New laws, a game-changer for agriculture

Atul Sarma / Shyam Sunder | Updated on September 23, 2020 Published on September 23, 2020

The recently passed ordinances create rules for farmers to engage with businesses. But small farmers may not benefit

As part of the stimulus package announced under the Atmanirbhar Bharat Abhiyan towards the recovery of the Indian economy, the Centre has provided a package of ₹1 lakh crore to finance agriculture infrastructure projects at the farm gate and product aggregation points. Simultaneously, it has unfolded agriculture reform programmes. Briefly, these reforms attempt at ramping up agriculture infrastructure to enhance supply chains, market facilitation of perishables and to provide better market access to farmers and eventually to create a farm-to-fork ecosystem.

As a quick follow-up, the government has brought three ordinances on June 5, 2020 to reform some of the old laws which were introduced in different contexts. Rules were quickly framed and notified on July 20, 2020 and even the Bills were passed by the Lok Sabha and Rajya Sabha during the Monsoon session.

However, the government’s attempt to implement the “landmark reforms” has met with stiff resistance from the opposition parties and farmers, particularly from Punjab and Haryana.

The government’s thought process behind these reforms is that the context of Indian agriculture has drastically changed. The country has achieved food security and the economy is operating in a market system. As such, several old laws have become obsolete and even regressive. Those laws need to be replaced. Accordingly, the Centre brought in three ordinances to unfold so-called ‘path-breaking and futuristic measures’ to reform the agriculture marketing value chain.

What’s what

‘The Essential Commodities (Amendment) Bill, 2020’ mainly focuses on removing restrictions on stocking food produces to shore up supply through market forces and facilitate better price realisation for farmers, price stability, the larger flow of investment in the farm sector.

‘The Farming Produce Trade and Commerce (Promotion and Facilitation) Bill 2020’ aims to end the monopoly of the APMC and allow anyone to freely participate in the purchase and sell of farm produces in a trade zone, which includes all areas outside the physical ambit of the APMC. A facilitative legal framework is expected to enable farmers to participate in inter-state trade and facilitate e-trade in the trade zone. The central law simultaneously would provide an additional platform to farmers with adequate safeguards. Unlike under APMC, there will be no market fees or cess or levy in any form on farm produce while farmers trading in physical or electronic trade of their produces in the Trade Zones.

‘The Farmers (Empowerment and Protection) Agreement on ‘Price Assurance and Farm Services Bill, 2020’ provides the legal framework for processors, aggregators, large retailers and exporters to directly engage with farmers fairly and transparently.

Farmers and buyers can enter into contracts in which the former is assured of a certain price at sowing while the latter gets to procure the harvested produce at the rate subject to quality norms. The onus of compliance of any legal requirement would be on the sponsors or the one entering into an agreement with the farmers. States will provide a framework of registration and facilitate electronic registration of the contract farming agreement between the parties.

Many concerns

Briefly, the proposed triple laws have attempted to serve farmers’ interest by providing a facilitative legal framework that protects and empowers farmers to engage with business firms for a remunerative price for their farm produce.

These reforms seem to assume that just by creating an enabling ecosystem would attract heavy investment in agriculture and helping farmers in getting wider market access and remunerative price of their produce. These ignore the realities that without infrastructural support in terms of better, faster and all-weather road connectivity, uninterrupted power supply, hassle-free allotment of lands, industries would be reluctant to invest or provide support services to agriculture.

Further, the price discovery of farm produce cannot be left only to market forces. For certain input costs, handling charges and farmers’ own labour cost do not necessarily go through the market, but remunerative price requires their inclusion. Otherwise, these reforms will have little meaning for farmers.

In all these years, farmers were assured by government-backed marketing agencies (FCI, etc.) to sell their produces at minimum support prices in the mandis. Farmers have apprehensions that the state-sponsored mandi system which provided assured prices and safeguarded against fraudulent activities would be replaced by corporates and that once the mandi gets collapsed, corporates would exploit them. Farmers have had the taste of the poorly implemented farm insurance scheme by the private sector.

In the proposed system, no licenses would be required for entering into farm trading and any entity having a valid PAN could participate in farm-produce trading. Farmers’ unions apprehend fraudulent activities in the ‘trade zone’ as any entity with an unchecked background could enter into trading of agriculture produces. Farmers lack trust in such entities.

Avoiding alternatives

It can be argued that several alternative channels exist in different parts of India which offer options to farmers to sell their produce. Instead of creating a new trade zone, the government could have provided states’ concurrence, a mechanism that integrated the existing marketing channels by doing away with all kinds of taxes, cess and mandi fees.

Further, a dispute resolution mechanism that is provided under these ordinances would be a time-consuming and complicated process. A dispute resolution mechanism must recognise that commercial engagements between farmers and traders are between two unequal entities. Therefore, a simple, strong, and independent arbitration mechanism could be more appropriate. Penalty-related provisions need to cover mala fide practices by traders in terms of lowering the grade of farm produce, in-accurate weighing and unfair price fixation, etc. Traders do not lose much in case of dispute, but farmers do.

Agriculture is a State subject and states’ commitment and participation are crucial for the success of these reforms. Now, it would be a big challenge to expect such participation.

In sum, the reforms attempted are, no doubt, needed. Seamless market access for farmers and right price of their produce together with an enabling environment for investment and innovation is clearly the need of the hour. Similarly, an enabling ecosystem with the required agricultural production and marketing infrastructure could lead to resurgent and competitive agriculture that could attract large industrial investment.

Also, these reforms would bypass small and marginal farmers, who account for 86 per cent of all farmers and 47.3 per cent of the cropped area, as they barely produce any marketable surplus. Agriculture being a state subject, States’ commitment and cooperation alone could make the reform process effective. Consultations with the States in designing the reform process would have made way for such cooperation.

Sarma is Distinguished Professor at CSD, New Delhi. Sunder works with a corporate. Views are personal

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Published on September 23, 2020
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