On June 5, 2020, the Government of India (GOI) had promulgated three Ordinances to bring about far reaching reforms in the marketing of agricultural produce. During the current (Monsoon) session, it got the relevant bills passed by the Parliament. Put simply, the bills and their objectives are as under:-
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 provides for freedom of choice to the farmer or trader to conduct trade and commerce while any trader having a permanent account number (PAN) is allowed to buy directly from farmers outside the designated APMCs (Agricultural Produce Market Committee).
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 on ‘contract farming’ provides a legal framework for farmers to engage with processors, aggregators, large retailers etc in a ‘fair’ and ‘transparent’ manner.
The Essential Commodities (Amendment) Bill, 2020 take off pulses, cereals, edible oil, oil seeds, onions and potatoes from the purview of this archaic law.
The passage of above bills has led to widespread protests. It may not be prudent to jump the gun. At the outset, it is important to understand as to what is wrong with existing system and how the new regime proposes to deal with it.
Hitherto, trade in agri-commodities is governed by APMC Act. The Act empowers state governments to specify market areas – also known as ‘mandi’ in local parlance – where farmers bring their produce for sale. There are over 5000 mandis across the country.
The stated objective of the APMCs is to promote organized marketing of farm commodities to ensure fair play, achieve an efficient system of buying and selling of commodities, protect farmers from intermediaries and traders and to ensure better prices and timely payment for the produce. Far from achieving these objectives, farmers are being exploited by a network of licensed traders and middlemen who have complete stranglehold over these platforms.
Though, state agencies such as Food Corporation of India (FCI) buy at the minimum support price (MSP) food grains needed to meet the requirements of distribution to beneficiaries at subsidized price @ Rs 3 per kg rice, Rs 2 per kg wheat & Rs 1 per kg coarse cereals under the National Food Security Act (NFSA), not all of farmers’ produce on offer for sale gets picked up. Besides, there are a host of other items not covered by the NFSA leaving them high and dry. Their woes are compounded by absence of alternative platforms where they could to sell (courtesy, the rigors of APMCs laws).
The irony is that within any state or district or even within a local area, the farmer can’t sell his produce in any APMC/mandi other than the one where he is authorized to sell. Likewise, a trader has to procure an APMC specific license for buying his/her requirement. This license can’t be used to transact at any other APMC. So, he/she too is also shackled. In short, there is no free movement of farm products even within the state, forget free inter-state trade.
With several pieces of state legislation creating impregnable zones, even the much trumpeted electronic national agriculture market (e-NAM) has failed to take off. The processors, exporters and other large buyers have no incentive to invest in agri-infrastructure. The archaic ECA (1954) with its draconian provisions especially with regard to stock limits has acted as a further disincentive.
All this boils down to farmers not getting a remunerative price for their produce on the one hand, and consumers having to pay high price on the other – even as a number of intermediaries in the supply chain appropriate a major slice of what the latter pays. Needless to say, that resulting low farmers’ income not only keeps them poor but also boomerang on overall economic growth through reduction in rural purchasing power. The extant state of affairs is not good for boosting exports on a sustainable basis either.
In 2017, Modi – government had passed a Model Agricultural Produce and Livestock Marketing (Promotion & Facilitation) law containing provisions to give more options to farmers for selling their crop and greater flexibility to traders such as ‘single pan-state license’ for buying from anywhere in the state. Unfortunately, majority of the states showed no interest in amending their laws.
In this backdrop, enactment of the law on Farmers’ Produce Trade and Commerce (Promotion and Facilitation), 2020 makes eminent sense. It will enable an entity to buy farm produce from farmers directly anywhere in the country, outside the regulated APMCs. On the other hand, the law on Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services, 2020 lays down rules of the game for a processor/large retailer/exporter to ensure that farmers get the best deal and are not taken for a ride.
At another level, deletion of pulses, cereals, edible oil, oil seeds, onions and potatoes from the ambit of ECA – vide the 2020 amendment – will free the processors, millers, exporters etc from stock limits and other shackles and help do their business in a seamless manner while at the same time, providing sustained support to the farmers by guaranteeing them an assured market for their produce.
The new regime thus fills all voids in the existing dispensation. It is a win-win for all stakeholders especially farmers who will stand to gain substantially by way of selling most of their produce (without having to wait much after harvest), fetch a remunerative price and get access to modern input, technology and services under one roof for increasing crop yield and quality (courtesy, ‘contract farming’). They could not have got a better deal for increasing income.
Yet, the government has come under scathing attack. The grounds on which the laws are being lambasted are untenable. Here, we address the ones which are most talked.
First, it is alleged that this is a precursor to abolishing MSP. Nothing could be farther from the truth. Apart from a categorical statement from the highest authority in the government (read: Modi) that MSP shall be continued, it is important to note that NFSA is the bedrock of country’s policy on ‘food security’. For meeting the requirement of food under NFSA, state agencies must necessarily buy from farmers and that has to be done at MSP. Therefore, to say MSP will go is imaginary.
Second, there is an apprehension that a private trader, processor or exporter won’t give MSP to the farmer. In fact, critics want an amendment in the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services, 2020 law making it obligatory on them to pay MSP – with stiff penalty if they don’t. True, the Act only mentions ‘minimum guaranteed price’ (which need not be equal to MSP). But, that is the way it has to be.
In a private contract (between a trader and farmer), the government can’t impose a price; this is legally not tenable. But, that need not worry farmers. With the APMC system and state agencies buying at MSP remaining intact, a trader (or the ‘sponsor’ to use language in the Bill) will be compelled to offer MSP plus. If, he does not, the farmer has the option to sell his produce on APMC platform.
For commodities where agencies are not involved in buying, the offer of more options (until hitherto, farmers could sell only at designated APMC) along with a legal framework is a big positive. A provision in the law to allow farmers to get a share of post-contract price surge after they sign agreements of contract farming is an icing on the cake. Moreover, it protects the minimum guaranteed price in an event of drastic fall in the open market rate.
Third, there is an expressed fear that companies (who enter into contract with farmers) will rule the roost even as farmers will be reduced to the status of laborers. This is figment of imagination. The agreement is only with respect to carrying out cultivation in a scientific manner with support and guidance from the company and purchase of the produce even as ownership of the land remains with the farmer. There is no question of mortgaging his land either.
Fourth, some states have raised concern over the Central law disallowing levies on transactions outside APMC platform and that would mean loss of revenue (under the extant arrangement, the state collects levies; for instance, Punjab levies market fee @3%, rural development cess @3% and arhtiya commission @2.5%). The levies are unjustified. Considering that the Centre spends huge amount of tax payers money for making food available at subsidized rate to the poor, it makes no sense to increase its cost (levies do precisely that) only to be reimbursed as additional subsidy.
All arguments against the bills are baseless. The agri-market reforms unleashed through these laws/amendments are revolutionary. All stakeholders need to come on board and play a constructive role in realizing their full potential.