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Burning Issues

[Burning Issue] Agricultural Reform Bills, 2020

Farmers in Punjab and Haryana have been protesting against 3 ordinances promulgated by the Centre back in June this year.  After the Monsoon Session of Parliament began this week, the government has introduced three Bills to replace these ordinances.

What are these ordinances?

  1. The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020;
  2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020; and
  3. The Essential Commodities (Amendment) Ordinance, 2020 (It is the Bill replacing the third that has been passed in Lok Sabha)

Let us study their key features:

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

  • Trade of farmers’ produce: The Ordinance allows intra-state and inter-state trade of farmers’ produce outside: (i) the physical premises of market yards run by market committees formed under the state APMC Acts and (ii) other markets notified under the state APMC Acts.  Such trade can be conducted in an ‘outside trade area’, i.e., any place of production, collection, and aggregation of farmers’ produce including (i) farm gates, (ii) factory premises, (iii) warehouses, (iv) silos, and (v) cold storages.
  • Electronic trading: The Ordinance permits the electronic trading of scheduled farmers’ produce (agricultural produce regulated under any state APMC Act) in the specified trade area. The following entities may establish and operate such platforms: (i) companies, partnership firms, or registered societies, having permanent account number under the Income Tax Act, 1961 or any other document notified by the central government, and (ii) a farmer producer organisation or agricultural cooperative society.
  • Market fee abolished: The Ordinance prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for the trade of farmers’ produce conducted in an ‘outside trade area’.

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

  • Farming agreement: The Ordinance 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.  The maximum period is five years, unless the production cycle is more than five years.
  • Pricing of farming produce: The price of farming produce 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.  Further, the process of price determination must be mentioned in the agreement.
  • Dispute Settlement: A farming agreement must provide for a conciliation Board as well as a conciliation process for settlement of disputes.   If the dispute remains unresolved by the Board after thirty days, parties may approach the Sub-divisional Magistrate for resolution.  Parties will have a right to appeal to an Appellate Authority (presided by collector or additional collector) against decisions of the Magistrate.  Both the Magistrate and Appellate Authority will be required to dispose of a dispute within thirty days from the receipt of application.  They may impose certain penalties on the party contravening the agreement.

(3) The Essential Commodities (Amendment) Ordinance, 2020

  • Regulation of food items: The Essential Commodities Act, 1955 empowers the central government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities.  The Ordinance provides that the central government may regulate the supply of certain food items including cereals, pulses, potatoes, onions, edible oilseeds, and oils, only under extraordinary circumstances. These include (i) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave nature.
  • Stock limit: The Ordinance requires that the imposition of any stock limit on agricultural produce must be based on price rise.  A stock limit may be imposed only if there is: (i) a 100% increase in the retail price of horticultural produce; and (ii) a 50% increase in the retail price of non-perishable agricultural food items.

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 were the ordinances promulgated?

  • The Ordinances collectively seek to-
  • facilitate barrier-free trade of farmers’ produce outside the markets notified under the various state APMC laws
  • define a framework for contract farming and
  • 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.

Causes of nationwide dissent

(1) No consultation with stakeholders

  • The attempt to pass the Bills without proper consultation adds to the mistrust among various stakeholders including State governments.
  • The ruling government could have waited for the Parliament session, held discussions with all political parties before arriving at a decision.
  • Farmer organisations see these Bills as an attempt to weaken the APMCs and eventual withdrawal of the Minimum Support Prices (MSP).

(2) Issue over trade and MSP guarantee

  • While farmers are protesting against all three ordinances, their objections are mostly against the provisions of the first.
  • Their concerns are mainly about sections relating to “trade area”, “trader”, “dispute resolution” and “market fee” in the first ordinance.
  • In effect, existing mandis established under APMC Acts have been excluded from the definition of trade area under the new legislation.
  • According to the ordinance, any trader with a PAN card can buy the farmers’ produce in the trade area.
  • In the present mandi system, arhatiyas (commission agents) have to get a licence to trade in a mandi.
  • 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’.

(3) Legacy concerns

  • The Bills gives no assurance to the poor, small and marginal farmers of India (constituting over 85 per cent of India’s farmers) of protection of their interests, their livelihoods, and their future.
  • Critics argue that such legislation will let the farmers falling into the clutches of the monopolistic big corporates.
  • Lofty recommendations have been made several times in the past, including by the Swaminathan Committee, which suggested the removal of the mandi tax, creation of a single market and facilitating contract farming
  • However, no efforts have taken place for implementing these basic reforms over the years.

(4) Fear of food insecurity

  • Punjab CM, on the easing of regulation of food items, said, it 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.

(5) Constitutional issues raised

  • 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 and against the spirit of cooperative federalism enshrined in the Constitution.
  • The Centre, however, argued that trade and commerce in food items is part of the concurrent list, thus giving it constitutional propriety.
  • The bills invite valid opposition: one, infraction of the states’ right to decide on intra-state commerce in agriculture, and two, officer-led dispute settlement outside the ambit of judicial review.

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.

Still, why are the farmers fuming?

There has been bipartisan consensus over the last two decades or so—both the UPA and the NDA governments have tried and failed to convince state governments to reform APMC Acts, notwithstanding periodic manifesto promises and model APMC Acts.

They failed with all approaches, trying to link financial support to agriculture based on reforms. The present crisis created the perfect window to usher in these transformative reforms.

People on both sides of the divide are saturated with such reformative measures and have arrived at the commonsensical benefits that would be ushered in as well as the risks.

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).

Conclusion

  • 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.

References

https://www.prsindia.org/billtrack/farmers-produce-trade-and-commerce-promotion-and-facilitation-bill-2020

https://www.outlookindia.com/website/story/india-news-the-farm-bills-and-quandary/360640

https://frontline.thehindu.com/cover-story/article31951413.ece

https://www.thehindu.com/news/national/explainer-why-are-the-agriculture-bills-being-opposed/article32618641.ece

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