One of the biggest factors plaguing the growth of agriculture sector in the country is the inability of the farmer to find a market and to get a fair price to his produce. To address the issue, the erstwhile governments of different states enacted the Agricultural Produce Market Regulation Acts (APMC Acts), which authorised them to set up and regulate marketing practices in wholesale markets.

The objective of these markets was to ensure that farmers get a fair price for their produce. However, with each passing year, the APMCs turned out to be inefficient with increasing cartelisation of middlemen, ban on private players to enter the trade, increasing corruption etc. 

Realising the inadequacies in the existing APMC acts of various states to offer a proper marketing mechanism for the farmers to sell their produce, the Narendra Modi government in 2014 had announced a unified National Agriculture Market (NAM). NAM is a pan-India electronic trading portal which seeks to connect existing APMCs and other market yards to create a unified national market for agricultural commodities.

Continuing the reform agenda, the Modi government has now introduced three more bills to promote much easier trade for the farm produce and to provide a competitive market for the producers outside the existing APMC system.

The two bills passed by both the houses of the Parliament are a) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020and b) The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020. Both these bills were already in implementation since June as Ordinances. The former liberalises the intra and inter-state trade of farm produce (including online) while the latter provides a framework for contract farming.

The third ordinance The Essential Commodities (Amendment) Ordinance, 2020, also promulgated in June has also been passed as a bill by Lok Sabha and Rajya Sabha. This trio of agri reforms agenda is being rightly equated to the 1991 movement for delicensing of industry by agriculture scientists and experts such as Dr Ashok Gulati.

However, this hasn’t stopped the politician-activist-middlemen nexus from casting aspersions of these bills and terming them anti-farmer. But there is no doubt that these reforms will positively benefit both farmers and consumers just like it happened when India opened up airlines, telecom and other sectors for private sector. This not only opens the moribund sector for big corporations but also creates immense opportunities for entrepreneurs. And like always the ones opposing the reforms will have egg on their faces.

Raam-Baan cure to solves the woes of Indian farmers is *Contract Farming*

But facilitating contract farming alone won’t do much if it’s not accompanied by the changes is Essential Commodities Act of 1956 (ECA) and breaking the monopoly of Agriculture Produce Market Committee (APMC).

How? Well, the ECA is a legislation from an era of shortages of the Nehruvian India where the government needed to crack down on hoarders of essential commodities. It isn’t compatible with contract farming, where large volumes of commodities will need to be stored and moved seamlessly across state borders.

Similarly, breaking of APMC monopoly is critical to the success of contract farming, for, the contractor will need the freedom to transport and sell it to any buyer not just within a particular state but anywhere within the country.

Snapshot of Farm Bills 2020

The Farming Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020:

The Farming Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 aims at creating additional trading opportunities outside the APMC market yards to help farmers get remunerative prices due to additional competition. Farmers can now sell their agricultural produce in a market of their choice at better prices.

• The newly proposed law will allow intra-state and inter-state trade of farmers’ produce beyond the physical premises of APMC markets thus giving freedom for the farmers and traders to sell or purchase farm products anywhere.
• The proposed law also provides buyers with the freedom to buy farmers’ produce outside the APMC markets without having any license or paying any fees to APMCs.
• The Bill prohibits state governments from levying any market fee, cess or levy on farmers, traders for the trade conducted on farmers’ produce conducted in an ‘outside trade area’.
• Under the proposed law, electronic trading in transaction platform has been proposed for ensuring a seamless trade electronically. The proposed law also allows private individuals, FPOs and co-ops to set up electronic trading platforms in these areas.
• There will also be a separate dispute resolution mechanism for the farmers.

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

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 creates a framework for contract farming through an agreement between a farmer and a buyer prior to the production or rearing of any farm produce.

• The proposed law provides for a farming agreement between a farmer and a buyer prior to the production or rearing of any farm produce. The minimum period of an agreement will be one crop season or one production cycle of livestock. 
• Under this legislation, farmers are empowered to directly engage with processors, wholesalers, aggregators, retailers exporters etc, thus eliminating intermediaries resulting in full realisation of the price for the farm produce. 
• The proposed law also states that the price of farming produce negotiated between the trader and the farmer should be mentioned in the agreement. 
• The buyer will be responsible for providing necessary means or inputs for good crop yield. Under the bill, it is the responsibility of the buyer to provide agricultural equipment to the farmer. 
• It provides for a three-level dispute settlement mechanism: the conciliation board, Sub-Divisional Magistrate and Appellate Authority.

The Essential Commodities (Amendment) Bill, 2020:

The amendments to the Essential Commodities Act, 1955 allows the central government to regulate the supply of certain food items only under extraordinary circumstances. 

• Under the legislation, the central government may regulate or prohibit the production, supply, distribution, trade, and commerce of such essential commodities. 
• The proposed bill provides for the central government to regulate the supply of certain food items including cereals, pulses, potatoes, onions, edible oilseeds, and oils, only under extraordinary circumstances. 
• The legislation requires that imposition of any stock limit on agricultural produce must be based on price rise.
• The bill amends the Essential Commodities Act to provide that stock limits for agricultural products can be imposed only when retail prices increase sharply and exempts value chain participants and exporters from any stock limit. 

Significance of the proposed laws:

• The three historic legislation will unlock the overly regulated agricultural markets in the country.
• The laws will provide more choices for the farmer and lessen the marketing costs for the farmers thus helping them to get better prices. It will also help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
• The laws will enable the farmer to make use of modern technology and better inputs to enhance their farm produce and its trade. It will reduce the cost of marketing and improve the income of farmers.
• These new laws will encourage large companies, food processing firms, exporters, etc, to invest in the farm sector and source good-quality farm produce.
• The announced amendment to the Essential Commodities Act is expected to help both farmers and consumers while bringing in price stability.
• The proposed changes will also create a competitive market environment and prevents wastage of agri-produce that happens due to lack of storage facilities.

Let’s now turn to the genuine concerns around the agri reforms which are missing from the narrative.

First, under the amended ECA, the stock limit may be re-imposed if there is a 100 per cent increase in retail price of horticultural produce and a 50 per cent increase in the retail price of non-perishable agricultural food items. 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.

This sort of protection for the consumer at the expense of the farmer stands to undo the whole reform itself. Basically, if price of say Onion increases from Rs 30 per Kg to 60 per Kg (100 per cent increase in one year), then stocking limits will be back. The ceiling for reimposition could’ve certainly been higher given that such kinds of price fluctuation isn’t uncommon for perishables (especially over a period of one year) and whenever there is price rise, there will be pressure on the government to “do something”. This will hurt the farmer.

Just before the government introduced these reform bills in the Parliament, it banned the export of onions due to price rise. Calling out this government tendency to put consumer’s interest over the farmer’s is something that should’ve been the top priority of the opposition. Alas

Second, in the contract farming bill, the arrangement provides for a three-level dispute settlement mechanism: the conciliation board, Sub-Divisional Magistrate and Appellate Authority. Now, this sounds good on paper but we need to see how it plays out in the implementation phase. There have been cases in the past (in states which allow contract farming) where farmers sold their produce in the market instead of selling it to the business they had signed contracts with because they were getting a higher price in the market.

Now, theoretically, the companies or agri entrepreneurs can take the matter to dispute settlement authority but we all know that the farmers have an upper hand in this power relation. Moreover, any government will find it hard to restrain Itself from intervening on the side of farmers when they break their contract.

Third, individual farmers contracting with big companies, processors, etc isn’t a great way to secure their interests. The government, both at the centre and the state level, must focus on creating more and more Farmer Producer Organisations and strengthening them as an institution so that they are able to bargain from a position of strength.

Additionally, these organisations need to be given financial incentives. As Dr Gulati recommend FPOs should get their working capital at 7 per cent interest rate — a rate that the farmers pay on their crop loans – rather than them depending on microfinance institutions and get loans at 18-22 per cent interest rates.

Farmers will be better off if they try to negotiate better terms under these radical reform bills rather than falling for propaganda peddled by the usual suspects. The ones fighting for blanket rollback of these three reform bills aren’t their well-wishers. They are the same people who have kept them poor and stagnated for decades. It’s time they welcomed the liberalisation of agriculture sector with open arms.

Thank you

K. Trivedi

M. Sodagar