In September 2020, Parliament enacted three laws:
- The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020,
- The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and
- The Essential Commodities (Amendment) Act, 2020.
The laws collectively seek to:
- Facilitate barrier-free trade of farmers’ produce outside the markets notified under the various state Agriculture Produce Marketing Committee (APMC) laws
- define a framework for contract farming, and
- Regulate the supply of certain food items, including cereals, pulses, potatoes, and onions, only under extraordinary circumstances such as war, famine, and extraordinary price rise.
- impose stock limits on agricultural produce only if there is a sharp increase in retail prices
- The three Ordinances together aim to increase opportunities for farmers to enter long term sale contracts, increase the availability of buyers, and permits buyers to purchase farm produce in bulk.
Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
- Background: On 5 June 2020, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 was promulgated by the Union Cabinet.
- Act: It creates a national framework for contract farming through an agreement between a farmer and a buyer before the production or rearing of any farm produces.
(a) Farming Agreement: The Act provides for a farming agreement between a farmer and a buyer prior to the production or rearing of any farm produce.
(b) Minimum Period of Farming Agreement: The minimum period of the farming agreement shall be for one crop season or one production cycle of livestock.
(c) Maximum Period of Farming Agreement: The maximum period of the farming agreement shall be five years. It also states that if the production cycle of any farming produce is longer and may go beyond five years, the maximum period of farming agreement may be mutually decided by the farmer and the buyer and explicitly mentioned in the farming agreement.
(d) Pricing of Farming Produce: The pricing of farming produce and the process of price determination should be mentioned in the agreement. For prices subjected to variation, a guaranteed price for the produce and a clear reference for any additional amount above the guaranteed price must be specified in the agreement.
(e) Settlement of Dispute: The Act provides for a three-level dispute settlement mechanism– Conciliation Board, Sub-Divisional Magistrate and Appellate Authority.
Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
- Background: On 5 June 2020, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 was promulgated by the Union Cabinet.
- Act: It permits intra and inter-state trade of farmers’ produce beyond the physical premises of Agricultural Produce Market Committee (APMC) markets and other markets notified under the state APMC Acts.
(a) Trade of Farmers’ Produce: The Act allows the farmers to trade in outside trade area such as farm gates, factory premises, cold storages, and so on. Previously, it could only be done in the APMC yards or Mandis.
(b) Alternative Trading Channels: It facilitates lucrative prices for the farmers via alternative trading channels to promote barrier-free intra-state and inter-state trade of agriculture produce.
(c) Electronic Trading: Additionally, it allows the electronic trading of scheduled farmers’ produce (agricultural produce regulated under any state APMC Act) in the specified trade area. It will also facilitate direct and online buying and selling of the agricultural produce via electronic devices and the internet.
(d) Market Fee Abolished: As per the Act, the State Governments are prohibited from levying any market fee or cess on farmers, traders and electronic trading platforms for trading farmers’ produce in an ‘outside trade area’.
Essential Commodities (Amendment) Act, 2020
- Background: On 5 June 2020, the Essential Commodities (Amendment) Ordinance, 2020 was promulgated by the Union Cabinet.
- Act: It is an act of Indian Parliament which was enacted in 1955 to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people. This includes foodstuff, drugs, fuel (petroleum products) etc.
3- Powers of Central Government:
(a) The Government of India regulates the production, supply, and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
(b) The Government can also fix the MRP of any packaged product that it declares an ‘essential commodity’.
(c) The Centre can add commodities in this list when the need arises and can take them off the list once the situation improves.
(d) If a certain commodity is in short supply and its price is spiking, the Government can notify stock-holding limits on it for a specified period.
4- Powers of State Government: The respective State Governments can choose not to impose any restrictions as notified by the Centre. However, if the restrictions are imposed, traders have to immediately sell any stocks held beyond the mandated quantity into the market. This is done to improve supplies and brings down prices.
5- Amendment: With the amendment in the Act, the Government of India will list certain commodities as essential to regulate their supply and prices only in cases of war, famine, extraordinary price rises, or natural calamities. The commodities that have been deregulated are food items, including cereals, pulses, potato, onion, edible oilseeds, and oils.
6- Stock Limit: As per the amendment, the imposition of any stock limit on agricultural produce will be based on price rise and can only be imposed if there’s– a 100% increase in the retail price of horticultural produce and 50% increase in the retail price of non-perishable agricultural food items.
7- Calculation: The increase will be calculated over the price prevailing immediately preceding twelve months, or the average retail price of the last five years, whichever is lower.
It is to be noted that these restrictions will not be applied to stocks of food held for public distribution in India.
What are the promising features of these bills?
- The new legislations would create an ecosystem where farmers and traders would enjoy the freedom of choice in the sale and purchase of agri-produce.
- It would also promote barrier-free interstate or intrastate trade and commerce outside the physical premises of markets notified under the state agricultural produce marketing legislations.
- The bills would also open up more choices for farmers, reduce marketing costs and help them in getting better prices.
- At the same time, it would also help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
- The bill has also proposed an Electronic Trading Transaction Platform to ensure seamless electronic trade and the farmers will not be charged any cess or levy for sale of their products under this Act.
- Interestingly, the bill aims for ‘One India, One Agriculture Market’ and also creates additional trading opportunities outside the APMC market yards to help farmers get remunerative prices due to the additional competition.
- The new laws are not shutting down APMC mandis, nor are they implying that MSPs will not be functional.
- This would supplement the existing Minimum Support Price (MSP) procurement system, which also provides a stable income to farmers.
What are APMSs and the Problems with the APMCs
- The Agricultural markets in India are mainly regulated by state Agriculture Produce Marketing Committee (APMC) laws.
- Basically The objective of setting up APMCs was to ensure fair trade practice between buyers and sellers for effective price of farmers’ produce.
- To regulate the trade of farmers’ produce by providing licenses to buyers, commission agents, and private markets,
- Imposing levy market fees or any other charges on such trade.
- To Provide required infrastructure within their markets to facilitate the trade within.
A Backgrounder: Long awaited APMC reforms
- Agricultural markets in India are mainly regulated by state Agriculture Produce Marketing Committee (APMC) laws. APMCs were set up with the objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce.
- APMCs can:
- regulate the trade of farmers’ produce by providing licenses to buyers, commission agents, and private markets,
- levy market fees or any other charges on such trade, and
- provide necessary infrastructure within their markets to facilitate the trade
Issues with the APMCs
- The Standing Committee on Agriculture (2018-19) identified some issues includes:
(i) most APMCs have a limited number of traders operating, which leads to cartelization and reduces competition, and
(ii) undue deductions in the form of commission charges and market fees.
- Traders, commission agents, and other functionaries organise themselves into associations, which do not allow easy entry of new persons into market yards, stifling competition.
- The Acts are highly restrictive in promotion of multiple channels of marketing (such as more buyers, private markets, direct sale to businesses and retail consumers, and online transactions) and competition in the system.
- During 2017-18, the central government released the model APMC and contract farming Acts to allow restriction-free trade of farmers’ produce, promote competition through multiple marketing channels, and promote farming under pre-agreed contracts.
Why are these bills being opposed?
- Against the Spirit of Cooperative federalism
- Since agriculture and markets are State subjects – entry 14 and 28 respectively in List II – the ordinances are being seen as a direct encroachment upon the functions of the States
- The provisions are viewed as against the spirit of cooperative federalism enshrined in the Constitution.
- Justification by Centre: The Centre, however, argues that trade and commerce in food items is part of the concurrent list, thus giving it constitutional propriety.
- End of MSP
- Critics view the dismantling of the monopoly of the APMCs as a sign of ending the assured procurement of food grains at minimum support prices (MSP).
- To the Centre’s ‘one nation, one market’ call, critics have sought ‘one nation, one MSP’.
- Critics argue that ensuring a larger number of farmers get the MSP for their produce and addressing weakness in the APMCs, instead of making these State mechanisms redundant is the need of the hour.
- This law nowhere states that the current system of minimum support price (MSP)-based procurement of foodgrains (essentially wheat and paddy) by government agencies would end. Such purchases in state-regulated APMC (agricultural produce market committee) mandis will continue as before. The APMCs wouldn’t stop functioning either; nothing prevents farmers from selling their produce or traders and processors from buying in these mandis.
- All the law does is provide farmers an alternative platform to sell. This could be a factory premise/processing plant, produce collection centre, cold storage, warehouse, silo or even the farmgate. Transactions in such “trade areas” will not be charged APMC market fee or cess. These levies shall apply only in trades that take place within the boundaries of the regulated market yards or mandis set up under the respective state APMC acts.
- No mechanism for price fixation
- The Price Assurance Bill, while offering protection to farmers against price exploitation, does not prescribe the mechanism for price fixation.
- There is apprehension that the free hand given to private corporate houses could lead to farmer exploitation.
- Critics are apprehensive about formal contractual obligations owing to the unorganised nature of the farm sector and lack of resources for a legal battle with private corporate entities.
- Food security undermined
- Easing of regulation of food items would lead to exporters, processors and traders hoarding farm produce during the harvest season, when prices are generally lower, and releasing it later when prices increase.
- This could undermine food security since the States would have no information about the availability of stocks within the State.
- Critics anticipate irrational volatility in the prices of essentials and increased black marketing.
- No consultation = Mistrust
- Several reforms at the level of the central government as well as at the State level have been introduced and welcomed by farmers. However, in this particular case, the issue is not about the Bills; it is also about the process of their introduction.
- The government has failed to have or hold any discussion with the various stakeholders including farmers and middlemen.
- This is also true when it comes to consultation with State governments even though the subject of trade and agriculture are part of subjects on the State list. The attempt to pass the Bills without proper consultation adds to the mistrust among various stakeholders including State governments.
- Entry of two of the biggest corporate groups (Adani and Reliance) in food and agricultural retail
What are the farmers’ concerns?
Farmers are apprehensive about getting Minimum Support Price for their produce. Other concerns include the upper hand of agri-businesses and big retailers in negotiations, thus putting farmers at a disadvantage. The benefits for small farmers from companies are likely to reduce the engagement of sponsors with them. The farmers also fear that the companies may dictate prices of the commodities.
What farmers need and are asking for is legally guaranteed remunerative prices, that the government should commit within the same legislation to maximum procurement of various commodities tied with local food schemes, market intervention from the state, agri-credit reforms to benefit small and marginal holders and particular neglected regions, as well as reforms in crop insurance and disaster compensation. It is also important to empower FPOs as enabled players in the market and keep them out of the purview of overzealous regulation.
- Article 246 adopts a threefold distribution of legislative power between the Union and the states.
- The subject-wise distribution of this power is given in the three lists of the Seventh Schedule of the constitution:
- List-I- the Union List
- List-II- the State List
- List-III- the Concurrent List
What lies ahead
- Accelerating research and academic excellence can bring in the ‘best in class’ technologies and can multiply farmers’ incomes.
- As far as the commission agents are concerned, the governments should work on a clear roadmap to modernize them by facilitating them in providing value-added services. They could be leveraged to set-up grading and sorting, warehousing, cold chains and food processing infrastructure. This way, it is a win-win-win for the state government, farmers and the commission agents.
- Soil health improvement and water conservation measures should be the top priority for the governments to enhance farm productivity.
- Similarly, by diversifying into high-value crops such as vegetables and fruit, India could become the food- processing hub for the world. Farmers have to be made part of the entrepreneurial ecosystem (FaME—Farmers as Micro-Entrepreneurs).
- A lot of the success of these bills depends on trust and consensus. In the end, what will determine the results of this latest set of reforms will be their implementation.
- There is genuine uncertainty over what private procurement will mean. Will it mean greater corporate power over farmers, possibly unhealthy monopolies or duopolies? Will they be harder to negotiate with than a state monopoly?
- Leveraging the reforms and moving forward rather is the most feasible solution than to protest amid the pandemic.
- What farmers need and are asking for is legally guaranteed remunerative prices. If the Bills are perceived of good intent, then the government should not shy away from a proper parliamentary scrutiny of all its details.
- Political parties that are opposing these Bills should coordinate better keeping farmers’ interests in the forefront, and not their party politics.