Bihar’s failing PACS system shows what could happen after the farm laws

In 2006, the Bihar government deregulated the agricultural sector, and largely removed government oversight over food grain procurement. Previously a majority of food grain procurement happened through the Agricultural Produce Market Committee, a marketing board run by the state government that would organise mandis—wholesale markets—where farmers could directly sell their produce to the Food Corporation of India or the State Farming Corporation at the established minimum support price. The MSP is a price guaranteed by the government to protect farmers from market fluctuations. In 2006, Bihar replaced this system with Primary Agriculture Credit Societies, panchayat level societies that would serve as a middleman in food grain procurement. PACS buy food grain from farmers and sell it to the FCI, SFCs or to private wholesalers. The three recent farms laws, share a similar procurement framework with Bihar after 2006, in the fact that the state does not bear the onus of buying excess grain directly from farmers at the MSP. After the passing of these laws, several leaders of the Bharatiya Janata Party said that Bihar’s experiment with PACS gave farmers economic freedom and increased their revenues. Accounts from Bihar bely this claim. Several farmers and presidents of PACS I spoke to from Bihar told me that wheat and paddy farmers were now getting far lower incomes than they did under the APMC system, due to the involvement of private mills, the inability of government agencies to pay their bills on time and poor planning by state agencies.

During the recent protests against the farm laws, BJP leaders have frequently cited Bihar’s agricultural deregulation as a success story that must be emulated across the country. On 13 December 2019, the BJP organised the Kisan Chaupal Samellan—farmers’ conference—at the Bhaktiarpur locality of Patna in Bihar, to assure farmers that the three new laws would not negatively affect them. The Krishijagran—an agriculture focussed regional magazine—quoted Sanjay Jaiswal, the state’s BJP chief. “Those misleading the farmers are trying to use the shoulders of farmers for their own political agendas,” he said, during the conference.  Further, the magazine also quoted Ravi Shankar Prasad, the union law minister. He assured farmers that “the MSP and therefore the mandi system will continue under the new laws,” and that the new laws, “aim at improving the economic conditions of farmers by providing them direct benefits of their agro products sale without the involvement of middlemen.” Both speakers said that Bihar’s agricultural track record following the 2006 abrogation of the APMC’s proved this. The Deccan Herald quoted Prasad as saying, “The laws give the farmers opportunity to sell their produce either in mandi or in PACS or outside the realm of mandi, PACS or Vyapar Mandal … I just want to ask whether or not farmers be given such freedom or opportunity.”

Contrary to Prasad and Jaiswal’s faith in the PACS, farmers and PACS’ presidents in the state told me that the system had several major lacunae and often led to farmers making distress sales at very low prices. In contrast to the “freedom” Prasad claimed the system gave, farmers often felt like their prices increasingly depended on government machinery that was slow, corrupt and often forced them to sell their produce far below the state’s MSP. The new system also has new middlemen including millers, local merchants and PACS presidents, some of whom are viewed by farmers as being corrupt.

Under the APMC system, farmers could apply for space at a local mandi, for a nominal fee, where they could sell produce to government agencies such as the FCI and the SFC, or directly to wholesalers. These mandis were run by the state government and managed by a market committee some of whom were elected locally and others who were nominated by the state government. Buyers had to be registered at the APMC mandi which meant that the government could strictly enforce MSP. Applying for space at a mandi did not require any documentation, which helped many farmers who often did not have registered land deeds or those who had unofficially leased land. The APMC also had space for storage and drying paddy and wheat that had collected moisture, which ensured that farmers could delay selling their produce and assure a good price. Several farmers I spoke to told me that at mandis they were largely paid on the same day they sold their produce.

The PACS system created 8,463 societies in the state at the panchayat level which would buy grain from farmers, send it to a private mill, then sell it to wholesalers or state agencies. The management of these societies are elected from their members. Land and identity documents are required to register at a PACS, which often means that marginal farmers or those who take unofficial leases on land are excluded from the system. Each PACS also lacks its own funds and depends on money from sales to the SFC, which means farmers are not paid until the SFC credits the PACS account, which is often only after the start of the next cropping season. Due to complexity of the system and irregularities in its chain, many farmers are unable to sell their produce at PACS. This entire process forces farmers to make distress sales at prices far below MSP to buy the seeds, fertiliser and pesticide needed for their next crop. PACS presidents also told me that the meagre income the PACS makes is often lost to private mills which charge high processing fees. Some mills also try to cheat in the amount of grain which is returned, and this creates long legal battles for the PACS that further delay payments to farmers. PACS are also supposed to distribute fertilisers and seeds to their members though most farmers I spoke to said this only rarely happened in practice. In other states where PACS are active, fertiliser and seeds are often provided by them. The PACS is also supposed raise awareness about newer farming techniques by hiring experts, though farmers told me this too never happened in Bihar.

Activists from Bihar told me that one of the largest problems farmers faced since 2006 was registering in PACS. “In 2015, Gajendra Singh, a farmer from Sherbhukka village in Maner, Bihar, committed suicide because he could not sell his grain and was in debt,” Arun Mishra, the vice president of the Bihar unit of the Central Indian Trade Union, told me. Mishra said that he had visited Singh’s house after this death. “We saw that there were bags of grains kept at a place as if he was prepared for selling. He had taken about 18 bigha land”—one acre is approximately equal to 1.6 bighas in Bihar—“on lease at the rate of 8000 rupees per bigha.”

Mishra said that Singh had taken loans from moneylenders at exorbitant rates of interest for leasing the land and for agricultural inputs. “He was under pressure and wanted to sell his product at a good price to pay back his loan,” Mishra said. “He tried to do it through PACS but as he had no document of the land on which he did farming, he couldn’t sell his produce. So, in pressure he committed suicide. If PACS system would have been effective and smooth for the welfare of farmers, Gajendra Singh would be alive. His death showed that how the system made by the government is hollow and only in papers and not on the ground.” Activists told me that though share cropping and land leasing are common in Bihar, there is no culture of documentation. Like Singh, this leaves many farmers outside the PACS procurement system.

The application process for PACS is now completely digital. Several activists and farmers told me that this made it tough to apply in areas without mobile connectivity or for people who are not comfortable with computers. The website to apply for registration as well as the one-time-password sent to the farmer’s phone for registration frequently do not work. “Things have been made online for farmers registration to PACS,” Rakesh Kumar, the president of a PACS in Bihar’s Arwal district, told me. “This time I came across such an issue while registering farmers for procurement through PACS. The site is not completing the process and is not accepting their OTPs. I myself tried for some farmer but could not succeed. If the system is online then it must be effective and smooth.” He continued, “In some cases the farmers have changed their numbers and are not getting the OTP on their present number. In that case they cannot get registered and so could be deprived of availing the facilities of the government.”

DM Diwakar, an economics professor at the AN Sinha Institute of Social Studies—a Patna-based government-run institute that specialises in development studies—told me that he had studied several parts of Bihar where the online application made PACS inaccessible to farmers. “In Bihar the access to the internet is very less and farmers in remote villages are often unable to register smoothly and avail the services,” he said. “According to the norms of the agriculture ministry, an IT centre with an expert should be present at every PACS to assist farmers. These centres are called Vasudha Kendras and they are meant to work free of cost. But the reality is that you cannot find such centres easily and those that exist, charge farmers steep sums to register.” Diwakar said that the number of registrations the government boasts about are often misleading as there would be people from urban areas or middle men who register multiple accounts at each PACS. “The system is online so the government says that things are transparent and perfect. But it is not like that. Things are good on paper but not good on the ground.”

Farmers and activists also told me that the timing of procurement at PACS were not in tune with the agricultural season. Paddy is harvested in October, but the PACS procurement process for it usually begins only in late November or December. Shyam Bharti, the president of a PACS in Bihar’s Darbhanga district, told me that in December every PACS is given a loan amount or cash credit from state cooperative banks for between 20 and 40 percent of a targeted procurement amount the state government has set. “The PACS then takes the paddy from the farmer, signs an agreement with rice mills and then the miller sends the rice to FCI or SFC,” he said. “In return PACS gets the tranche of money in its account alongside a commission from the government, that too a few weeks or a month late. Only then does the farmer get paid. Only after all of this can the PACS conduct their second set of purchases from farmers. This is how the cycle works.”

He explained that in a full agricultural season most PACS go through between two and four procurement cycles. Each cycle takes more than a full month, and meanwhile PACS do not often have storage facilities, which means that the grain of farmer’s awaiting procurement could spoil. Every year the procurement of paddy continues till 31 March, for a crop that was harvested the previous October. Bharti told me that during this period of waiting for rice mills to finish milling and waiting for the SFC to pay the PACS its due, the PACS needs to continue paying back the interest of the loan it takes from the state cooperative bank, which becomes an additional financial burden.

The state government declares a target each year to procure paddy and wheat. The target for the procurement of paddy following the October 2020 harvest of the crop was set at 45 lakh metric tonnes. “We are given a target to buy agricultural produce from the farmers, but the government does not provide sufficient money for a smooth and effective process,” a PACS president from Bhojpur district, who wished to remain anonymous, told me. “Also, there is delay in money depositing in our accounts. A farmer needs money instantly and we do not have money to give. A farmer cannot wait because he has to prepare field for Rabi crops.”—Rabi refers to the cropping season between November and May—“So, most of the farmers opt for distress sales which makes them face a deficit and take further loans.” Mishra told me that in some parts of Bihar nearly 80 percent of farmers had sold their entire harvest before it could be procured by PACS, because they needed money for planting their next crop. Farmers I spoke to said they had to sell paddy at prices ranging from Rs 900 per quintal to Rs 1,300 per quintal though the MSP this year for paddy in the state was Rs 1,868 per quintal. “The set procurement target by the government could never be done and would be on paper only,” Mishra said.

A 2019 report by the National Council of Applied Economic Research, which studied agriculture in Bihar, concluded that the timing of procurement and restrictions on the amount of procurement at PACS led to farmers getting far lower prices than they would otherwise. The report said, “Ground-level evidence through discussion with farmers shows that the procurement operation is limited to a certain amount and time, and these restrictions are considered to be highly arbitrary. Further, PACS do not procure wheat at a time, which otherwise it should, when there is a glut in the market and consequently farmers get lower price.” Anish Ankur, a Patna-based freelance journalist who has written extensively about farmers’ issues, told me that despite a stable MSP, the amount of money the average farmer got for paddy or wheat had consistently fallen. “Between 2019 and 2020, the MSP for rice was fixed at Rs 1,815 per quintal but farmers were forced to sell to traders at only Rs 1,350 or Rs 1400 per quintal,” Ankur said. “For wheat, the MSP was Rs 1,925 but farmers had to sell it at Rs 1,800 or even less in Bihar. For maize, farmers reported getting a price of Rs 1,000 or 1,300 per quintal while the official MSP was fixed at Rs 1,850 in the current year.”

The case of Girdhari Ram, a farmer from the Bairia block in Bihar’s West Champaran district illustrates how the bad timing of PACS procurement hurts the income of farmers. Ram told me he had harvested his paddy in mid-October but was in desperate need of money to sow his next crop. After waiting for two weeks, and with the local PACS making no announcement about procurement, Ram sold his paddy to a local trader.  “I had 14 quintal paddy this year and I had to sell 12 quintal at the rate of 1,170 rupees per quintal,” he said. His neighbour continued waiting but was desperately in need of cash and sold his stock to the same trader a week later at Rs 1,050 per quintal. The Bihar government announced its procurement target three weeks after Ram sold his stock, with an MSP of Rs 1,925 per quintal. “I am happy to get more than my neighbour but if PACS would have been effective there would be a handsome amount for a small farmer like me,” Ram said. “The late payment and late procurement have discouraged farmers from opting for PACS. There are many like me in our area.”

A 25-year-old farmer from the Arrah municipality in Bihar’s Bhojpur district, who wished to remain anonymous, had a similar story. “On 22 December, I applied online at my local PACS, at West Gundi panchayat, to sell 30 quintal paddy and got a response after five days,” he told me. “They told me to come on 6 January for procurement.” On 6 January he was told that his grain would not be procured immediately because he had not bought gunny bags to store the rice in. “For one quintal of paddy they told me I need to bring two and half gunny bags. This should be provided by the PACS, but I didn’t know how to argue with them,” Upadhyay said. “So, I went to Arrah and purchased bags at the rate of Rs 26 for each bag. After all those expenses, I still have not been paid by the PACS for anything. The PACS president had told me I would get it in a couple of days. It has been several days now and I haven’t been paid at all for my grain.”

The presidents of several PACS also told me that they faced issues while working with private mills. According to Bihar’s State Food Corporation Paddy Procurement Campaign rules private mills are supposed to give the rice they have in stock to the SFC in advance against paddy that is delivered to them by PACS. This rule was made so that the state procurement system works faster. However, Kumar, the PACS president from Arwal, told me that this rarely occurs smoothly. According to the procurement campaign rules, for every 403 quintal of paddy a PACS sends to a rice mill, the mill has to send 270 quintal of rice to the SFC. This difference accounts for the weight of husk and other impurities that are removed in the process, as well as an extra amount of rice that the mill can sell in lieu of payment for its work. Bharti told me that because this payment was built into the system, mills are not supposed to charge the PACS any money for milling. Several PACS presidents told me that many mills still charged them. “They put an extra charge of Rs 100 or 200 per quintal from the PACS for processing of paddy,” Bharti said.

Several PACS presidents also told me that millers occasionally send the SFC a smaller amount than they are supposed to. This leads to long drawn-out legal battles, demotivating the PACS and further postponing when the farmer gets paid. “In 2017, I lodged an FIR at Bahadurpur police station in Darbhanga against a miller who had to give 1572.21 quintal rice to SFC against 2346.59 quintal paddy provided by my PACS,” Bharti told me. “In place of 1572.21 quintal rice he only gave 540 quintal rice to the SFC. In this there was a cheating of food grains. The case is still on but it is a really discouraging aspect for the smooth functioning of the PACS. There are many such cases which made the PACS system weak.”

Activists also told me that because of the complexity of the PACS system local merchants often serve as middlemen. “PACS are present in almost all panchayats in Bihar, but the information about procurement of food grains through PACS is rare,” Anil Kumar Ray, a member of the Communist Party of India who has worked on farmers’ rights for 20 years, told me. “Bihar has more small-holding farmers, with very few able to produce more grain than their domestic needs. Farmers who are also in a position to sell grains or pulses mostly sell small amounts when needed. It is difficult to clean your grains and take it to the door of the president of their local PACS and then bear his tantrums.” He continued, “In place of this, they call the local merchant, who buys their grain at a price lower than the prescribed price and then sells it to PACS. This is what usually happens everywhere in Bihar. The PACS president also explains his compulsion to do so, to meet targets. This is a sign of administrative corruption because only farmers are allowed to sell at PACS.”

Diwakar, the professor from Patna, also told me that middle men often played a large role in PACS procurement. “The model of PACS is a complete failure,” he told me. “It has, in practice, increased black marketing and corruption in the system. There is very often a nexus between the PACS and some selected farmers to get their grain processed first. There is also a nexus between PACS and millers to siphon off extra grain. And finally, there is a nexus in the system with the government officials so that payments are made correctly and on time. So, as a whole, the entire system except some exceptions has failed in being transparent or helping farmers in Bihar.”

Activists told me that the state food grain procurement itself had fallen drastically. “The data from the department of food and public distribution reveals that in Bihar less than 20 per cent of paddy and often zero per cent of wheat has been procured by government agencies,” Ankur told me. “According to reports, the number of government-run grain procurement centres in Bihar had gone down from about 9,000 in 2016, to 1,619 in 2020. The Bihar experience reveals what is going to happen in the country after the free-market farm laws.”