the support prices offered by the government for farm products, as they are considered essential commodities, and these states have been the large beneficiaries of this support prices. 

From the background of several policy recommendations, there is a strong concern that the program of minimum support prices offered by the government might go away, even though the government has been saying otherwise. The essential commodities act was amended in 2020 and previous essential commodities have been deregulated. Farmers argue the new laws will make it easier for large corporations to exploit them, and drive agricultural produce prices lower.

Another key aspect of Indian Agriculture has been the presence of regulated markets (called APMCs (Agriculture Produce Marketing Associations). These markets have historically seen a lot of collusion among traders, resulting in low bargaining power for the farmers. These markets were driven by  middlemen who provided credit to farmers and provide a host of post-harvest services, including risk protection to farmers. The new farm laws envisage replacing the traditional middleman with agri-tech startups. There is a fear that the new acts might reduce the influence of these middlemen, while not providing adequate price protection to farmers.

Venky writes in his post, “The Samudra Manthan (Ocean Churning) of Indian Agriculture” that the new laws set up new trade areas which are outside the existing APMC markets. This has the potential to disrupt the current geography of markets. writes,

“The fear being expressed by farmers and their unions about MSP arises from the uneven playing field between the trade area and the APMC as there would not be any taxes in the trade area whereas there are significant buying costs in APMC purchase that can be as high as 8.5% in Punjab including 2.5% commission for the arhtiyas* (agents / middlemen). Therefore, due to lower buying cost, the traders and even agents may move out of the APMC market yards and start buying from the new trade area (non-APMC area).”

*Arhtiyas are middlemen who operate in trade markets and provide a host of services including risk protection, credit facilities, and can often charge about 30-40% of the produce price.”

Additionally, state governments cannot impose any levies, taxes on these transactions outside of the APMC state laws.

Rhishi: Can you talk about agriculture being a state subject vs. a central (federal) subject?

Venky: Under the Indian constitution, agriculture has been a state subject. However, the constitutional responsibilities between the Center and the State has never been clearly delineated and have been a subject of recurring debate. These sets of laws that have been implemented through the route of ordinance create a much bigger role for the central (federal) government and diminish the role of the State. However, since each States has enacted their own local agricultural marketing regulations, they have tweaked their respective State laws to ensure that their grip over these markets remains to a fair extent. Due to these localized APMC markets, lack of formal transactions and transparent price signals between markets, it creates a wide variation in commodity prices at the same point in time. The central government wants to integrate these markets and reduce the volatility, owing to price differences on commodities that exist in different markets. It wants to push through the idea of  “One Nation, One Market.”

Venky provides this interesting diagram in his post “Unpacking the #FarmBills Controversy: In defense of the government” to explain the concept of risk and pricing through the food supply chain, and how the central government is trying to reduce the differences in prices between different markets.

So now you can better understand why farmers are protesting so vehemently to these farm laws. They are worried about losing price protection, corporates and large buyers driving prices lower, losing the risk protection offered by middlemen, and loss of control over marketing their products.

Rhishi: How is the VC investing in India? What about other forms of investments?

Venky: VCs are doing the best they can. They are doing a good job of understanding where the trends are going. The number of India focused funds and VCs for food/agri-tech  is growing, though a lot of the investment has been mostly downstream.

There has been a significant investment in aggregator platform plays, with different thesis on vertical integration. I see early traction going towards investments in companies trying horizontal integration.

A few years back, most startups didn’t want to get involved with any local, state or central government program or entity. They would not even bid for any RFPs coming from any government agencies. This has changed in the last few years. There is a lot of talk about public-private partnerships, and it is common for startups (and VCs) to try to have strong relationships with different government agencies like research organizations, extension offices, policy makers etc. I think this is a good development.

Rhishi: What other changes have you noticed among AgTech companies? 

Venky: You cannot fit a developed word model and push it into India. For tech products, the marginal cost goes to zero as you scale up. AgTech companies were initially operating under the assumption, and believed they could scale easily in India. The marginal cost thesis does not hold, at least in Indian agriculture. Given the large number of smallholding farmers, and the interlocking nature of the agri-input credit in India, the last mile distribution of agri-tech products to farmers is extremely expensive. More and more agri-tech companies, VCs, and other investors are realizing this now, and are making changes in how they think about these problems.

Rhishi: So what is your final word on the farm laws?

Venky: The most frustrating part of the conversation so far has been the binary nature of the discussion.

Venky summarizes his views on the farm laws in his essay “Can I offer you the grey pill on farm laws?” The discussion has been simplified and you are being asked to choose between two options, just like picking the red pill or blue pill from Matrix. He strongly believes the framing of the questions being asked is not appropriate. It feels a bit delusional when the options offered are:

  • MSP to improve farmers’ incomes Over Myth of Free Markets

  • Status Quo through Corrupt APMC Mandis Over Irresponsible VC Sponsored Market and Price Speculation Experiments conducted by Farm Gate Agri-tech Startups at Farmers’ Expense.

  • Making Few Rich Farmers Richer Over Keeping Poor Many Farmers Poorer

  • Food Security Over Food Inflation

  • Regulation Over Free Trade

We are losing track of the bigger fundamental issues and the ground realities as all of us are trying to pick a corner, and dig in. Venky writes,

“It won’t help us address the fundamental paradox of making agriculture sustainable and profitable through collaboration with nature which abhors efficiency.”

“Picking either of the two will not change ground realities, unless, farmers and more importantly us, consumers, ask fundamental questions about the food we eat, the food systems we have built at scale, and how we incentivize farmers to grow healthy food that nourishes their lives and consequently ours.”

Can we look closely at this illusion of choice that is being presented to us by the entire media circus and start asking what is the real choice that we need to make, if we are serious about transforming agriculture?

Latest update

The government has held about 8 rounds of negotiations with different farmer groups, but there has been no breakthrough in talks. A few days back, the Supreme Court of India put the laws on hold following nationwide protests, and recommended forming a committee to come back with recommendations. As you can imagine, the saga of the struggle over these laws will continue in the coming days and months, and only time will tell the impact of these changes.

“Agribusiness Matters” matters!

I would highly recommend you to subscribe (I am a subscriber) to his paid newsletter Agribusiness Matters, if you are interested in learning more about agriculture in the largest democracy in the world. At ₹3,999 for 1 year (or $ 55 for 1 year), it is a steal. You can thank me later for the recommendation!

References

If you want to dig deeper into these topics, here are a few additional resources to give you more perspective, including Venky’s writings and interviews.

Venky’s essays on the topic of farm bills/laws in India

Make sense of the political chaos surrounding the farm laws in India

  1. Unpacking the #FarmBills Controversy: The Story of Agriculture in India So Far: (subscribers of Agribusiness matters only)

  2. Unpacking the #FarmBills Controversy: No Country for Middle Men

Turn the tables and argue in favor of the government

  1. Unpacking the #FarmBills Controversy: In Defense of Government (subscribers of Agribusiness matters only)

The struggle between two sets of opposing viewpoints

  1. The Samudra Manthan (Oceanic Churning) of Indian Agriculture

Are we asking the right questions and offering the right choices?

  1. Can I Offer You A Grey Pill on Farm Laws?

  2. The New Farm Laws and The 'Annadata' (The One Who Feeds) Conundrum

Venky’s video interviews

The Seen and the Unseen Podcast by Amit Varma, with a free market bias

Other interesting articles

So, what do you think?

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