Q. What are the key provisions of the recently passed Farm laws? Discussing the significance and issues associated with these laws, suggest way forward? [66th BPSC: Expected question]

Q. What are the key provisions of the recently passed Farm laws? Discussing the significance and issues associated with these laws, suggest way forward?
Ans:
Recently, the Government of India passed three Acts with an aim to reform agriculture in India, namely- The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC Act), The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (APAFS Act) and The Essential Commodities (Amendment) Act, 2020 (ECA Act).

The key provisions:

• FPTC Act, 2020:
  • Trade of farmers’ produce: The Act allows intra-state and inter-state trade of farmers’ produce outside:
    • the physical premises of market yards run by market committees formed under the state APMC Acts and
    • other markets notified under the state APMC Acts.
  • Electronic trading: It permits the electronic trading of scheduled farmers’ produce (agricultural produce regulated under any state APMC Act) in the specified trade area. An electronic trading and transaction platform may be set up to facilitate the direct and online buying and selling of such produce through electronic devices and internet.
  • Market fee abolished: The Act prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for trade of farmers’ produce conducted in an ‘outside trade area’
• APAFS Act, 2020:
  • Farming agreement: The Act provides for a farming agreement between a farmer and a buyer prior to the production or rearing of any farm produce.
  • 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 also 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. The Board should have a fair and balanced representation of parties to the agreement.
• ECA Act, 2020:
  • Regulation of food items: The Act 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 Act requires that 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 retail price of horticultural produce; and (ii) a 50% increase in the retail price of non-perishable agricultural food items.
    • The increase in price will be calculated over the price prevailing immediately preceding 12 months, or the average retail price of the last five years, whichever is lower.

The significance of these laws:

• FPTC Act, 2020:
  • It will increase the number of buyers in the agricultural market. It allows private market yards and allows farmers to sell their crops across state lines. This inevitably improves the rights of farmers since now buyers need to compete with each other for limited farm produce.
  • Reduced role of intermediaries: The new legislation could create an ecosystem where the farmers and traders will enjoy freedom of choice of sale and purchase of agri-produce. Thus, ending the monopoly exercised by traders and other intermediaries resulting in full realization of the price.
    • For example, a turmeric farmer now could sell her produce to BigBasket in Delhi, without any mandi tax or trader commission, at a mutually agreed upon price.
  • Integrated Market: Barrier-free inter-state and intra-state trade and commerce would enable farm surplus to move freely from surplus to deficit regions. It will advance the idea of ‘one Nation, one Agri-market’.
    • Currently, the agricultural markets are very fragmented. For instance, the monthly average price of rice in 2019 ranged from ₹2,042 per quintal in Agra (Uttar Pradesh) to ₹5,102 in Gangtok (Sikkim). The variation is more pronounced in case of vegetables.
  • Encouraging APMC reforms: Private markets could put pressure on APMC markets (the Act does not repeal the APMC laws) to infuse more transparency and efficiency in their functioning. The State governments have a significant role in reforming the APMC system:
    • depoliticize the committees and make them more farmer friendly.
    • to allow APMC markets to compete with private markets; the cess levied on market transactions can be waived.
    • privatizing mandis that are not viable.
• APAFS Act, 2020:
  • Promote Contract Farming: Giving a legal framework to contract farming will ensure groups of growers and entrepreneurs come together in a contractual relationship which will provide a ready market for growers for their produce, and ready access to raw material for the entrepreneurs (sponsors).
    • The Act empowers farmers to engage with processors, aggregators, wholesalers, large retailers, exporters etc., on a level playing field without any fear of exploitation.
  • Lower risk for farmers: It will transfer the risk of market unpredictability from the farmer to the sponsor. Due to prior price determination, farmers will be shielded from the rise and fall of market prices.
  • Improved inputs: It may provide farmer access to high quality seeds, better technology, fertilizers and pesticides along with impetus to research and new technology in agriculture sector.
  • Attracting investments: This Act will act as a catalyst to attract private sector investment for building supply chains for supply of Indian farm produce to national and global markets, and in agricultural infrastructure.
  • Reduced cost of marketing for farmers: Since, after signing contract, farmer will not have to seek out traders. The purchasing consumer will pick up the produce directly from the farm.
  • Dispute Resolution: The Act also provides for effective dispute resolution mechanism for clear timelines.
• ECA Act, 2020:
  • Ends harassment of Businessmen and traders: Governments had restrictions on hoarding on food commodities and could seize any excess stocks maintained by the traders. This resulted in widespread harassment of traders and rent-seeking behavior. Now with the new Act, inventories can be managed without such interference.
  • Helps reduce wastage as storage facilities improve: Despite India losing a third of the agri. produce post harvest, businesses found it difficult to devise solutions to decrease that loss, mainly due to the regulation.
  • Likely to attract private investment in Cold Storage, warehouses and processing: These reforms may accelerate growth in the sector through private sector investment in building infrastructure and supply chains for farm produce.
  • Will bring price stability and raise farm incomes: Exempting selected commodities from ECA will improve the marketability of the crop for growers. Processors, exporters and traders will now be able to build inventory without fear of penal action.
  • The power of the government to impose ECA remains intact as has been seen in the decision to impose stock limit on onions after the modification in ECA.
• According to Niti Ayog, the three policy reforms undertaken by the Central government through the three new Acts are in keeping with the changing times and requirements of farmers and farming. If they are implemented in the right spirit, they will take Indian agriculture to new heights and usher in the transformation of the rural economy.

Issues associated with these laws:

• Violating the federal spirit of the Constitution: Various State Governments like Punjab and Haryana have objected that since Agriculture is a State subject, the passage of national laws, on a state subject, undermines India’s federal consensus.
• Interfering in state subjects is administratively unwise: The Constitution assigned jurisdiction over agriculture markets to states due to the very localized nature of farm production. The first sale between the farmer and the trader is linked with the production process. This is location specific and it is states who are best placed to determine the contours of production and sale including, taxation, credit, building farmer producer organizations and physical markets.
• Not inclusive of farm organizations: Various organizations have stated that no consultations were held with major farm organizations.
• Issues with FPTC Act, 2020:
  • Sudden changes in market mechanisms may not bode well for the market. For instance, in 2006, Bihar repealed its APMC Act with an objective to attract private investment in the sector and gave charge of the markets to the concerned sub-divisional officers in that area. This resulted in:
    • Erosion of the existing infrastructure over time due to poor upkeep.
    • farmers facing issues such as high transaction charges and lack of information on prices and arrival of produce.
  • The Act creates an artificial distinction between “market areas” (regulated by the mandi system under state governments) and “trade areas” (now under the central Acts), thus risking a problem of dual regulatory market.
    • Also, the new unregulated market space called the ‘trade area’ will have no oversight and the government will have no information or intelligence about who the players are, who is transacting with who for what quantities and at what prices.
  • The newly created ‘trade areas’ would have a clear regulatory advantage over ‘market areas’ vis-à-vis the mandi tax. This could potentially lead to a collapse of the APMC system and initiatives like e-NAM which are riding on top of physical mandi structure in the country.
  • The Act leaves a critical institutional space- how state-specific implementation investments, crucial for running efficient markets, will be negotiated and managed, if APMC are bypassed.
  • State Governments will lose mandi tax, which is a major source of revenue for States like Punjab and Haryana.
• Issues with APAFS Act, 2020:
  • Farmers have expressed apprehension that once these Acts are passed, they would pave the way for dismantling of the minimum support price (MSP) system and leave the farming community at the “mercy” of big corporates.
    • As a corollary, the farmers feel that the proposed legislations will suit big corporations more than farmers who will subsequently dominate the market.
    • However, the Government has clarified that these Acts would not have any impact on the Minimum Support Price (MSP) mechanism which will continue.
  • The Act, while offering protection to farmers against price exploitation, does not prescribe the mechanism for price fixation or a methodology for regulatory oversight.
  • According to the Act, companies are not required to have a written contract with the farmer, making it difficult for farmers to prove terms.
    • As a result, if a farmer gets into a dispute regarding her/his contract with a private company, it will be very difficult for the farmer to have the dispute settled in her/his favor.
    • Also, in case of disputes, the District Administration has been entrusted with the responsibility to resolve; but it may not be well equipped to settle disputes.
• Issues with ECA Act, 2020:
  • Some experts fear that the Act would effectively legalize hoarding, as licenses will no longer be required to trade in these commodities.
    • Such a situation can lead to anti-competitive behavior by particular buyers in the food chains.
  • Complete deregulation of these commodities could lead to dangerous situation of food supply problems during extraordinary circumstances as the Government will have no information on who the players are, and the levels of stocks are not clear.

Due to these potential issues there has been farmer’s protests in different parts of the country but mainly around Punja, Haryana and western U.P areas. Following way forward has been suggested by experts:

• The most contentious law seems to be the FPTC Act. Arguments about unequal treatment, corporate overreach, minimum support price (MSP), revenue loss, arhatiyas, etc, come from this law. Government may try to find more acceptable as well as differentiated (state-specific variations) solution.
• The central government will need to incentivise a few states to reform their laws to open up markets, introduce competition, and fast-track agricultural infrastructure projects, while ensuring that farmers get paid what they are promised and not below MSP.
• APAFS Act is a long-term solution to the demand-supply mismatch issues. Agreeing to make some required changes to reassure farmers that their interests will be protected is worth the time and effort. The following are suggested:
  • Provide for a clause stating that a farming agreement will be void/voidable if the price mentioned in the agreement is below the MSP declared by government of India (for crops covered by MSP).
  • Reinforce the provision relating to the prohibition on sale, mortgage, etc, of farmers’ lands by adding a condition that a ‘sponsor’ will have no right to use such land as collateral or security for any loan of any kind.
  • Amend the provisions relating to dispute redressal mechanisms to provide for a reference to the civil court. While the subdivisional officer may continue to set up arbitration panels, a decision on any dispute can be left to the civil court to adjudicate.
  • Provide for state-specific amendments and rules to enable states to be innovative.
• There is nothing in ECA Act against farmers. It can be left as it is as this amendments should be beneficial to farmers in the long run since these are intended to provide predictability to ‘select categories’ of businesses that add value to agricultural produce.
• Other measures:
  • Ensure MSP:MSP should continue in its current form, till markets show that they can deliver results for the farmers, even without the MSP.
  • Reform APMCs: For APMCs to stay relevant, they should become more competitive and transparent. Start-ups like Ninjacart and Waycool are proving a win-win model by reaching tens of thousands of horticulture farmers.
  • Universal basic income through direct benefit transfer mode: The free-market may increase the market-risk for farmer families in the short-term. Therefore, the government should double DBT from the current level of ₹70,000 crore.
  • e-Nam to become a ‘Unified Payment Interface’ equivalent for agri markets: National Agricultural Market should take learnings from UPI and provide a seamless application programming interface (API) for innovators, generally agri start-ups and businesses.
  • Feedback loop:ensure that the reforms feed into a constructive feedback loop that actually benefits farmers.
  • Policy predictability:it is important to have predictability and consistency in this philosophy. If the government exercises arbitrary power in a coercive manner, the private sector will speak with their money by reducing the investments.
  • Farmer forum for dispute resolution: Contract farming will be a transaction between a weak party called a farmer and a strong party called the corporation. Farmers need a ‘consumer forum’ equivalent at a district or block level.

Policy reforms in agriculture continue to be a hot topic in public discourse since the last two decades. At the political level, the election manifestos of the two biggest national political parties, Congress and BJP, also promised to liberalize agriculture markets to free farmers from the shackles of APMC regulations. The “business as usual” approach was yielding only incremental changes whereas the sector needed transformative ones to address agrarian distress, create avenues for remunerative employment of the rural youth, raise farmers’ income to meet their aspirations, and create a favourable environment for new-age agriculture that matches the changing demand scenario, compete with global agriculture and is also sustainable.
As IMF’s chief economist has also argued these laws have the potential to increase farmer income. She said, “Being able to sell to multiple outlets besides the Mandis without having to pay a tax. And this had the potential to raise, in our view, farmers’ incomes.”©crackingcivilservices.com