Farm Act and Federalism
Recently the President of India gave assent to three farm bills (now acts) passed by the Parliament in the monsoon session 2020.
The three farm acts are:
1. The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020;
2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
3. The Essential Commodities (Amendment) Act, 2020
Condition of farmers
• Indian agriculture is highly unremunerative.
• The Committee on Doubling Farmers’ Income (2017) observes, “the dependence of the rural workforce on agriculture for employment has not declined in proportion to the falling contribution of agriculture to GDP”. At the time of Independence, about 70% of India’s workforce was employed in the agriculture sector which accounted for around 54% of India’s national income. As of 2019-20, 55% of Indians depend on agriculture and related activities which accounted for around 17% of contribution to national output.
• The combined result of several such inefficiencies is that most Indian farmers are heavily indebted. The data shows that 40% of the 24 lakh households that operate on landholdings smaller than 0.01 ha are indebted.
• The NABARD All India Rural Financial Inclusion Survey (NAFIS) shows that average agriculture household income was a mere Rs 8,931 per month in 2016-17.
Why new legal framework
According to the government, the new Bills passed by Parliament attempt to make it easier for farmers to sell to and produce for the private sector.
The hope is that liberalising the sector and allowing greater play for market forces will make Indian agriculture more efficient and more remunerative for the farmers.
Lastly, the government hopes that these reforms, including the relaxations to stocking food articles, will boost the food processing industry.
Provisions of the Acts and Concerns
The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
Trade of farmers’ produce: The Act 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’ including: (i) farm gates, (ii) factory premises, (iii) warehouses, (iv) silos, and (v) cold storages.
Electronic trading: The Act 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. 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 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’.
Note that the Acts do not repeal the existing APMC laws (as done by Bihar), but limit the regulation of APMCs to the physical boundaries of the markets under their control.
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’.
Critics argue that ensuring a larger number of farmers get the MSP for their produce and straightening kinks in the APMCs, instead of making these State mechanisms redundant is the need of the hour.
Many commentaries erroneously suggest that so far farmers had no choice but to sell their produce to rapacious middlemen operating in the mandis. This is far from the truth. Nationally representative data of agricultural households suggests that only 25% of all transactions in India during 2012-13 passed through these mandis, whereas 55.9% were sold to private traders.
The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services 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. 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. The Board should have a fair and balanced representation of parties to the agreement. Appeals to boards decisions (or in case of failure to reach a decision within 30 day time limit) lies before Sub Divisional Magistrate followed by an appeal to an Appellate Authority (presided by collector or additional collector) against decisions of the Magistrate.
The Price Assurance Act, while offering protection to farmers against price exploitation, does not prescribe the mechanism for price fixation. There is apprehension that the free hand given to private corporate houses could lead to farmer exploitation.
Critics are apprehensive about formal contractual obligations owing to the unorganised nature of the farm sector and lack of resources for a legal battle with private corporate entities.
The Essential Commodities (Amendment) Act 2020
Regulation of food items: The Act removes cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. The central government is allowed regulation of supply during war, famine, extraordinary price rise and natural calamity, while providing exemptions for exporters and processors at such times as well.
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 will be calculated over the price prevailing immediately preceding twelve months, or the average retail price of the last five years, whichever is lower.
It may 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.
It may undermine food security since the States would have no information about the availability of stocks within the State.
Critics anticipate irrational volatility in the prices of essentials and increased black marketing.
A common concern in all three Acts
Undermining of Cooperative Federalism: Since agriculture and markets are State subjects – entry 14 and 28 respectively in List II – the Acts 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.
Constitutional division of law making power between Center and states should be respected. Instead of Center passing umbrella legislations on items mentioned in the state list, unions may nudge states to pass their own laws. Indeed several states like Bihar have either already repealed APMC acts or have reformed their acts.
Center should ensure that farmers are not exploited by powerful corporations. There should be a guideline for determining and enforcing a minimum price for each produce, in absence of which private players will dictate price to small farmers.
Farmers should come together to make “Farmers Producers Organisations”. These FPOs should negotiate prices with private players instead of individual farmers.
Need to improve both Public and Private investment in post harvest infrastructure: Mere removing restrictions from selling produce to APMC will not be sufficient as experience of Bihar shows.APMC act was abolished but condition of farmers in Bihar has not substantially improved.
Responsive grievance redressal mechanism is required to resolve any conflict between two contracting parties. Currently India has a very poor record on contract enforcement.
Current farm marketing related legal framework:
It has been heavily regulated by the government and protected from the free play of market forces.
Agriculture Produce Marketing Committee (APMC) laws: Agricultural markets in India are mainly regulated by state APMC laws.
o APMCs were set up with the objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce.
o APMCs can: (i) regulate the trade of farmers’ produce by providing licenses to buyers, commission agents, and private markets, (ii) levy market fees or any other charges on such trade, and (iii) provide necessary infrastructure within their markets to facilitate the trade.
Minimum Support Price: MSP is the price at which the government buys a crop from a farmer. MSPs provide “guaranteed prices” and an “assured market” to farmers, and save them from price fluctuations.
The Essential Commodities Act, 1955: It was enacted to stop the hoarding and black marketing of foodstuffs (and other essential items) to ensure its availability for common consumers at a reasonable price.It empowers the central government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities.