Discussion on India farmer reform bills 2020

Government of India introduced three bills with the purpose of empowering farmers by various means. These three bills are aimed at providing free markets to farmers as an alternative to current system of APMC (Agricultural Produce Market Committee).

Bill No. 111 of 2020: THE ESSENTIAL COMMODITIES (AMENDMENT) BILL, 2020:  Passed on Sep 22, 2020

Bill No. 112 of 2020: THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES BILL, 2020: Passed on Sep 20, 2020

Bill No: Bill No. 113 of 2020: THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) BILL, 2020: Passed on Sep 20, 2020

What is APMC?

In India intrastate agriculture marketing falls under the jurisdiction of state governments and hence the laws for farm produce marketing are framed by state governments under the guidelines issued by the central government. The statement government may choose to partially or wholly adopt the framework for developing the state APMC.

The purpose of APMC is to protect the interest of farmers and the price they get for their produce. APMC were aimed at providing fair, open and competitive pricing to the farmers by open bidding. APMCs also ensure timely payment to the farmers by the buyers. APMC collects a licensing fee from the buyer for facilitating such transactions.

Structure of APMC

As per Dalwai report published in August 2017 the current market system comprises about 2,284 APMCs which operate 2339 principal markets. These principal markets have extended their footprint through sub-market yards, which total 4,276. However, these sub-market yards are expected to operate as a part of the principal market yard under the associated APMC. By and large, sub-market yards are poor in terms of infrastructure, manpower and operations relative to their principal market yards. There are only 2339 principal markets which operate out of 6,615 locations (principal market yards plus their sub-market yards). These 2339 principal markets are further categorised as primary, secondary or terminal markets, depending on their location and the volume being handled.

Approximate Distribution of APMC markets:

Brief History of APMC in India

  • Berar Cotton and Grain Market Act of 1887: One of the first organized markets under the British government to regulate cotton.
  • Royal commission on agriculture 1928: Regulation of marketing practices and establishment of regulated markets
  • Model Bill 1938: Regulation of agriculture markets
  • 1960s and 1970s: The proposed bill of 1938 was adopted by many state governments to form the state wise APMC act.

Example of 1964 APMC Act

Thereafter, the State Government may, by another notification in the Official Gazette, declare that the marketing of the agricultural produce specified in the notification shall be regulated under this Act, in the area specified in the notification. The area so specified shall be the market area. A notification under this section may also be published in 2[a newspaper in the Marathi language] circulating therein, and shall also be published in such other manner as in the opinion of the State Government is best calculated to bring to the notice of persons in the area the declaration aforesaid.

  • APMC Act 2003: Salient features

1. Development of efficient marketing system, promotion of agri-processing and agricultural exports and to lay down procedures and systems for putting in place an effective infrastructure for the marketing of agricultural produce.

2.Legal persons, growers and local authorities are permitted to apply for the establishment of new markets for agricultural produce in any area. Under the existing law, markets are setup at the initiative of State Governments alone. Consequently, in a market area, more than one market can be established by private persons, farmers and consumers.

3.There will be no compulsion on the growers to sell their produce through existing markets administered by the Agricultural Produce Market Committee (APMC). However, agriculturist who does not bring his produce to the market area for sale will not be eligible for election to the APMC.

4.Separate provision is made for notification of ‘Special Markets’ or ‘Special Commodities Markets’ in any market area for specified agricultural commodities to be operated in addition to existing markets. 

5.The APMC have been made specifically responsible for: ensuring complete transparency in pricing system and transactions taking place in market area; providing market-led extension services to farmers; ensuring payment for agricultural produce sold by farmers on the same day; promoting agricultural processing including activities for value addition in agricultural produce; and publicizing data on arrivals and rates of agricultural produce brought into the market area for sale. Setup and promote public private partnership in the management of agricultural markets.

7. A new Chapter on ‘Contract Farming’ added to provide for compulsory registration of all contract farming sponsors, recording of contract farming agreements, resolution of disputes, if any, arising out of such agreement, exemption from levy of market fee on produce covered by contract farming agreements and to provide for indemnity to producers’ title/ possession over his land from any claim arising out of the agreement.

9.Provision made for direct sale of farm produce to contract farming sponsor from farmers’ field without the necessity of routing it through notified markets.

 10.Provision made for imposition of single point levy of market fee on the sale of notified agricultural commodities in any market area and discretion provided to the State Government to fix graded levy of market fee on different types of sales.

13.Provision made for the purchase of agricultural produce through private yards or directly from agriculturists in one or more than one market area. 

14.Provision made for the establishment of consumers’/ farmers’ market to facilitate direct sale of agricultural produce to consumers.

16.State Governments conferred power to exempt any agricultural produce brought for sale in market area, from payment of market fee. 

Based on the 2003 APMC many state governments changed their state APMC acts:

Recently many state governments have changed their APMC laws to facilitate marketing of agricultural produce in some categories. For example, the APMC act of Maharashtra 2017 has exempted selling of fruits and vegetables from APMC licensing requirement and hence these products do not have to pay APMC fees and independent markets can be established for the exempted products.

Now coming to the bills in question,” The Indian Farmer Reforms 2020 “.

Salient Features of Bill No. 111 of 2020: THE ESSENTIAL COMMODITIES (AMENDMENT) BILL, 2020:  Passed on Sep 22, 2020

The supply of such foodstuffs, including cereals, pulses, potato, onions, edible oilseeds and oils, as the Central Government may, by notification in the Official Gazette, specify, may be regulated only under extraordinary circumstances which may include war, famine, extraordinary price rise and natural calamity of grave nature.

Essential Commodity Laws 1955:

If the Central Government is of opinion that it is necessary so to do for controlling the rise in prices or preventing the hoarding, of any food-stuff in any locality, it may, by notification in the Official Gazette, direct that notwithstanding anything contained in sub-section (3), the price at which the food-stuff shall be sold in the locality in compliance with an order made with reference to clause (f) of sub-section (2) shall be regulated in accordance with the provisions of this sub-section.

Analysis: Since the 1955 commodity law could impose restrictions on storage of essential commodities beyond certain limit to discourage hoarding, it became a hurdle for development of storage facilities by private parties in current scenario of over production and particularly when the agriculture surplus after domestic consumption is exported. The essential commodity amendment bill 2020 gives free hand to parties interested in development of storage facilities. The development of storage facility should improve the life of the agriculture produce specially the perishables and hence release pressure from farmer to sell despite of not getting a fair price of the produce. This amendment should also reduce wastage of food due to development of storage facilities by private parties.

Salient features of Bill No. 112 of 2020: THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES BILL, 2020: Passed on Sep 20, 2020

A farmer may enter into a written farming agreement in respect of any farming produce and such agreement may provide for

The price to be paid for the purchase of a farming produce may be determined and mentioned in the farming agreement itself, and in case, such price is subject to variation, then, such agreement shall explicitly provide for— (a) a guaranteed price to be paid for such produce

Dispute resolution mechanism

  • Conciliation board
  • Sub-Divisional Magistrate
  • Collector or Additional Collector

Miscellaneous Provisions

Central Government may, from time to time, give such directions, as it may consider necessary, to the State Governments for effective implementation of the provisions of this Act and the State Governments shall comply with such directions.

A State Government may notify a Registration Authority to provide for electronic registry for farming agreements.

APMC Laws 2003: Section in Contract Farming

CHAPTER – VII Contract Farming Procedure and Form of contract farming agreement 38. Contract Farming agreements shall be governed in the manner laid down hereinafter. (1) Contract farming Sponsor shall register himself with the Market Committee or with a prescribed officer in such a manner as may be prescribed. (2) The Contract Farming Sponsor shall get the contract farming agreement recorded with the officer prescribed in this behalf. The contract farming agreement shall be in such form containing such and terms and conditions as may be prescribed. Notwithstanding anything contained in contract farming agreement, no title, rights, ownership or possession shall be transferred or alienated or vest in the contract farming sponsor or his successor or his agent as a consequence arising out of the contract farming agreement. Disputes arising out of contract farming agreement may be referred to an authority prescribed in this behalf for settlement. The prescribed authority shall resolve the dispute in a summary manner within thirty days after giving the parties a reasonable opportunity of being heard, in the manner prescribed. The party aggrieved by the decision of the prescribed authority under sub-section (3) may prefer an appeal to an Appellant Authority within thirty days from the date of decision. The Appellant Authority shall dispose off the appeal within thirty days after giving the parties a reasonable opportunity of being heard and the decision of the Appellant Authority shall be final. The decision by the authority under sub section (3) and decision in appeal under sub section (4) shall have force of the decree of the civil court and shall be enforceable as such and decretal amount shall be recovered as arrears of land revenue. Disputes relating to and arising out of contract farming agreement shall not be called in question in any court of law.

Analysis: Contract farming was also part of the 2003 APMC act and the execution of contract farming was under the APMC, like registration of the contract, dispute resolution etc were under the APMC. In the 2020 famer’s empowerment and protection law the parties entering the contract need not go through the APMC and the contracts can be registered by the state registration authority like any other business contract. The dispute resolution process also has differences between the 2003 and 2020 act. As per the 2020 act the dispute resolution is not dependent on the APMC structure. The dispute resolution is either defined in the contract or escalated to the sub-divisional magistrate or collector. While the 2003 APMC act also had a dispute resolution and escalation mechanism it was largely under AMPC.

There are many commonalities between the 2003 and 2020 acts. The definition of contract farming, protecting farmer interest etc. However, the major difference is contract farming doesn’t depend on APMC anymore. In both the 2003 and 2020 acts, contract farming is exempted from APMC taxes.

The most controversial and debated feature of the 2020 farmer’s empowerment and protection bill is the provision for states to follow guidance from central government and an enforcement of compliance.

As per constitution of India PART XI: RELATIONS BETWEEN THE UNION AND THE STATES, CHAPTER I.—LEGISLATIVE RELATIONS Distribution of Legislative Powers:

246. (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the “Union List”). (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State 1 *** also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”). (3) Subject to clauses (1) and (2), the Legislature of any State 1 *** has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the “State List”).

As per article 246, states have exclusive power to make laws on the “State List “and agriculture is part of Seventh Schedule. Government of India must come clean on the validity of the enforcement of the law on states. If the validity of enforcement on states is cleared and the states do not fear their powers been taken away, the bill in principle is same as before other than few administrative changes and removes the bureaucracy of APMC in contract farming.

Despite of the controversies on Central vs State power the bill favors the farmer and protects the farmer by agreeing on a price at the time of contract and hence protects the farmer against price fall due to over- production.

Salient features: Bill No: Bill No. 113 of 2020: THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) BILL, 2020: Passed on Sep 20, 2020

To provide for the creation of 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 the 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.

CHAPTER II PROMOTION AND FACILITATION OF TRADE AND COMMERCE OF FARMERS’ PRODUCE 3. Subject to the provisions of this Act, any farmer or trader or electronic trading and transaction platform shall have the freedom to carry on the inter-State or intra-State trade and commerce in farmers’ produce in a trade area. 4. (1) Any trader may engage in the inter-State trade or intra-State trade of scheduled farmers’ produce with a farmer or another trader in a trade area.

6. No market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produce in a trade area

APMC Laws 2003:

3.There will be no compulsion on the growers to sell their produce through existing markets administered by the Agricultural Produce Market Committee (APMC).

CHAPTER – VII: The agricultural produce covered under the Contract Farming agreement may be sold to the Contract Farming Sponsor outside the market yard and in such a case, no market fees will be leviable.

Analysis: The APMC act of 2003 exempted contract farming from selling through APMC and its tax. All other forms of marketing still had to pay the APMC fee regardless of where the sale happens like direct sale, yard sale or farmer’s market. Under APMC 2003 law, tax from all the agriculture sales was a source of income for APMC. The seller had to buy the produce within the APMC guideline and hence the agriculture produce was largely an intra state matter. That to the farmer had to sell within the designated APMC area as per geographical location.

In the year 2016 government of India introduced the eNAM (National Agriculture Market) which is an online trading platform for agricultural commodities.

“The eNAM electronic trading platform has been created with an investment by the Government of India (through the Ministry of Agriculture & Farmers’ Welfare). It offers a “plug-in” to any market yard existing in a State (whether regulated or private). The special software developed for eNAM is available to each mandi which agrees to join the national network free of cost with necessary customization to conform to the regulations of each State Mandi Act.”

Introduction of eNAM was first step in providing farmers with a platform which doesn’t restrict the sale of produce within the designated or nearest APMC market. The farmer could choose within the APMC the best available price of the produce throughout the state and all the transactions could happen online like bidding, payment, trade etc. This was the first step in opening the markets for farmers for intrastate marketing of produce.

The 2020 promotion and facilitation act extend the market to pan India for the farmer. Meaning the farmer is now free to sell the produce where the price is best and without the restrictions of APMC of selling the produce in the production state. The marketing of agricultural produce can now happen pan India and interstate.

The 2020 act totally abolishes the APMC tax:

CHAPTER II PROMOTION AND FACILITATION OF TRADE AND COMMERCE OF FARMERS’ PRODUCE

6. No market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produce in a trade area.

This provision provides to the farmer an excellent market reach for the produce and the farmer is free to sell the produce wherever and to whomsoever trader.

However, the bill doesn’t clarify few things:

  1. As the bill abolishes all fees and cess under APMC, the APMC has no funds to run and role to play. Does the bill end the APMC?
  2. If the bill ends APMC how will the MSP be provided to farmers? How and where will FCI buy food grains?

While the end of income from APMC has become a sore throat for many states it doesn’t affect the farmers as it provides an open market to them with zero taxes taken by APMC however the MSP aspect needs to be clarified by the government. As more and more contract farming will be done, the need for MSP will be redundant as the contracts provides a minimum agreed price guarantee. However there should an alternate mechanism in the future to determine base prices to protect farmer interests.

What is MSP?

Based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), the Department of Agriculture and Co-operation, Government of India, declares Minimum Support Price (MSP) for 22 crops before the sowing season. The idea behind MSP is to give guaranteed prices and assured market to the farmers and save them from the price fluctuations. It insulates farmers from the unwarranted fluctuation in prices caused by the variation in supply (largely influenced by the monsoon), lack of market integration, information asymmetry and other elements of market imperfection plaguing the agricultural markets. The guaranteed price and assured market are expected to encourage higher investment and in adoption of modern technologies in agricultural activities. Further, with globalization resulting in freer trade in agricultural commodities, it is very important to protect farmers from the unwarranted fluctuation in prices, provoked by the international level price variations.

While recommending price policy of various commodities under its mandate, the Commission keeps in mind the various Terms of Reference (ToR) given to CACP in 2009. Accordingly, it analyses:

1) demand and supply;

2) cost of production;

3) price trends in the market, both domestic and international;

4) inter-crop price parity;

5) terms of trade between agriculture and non-agriculture;

6) a minimum of 50 percent as the margin over cost of production; and

7) likely implications of MSP on consumers of that product.

It may be noted that cost of production is an important factor that goes as an input in determination of MSP, but it is certainly not the only factor that determines MSP.

For the year 2020 -21 below is the MSP for kharif crops:

As per a report published on Jan 2015 by Shanta Kumar tiled “The High Level Committee (HLC) for Restructuring of Food Corporation of India (FCI)” there are only 6 percent of total farmers in the country, who have gained from selling wheat and paddy directly to any procurement agency or a vey small % of farmers actual sell the produce at MSP. The actual price that the farmer gets is 30 – 40 % lessee than the MSP.

Below is a chart of various parameters that show statistics of Indian Agriculture scenario.

Observations from the chart:

  1. The population is on constant rise, indicating food consumption and food requirement is also on rise
  2. GDP is consistently increasing indicating growing economy and hence a high spending potential on food security
  3. Total food produce is increasing showing supply is increasing as per demand of the growing population
  4. FCI spending is consistently increasing showing food security spending is in line with GDP growth and demand for food
  5. Imports of food is fluctuating and not in in line with macro conditions on the chart showing some other factors influencing food imports
  6. Agriculture workforce with respect to total India’s workforce is in downtrend showing that other trades like services are in uptrend and more people are leaving agriculture
  7. Contribution of food produce by % to total GDP is consistent over past 10 years showing the agriculture is still a major contributor towards GDP and as GDP is growing agricultural output is also growing
  8. Despite of drastic agricultural workforce reduction, the food production is still consistent with GDP and population indicating agriculture output per area has increased significantly and there can be factors like technology and organized farming contributing to the total agriculture output of India.
  9. With all the agricultural trends in right direction the farmer suicide rates are not coming down and consistent over past 10 years

Conclusion: Despite of overproduction of agricultural produce, subsidies on fertilizer, subsidies on power, APMC, MSP and many more central and state government initiatives the farmer suicide issue is still unresolved. The three new reforms for farmers in 2020 will strengthen the farmer even further and most likely will reduce the subsidies and overall burden on economy by turning agriculture into net contributor to GDP in coming years. The 2020 reforms should reduce waste and the farmers should get more money for produce and better opportunities to increase their incomes due to large market availability and by elimination of monopoly due to APMC.

Probably there is a need for a separate ministry or department which will just work on micro farmers and there should be a separate framework to guide the poor and micro farmers whose risk-taking ability is less due to season dependent crop failures and burden of unorganized loans. The micro farmers must be micromanaged; their problems are different than the farmers who benefit from various schemes. Education and grass root basics must be improved, these farmers don’t even know the schemes that the government is providing, and the irony is they can’t read this article as well. The people who can read this article don’t need this information.

Contract farming should be encouraged, and contract buyers should adopt a minimum of micro farmers under the contract as CSR. The contract parties should provision guidance to micro farmers and bring the micro farmers to a sustainable state.

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