What’s All the Fuss About the Changing Farming Regulations?

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This commentary on the 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 seeks to provide an appraisal of the measures taken in order to further farmers’ welfare in the Republic of India.

Nota Bene: The views expressed here are those of the author alone and are in no way meant to serve as an authoritative opinion on the matter.  

Purposes for which the legislation in question was introduced

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

Introduced by the Union Minister of Agriculture & Farmers’ Welfare, Rural Development & Panchayati Raj, Shri Narendra Singh Tomar on 14th September 2020 , the bill replaced The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 promulgated on June 5, 2020 aimed at creating an ecosystem where the farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside physical premises of markets or deemed markets notified under various State agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto.[i] Prior to the promulgation of the Ordinance mentioned above, the geographical area of every state was divided into several specific market areas each to be managed by an Agricultural Produce and Livestock Marketing Committee (APMC) constituted by the State Government. Upon the demarcation and declaration of these market areas farmers were disallowed from freely carrying out wholesale trading of their goods and produce.[ii] All wholesale marketing activities were compulsorily to be carried out between the Government owned and operated APMC and the farmer. The initiative was meant to address the issue of farmers’ inaccessibility to markets where there existed transparency of price and assured payment for their produce. Should farmers choose to sell their produce outside of their designated market areas, or Mandis, they were to pay Mandi duties in a few states and in several others the sale of produce either directly to the consumer or outside of the Mandis was strictly prohibited[iii]. As mentioned in the Statement of Objects and Reasons, the Act and indeed the Ordinance it replaced as well, was introduced keeping in mind the State Governments’ inaction despite the Centre’s recommendations for amending their APMC Acts in accordance with their Model Act of 2017. What the previous regime did was provide an assured income to the farmers regardless of prevailing market prices or demand for their produce. While guaranteeing any amount, or in fact, a bare minimum amount of income might have been of paramount importance several decades ago, the present requirement in most regions of the country is more about maximizing one’s income. Certainly, there exist regions where the Mandi system provides much needed support to farmers who might otherwise lose their livelihoods. The aim of the present piece of legislation is to allow farmers the opportunity to choose whether their interests are best advanced by continuing their relationship with the Mandis or by pursuing direct trade with the consumers. The farmers under the Mandi system who have an assured market for their goods also unfortunately have a ceiling placed on their financial growth because of the restrictive trade practices that are the norm under the present “licence Raj”[iv]. By cutting the middlemen out, the farmers could potentially increase their earnings by catering to markets otherwise out of their reach. It might be thought of as the step following a successful business under the Mandi system. It widens the horizon for prosperous farmers as well as those enjoying a favourable harvest or increased demand for their commodity. The idea of allowing farmers to sell produce outside the Mandis, to their customers directly isn’t one that the present Government introduced. In fact, the then Vice-President of the Congress Party, Mr. Rahul Gandhi first suggested for such action to be allowed in states where his party ruled in 2013[v]. In fact, the grand old party of India proposed repealing the APMC Act as well as the Essential Commodities Act in their entirety in their 2019 Lok Sabha election manifesto.

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

Introduced by the Union Minister of Agriculture & Farmers’ Welfare, Rural Development & Panchayati Raj, Shri Narendra Singh Tomar on 14th September 2020 alongside the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, the bill replaced the Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance of 5th June 2020. The Act seeks to establish a general framework on farming agreements undertaken exclusive of the APMC such that farmers may conduct engage with agri-businesses, exporters, wholesalers, large retailers, or processors directly at a mutually agreed remunerative price in a fair and transparent manner.[vi] Farmers, who previously could trade in foodstuff or farm services only with the Mandis, now have the option of trading directly with their customers. To ensure that the trade practices associated with such transactions may be of a fair and transparent nature, this legislation has been passed.

The Essential Commodities (Amendment) Act 2020

Introduced by the Minister of State for Consumer Affairs, Food & Public Distribution, Shri Danve Raosaheb Dadarao in the Lok Sabha on 14th September, 2020, the Act replaced the Essential Commodities (Amendment) Ordinance 2020, promulgated on 5th June 2020. The Act sought to reduce government control and influence over the price, distribution, production, supply, etc. of essential commodities, as defined by the Essential Commodities Act, 1955. Section 3 of the Essential Commodities Act, 1955 granted the government broad powers to provide for licences, permits for the cultivation of a crop or processing of any essential commodity, order the increase of cultivated land for an essential commodity, and most importantly control the price at which any essential commodity may be bought or sold. The Act did not provide for a specific test or prerequisite condition to undertake such action, but merely required the publishing of the reasons “in public interest” in the Official Gazette. The Amendment Act seeks to curtail these broad powers and specify the exact conditions under which regulatory action may be undertaken. The Government has sought also to ensure that interests of consumers are safeguarded while liberalizing the regulatory environment and promoting investment in cold storages and drive the modernization of the food supply chain, through this Act.[vii]  It also aims at significantly increasing the ease of doing business as well as providing for farmers with an increased opportunity to earn more by providing them with a structured alternative to paying unnecessary fees to Mandis they can do without.

Explanation of the Acts’ Provisions

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

The Act seeks to remedy the inconveniences caused by the regulatory provisions of the APMC Acts and subsequently allow the freedom of choice-based marketing and the inflow of investment into markets other than the market-yards[viii] as well as the present infrastructure. Contrary to popular belief, the Act does not repeal the APMC Acts in any way, shape or form. In fact, the clauses of the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 function mutatis mutandis, the APMC Acts. The overriding effect of the Act is meant to allow for an alternate mode of transaction and not replace the APMC regime as the only acceptable method.

 Chapter II of the Act allows for inter-State and intra-State trading of farers’ produce covered within existing and applicable APMC Acts and provides for the establishment of a regulatory framework concerning electronic trading; particularly the registration of traders should Government consider such action expedient in public interest. Covering the same bases as the APMC Acts, traders, under this alternative regime, are required to make the payment for the produce purchased within three working days of entering into the transaction compulsorily. Further, keeping in mind the possibility for fraudulent practices through electronic trading, it has been made mandatory for all traders seeking to use the aforementioned mode of transaction to produce their Permanent Account Numbers. The same chapter also vitiates the payment of market duties, taxes, cess due to the APMCs, when trade is done exclusive of them. In order to facilitate the dissemination of information relating to the prevailing prices, the Central Government has been authorized to establish a “Price Information and Market Intelligence System” though any organisation it controls (directly through Departments in its Executive, statutory organisations, etc.). Further, all traders employing electronic media to enter into transactions with farmers are required to submit any and all data regarding their transactions, presumably to aid with the development of the price information system.

Chapter III lays out the dispute resolution mechanism concerned with settling disputes related to the due payment for farmers’ produce. The local sub-divisional magistrate has been entrusted with the duty of appointing a Board of Conciliation comprising a chairperson (appointed by the sub-divisional magistrate) and 2, 3 or 4 more members. This allows for the dispute to be resolved between the parties themselves, outside of a court of law. Should the conciliation efforts fail after 30 days, the matter proceeds to the Sub-Divisional Magistrate who must, 30 days upon hearing the case, pass an order for the recovery of the disputed amount (restitution), impose a penalty on a party or curtail a trader’s right to trade in farmers’ produce for a period of time (at his discretion). Parties may appeal the decision of the sub-divisional magistrate, the procedure for which is identical to that of any appeal of a sub-divisional authority’s verdict. Similarly, the Act affirms that a trader operating via electronic media who is in contravention of the prescribed norms and codes of conduct shall forfeit his right to operate in electronic trading. As expected, such punitive measures also may be appealed.

Chapter IV prescribes the penalties to be levied on traders in contravention of the prescribed rules of payment, i.e., who fail to make payments after three working days. A fine is to be paid by the guilty party amounting to a minimum of ₹25,000, up to ₹500,000. Should the trader still fail to make the payment, a penalty of up to ₹500,000 may be levied for each day the sum goes unpaid from the initial due date. Needless to say, the Act ensures the completion of payment regardless of the APMC’s involvement in the transaction.

The Act seeks to create opportunities for trade outside the APMC yards, which will supplement the existing and unchanged MSP procurement system.[ix]

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

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 establishes a framework whereby the farmer may enter into a transaction exclusive of the APMC. This Act allows for a contract to be entered into between the farmer and his customer for a minimum of one crop season (one production cycle, in case of livestock) and a maximum of five years. Should the production cycle take longer than five years, the contract is to contain the time period for which it is valid, explicitly. It also allows for the termination of the agreement at any point in time with mutual consent. The contract, as provided in Chapter II, may provide the terms and conditions for supply of service/produce, including the time of supply, quality, grade, standards, price and such other matters. To reduce the burden of farmers, this Act provides for the Central Government to issue model contracts along the lines of which agreements may be entered into.

Specifically regarding price determination, the Act provides for the price payable to be contained within the agreement and should the price be subject to variations, the agreement is required (under the provisions of Chapter II) to contain a guaranteed or base price and a price reference, which mentions the price that may be charged above the guarantee price. In simple terms, the agreement is to contain the minimum price that shall be paid at the end of one production cycle and also the additional price that might be charged in special situations elucidated within the contract itself. The method by which the guarantee and reference price is determined is to be annexed to the agreement. The prices are thought to be determined keeping in mind the prevailing prices at the local APMC, further confirming that the two ecosystems are designed to co-exist.

Addressing the fears of oppressive buyers and big businesses (referred to as “Sponsors” in the Act), the Act prohibits the sponsors from acquiring ownership rights over the farmers’ lands or making permanent modifications to the premises. The Act even protects the interests of the share-croppers by disallowing any agreement to be entered into that derogates the rights of those who formally or informally agree to give fixed share of crop or to pay fixed amount to the land owner for growing or rearing of farming produce.

In the very same chapter, it provides for the creation of a Registration Authority which will serve as a database for all agreements entered into, to facilitate easier settlement of disputes. While the agreement itself is to contain the details of the conciliation process that must mandatorily be followed before approaching a court of law, the sub-Divisional Magistrate is empowered to serve as the legal authority over such matters in a similar manner as provided in Chapter III of The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.  The Act mentions at the end of its Chapter IV that in no case will a farmer who is liable to pay an amount in pursuance of an order by the Sub-Divisional Authority, be required to surrender, either in part or in full, his agricultural land. This provisions protects the interests of even those farmers who have been in contravention of agreements they entered into; farmers who have caused detriment to the traders and businessmen. Another important feature is that each State Government has been empowered to make their own rules to carry out the provisions of the Act, including the mechanism of price determination as well.

The Essential Commodities (Amendment) Act, 2020

The Essential Commodities Act, 1955 – which the present Act seeks to amend – was determined by a High Powered Meeting of Chief Ministers as requiring amendment. The Act in question achieves the goals set therein. It restricts the Government’s ability to influence/control the price, distribution, demand and supply for essential goods (as defined within the original Act) only in case of an extraordinary mishanters. As prescribed by the Act, the Government may regulate the supply of cereals, pulses, potatoes, edible oilseeds and oils only in 4 distinct cases; grave natural calamities, famine, war or extraordinary price rise. The Act also prescribes a test to ascertain whether a given example of price rise might be considered extraordinary. The Act stipulates that should the rise be one hundred per cent over the prevailing price of the past 12 months (or the average price of the last five years, whichever is lower) in case of horticultural produce; or fifty percent over the prevailing price of the last 12 months (or the average price of the last five years, whichever is lower) in case of non-perishable agricultural foodstuff; the Government may intervene to control the supply for the commodity in question.

Concluding Commentary

The three Acts in question undertake a very important task – the liberalisation of the agricultural sector. The sector saw that despite aggregate produce increasing greatly over the twenty or so years, the per capita income of those involved in the sector hardly improved.[x] By allowing farmers whose economic activities are improving greatly to enjoy the fruits of their labour without having to pay unnecessary taxes, levies and commissions, the Government, in my opinion, has heralded a great improvement in the living standards of our farmers. At the same time, the government has ensured that those who rely on the existing system will certainly receive the benefits of the same. As has been elucidated in the paragraphs preceding the present one, the Government has given farmers a very well-defined and secure alternative to going by the established Mandi system, and has not in any way impeded the functioning of the APMCs or taken away states’ autonomy to legislate over the issue. The fact is, as mentioned within the Statement of Objects and Reasons of the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, the Centre has been forced to act considering firstly, the ensuing pandemic and secondly, the states’ inability to act in accordance with the guidelines published three years ago.[xi]

Another important issue to note is that the present legislation are not in the least connected with either the scheme of Minimum Support Price procurement, the Public Distribution System or th Targeted Public Distribution System as has been stated within Section 2 of the Essential Commodities (Amendment) Act, 2020. The framework established by the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 clearly dispels any doubt regarding exploitation by big businesses or powerful enterprises. By allowing for a grievance redressal system that, if anything, unduly favours the farmer in protecting his property regardless of the criminality of his conduct, the Government has made clear its commitment to protect farmers’ interests even at the cost of their customers’.

In conclusion, the Acts having been deliberated thoroughly and passed by Parliament following due process, as well as the Ordinances that preceded them empower the farmers to go about their business in a more free and profitable (to them, more than anyone else) ecosystem that facilitates the modernization of the Indian agricultural sector. They pave the way for farmers to uplift themselves and transform their economic situation by demolishing the wall the wall that impeded their progress, unnecessary regulation. It is my strong belief that those who oppose freedom of choice for farmers either consider farmers too imprudent to choose for themselves or undeserving of that freedom. Either way, it is a dangerous approach to those who are indeed the backbone of our country.

i CITATION PIBMin20 \l 16393 (Ministry of Agriculture & Farmers Welfare, 2020)<!– [if supportFields]><![endif]–>

AgricoopMin17 \l 16393 (Ministry of Agriculture, 2017)

[iii]  CITATION Roy20 \l
16393 (Roy & Patnaik, 2020)

[iv]  CITATION Kum11 \l
16393 (Kumar & Reddy, 2011)

[v]  CITATION Kes14 \l
16393 (Kesireddy & Rajshekhar, 2014)

[vi] CITATION Min20 \l 16393 (Ministry of Law and Justice, 2020)

[vii]  CITATION Min201 \l
16393 (Ministry of Consumer Affairs, Food & Public Distribution, 2020)

[viii] As defined by Section 2(30) of the Model APMC Act, 2017, “a market yard/area means a specified place and includes any enclosures, buildings or locality declared as such in any market area by the State Government or the Director or the Managing Director (of the APMC) by notification”.

[ix] Ibid., 1

[x]  CITATION Pla15 \l
16393 (Planning Coommission, 2015)

[xi] Ibid., 1

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What’s All the Fuss About the Changing Farming Regulations?

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