UNDERSTANDING THE URGENCY BEHIND FARM REFORM BILLs.
Why did Farm Reform Ordinances
have to be rushed through in
the midst of a Pandemic?
The Modi govt. announced the Farm Reform Ordinances on 5th June, 2020, just as the economy had crashed an unprecedented 28% in terms of GDP following Modi unplanned catastrophic shutdown. Migrant workers were still on roads, some 30 million wage earners in the unorganized sector had lost their jobs. The economic chaos was unprecedented.
Agriculture, which follows a seasonal rather than daily rhythm, was the least disrupted, and provided a safe haven to millions of migrant wage earners who lost their jobs and retuned home to their families in villages.
Why would a Govt. rush through new farm laws, that too half-baked, at such a disruptive time, and amidst such chaos?
The reforms would have completely disrupted the agriculture economy as well. So why the hurry?
The Story behind the reforms
is in commodity prices:
Given below are charts of FAO Index of Food comprising Meat, Dairy, Cereals, Vegetables & Vegetable Oils, and Sugar from 2003, to 2020. Note the FAO year runs from January to December.
Commodity prices peaked in the year 2011, more or less in sync with the boom years of 2007/08, and thereafter, went into a bear market till the end of 2020.
The bear market is commodities lasted 9 years, which is more or less par for the course.
By late 2020, it was clear that agricultural commodities, including stuff like cotton, Soya, etc had bottomed out and were due for an upswing in prices.
Lest you think this is 20/20 hindsight, I had tweeted about the bottoming out of agricultural commodities in a series of tweets multiple times.
The point here is not that I am a good trader but that in trade circles, the end of the bear markets in commodities was well known.
When in December 2020, Govt. announced a subsidy on Sugar to push Sugar exports, I had pointed out that sugar prices had bottomed out by then and we could expect a 20 to 30% price spurt in the international price of sugar. The timing of subsidy to export sugar was just the icing on the cake and very curious.
What holds true for Sugar, holds true for all agriculture commodities including cotton, tobacco, and what concerns us here most, cereals, the target of Modi’s “emergency” reforms.
Monthly prices of Select
from June 2020 to June 2021:
The FAO food price index, and the index of prices of cereals, vegetables including vegetable cooking oil, and Sugar is extracted below from FAO data:
Note in the 12 month period, from June 2020, to June 2021, the pice sugar went up from 74.9 to 107.7, giving a handsome return of 44%. The sugar exporters would have made a killing without any Govt. subsidy.
Likewise, the price f cereals in the same period as above, went up from 96.7 to 129.4, giving a fabulous return of 34%.
Chronology samajhye. Agriculture Ordinances in early January 2020. Farm Bills hurried through Parliament without due process June 2020. What was the great hurry?
The monthly chart tells the story.
The great hurry was to handover procurement and trading in cereals from Govt. to private traders, who were ready with godowns and private railway lines by June 2020, to buy cereals in bulk from Punjab and Haryana, and ship the same abroad, from ports owned by tycoons in Gujarat.
Neat huh? With a 40% price upside over 12 months what was there to lose for such traders?
Under the socialist era, the traders would rush to Delhi to plead for a tweak in customs duty or export duty, in order to make money.
In the post Anonymous Electoral Bond era, tycoons can get ordinances promulgated, bills passed without due process in Parliament, and deep but badly designed and conceived farm reforms initiated in order to capture a huge trading opportunity.
Small lies are easily caught. Big lies are too big to even grasp, much less get caught.