Commodity Analysis

Centre takes the ordinance route for free flow of farm produce

Rajalakshmi Nirmal | Updated on June 07, 2020 Published on June 07, 2020

The ordinance passed by the Centre paves the way for the free flow of farm produce and thereby empowers farmers

As States have continued to permit the licence raj of APMCs and closed their eyes to the problems of farmers over poor infrastructure and poor prices, the Centre last week made a historic move.

Using the powers conferred on it by the Constitution, the Centre passed the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020.

The ordinance paves the way for free-flow of agriculture produce within the country: the farmer is not bound to sell only to APMC-licensed buyers/commission agents; he is free to sell to anyone he desires.

Further, BusinessLine learns from people who are in the know of the contours of the ordinance that the buyer who procures the produce of a farmer outside APMC (agricultural produce market committee) markets will not be required to pay cess on the traded commodity to the mandi as is the practice currently; in Maharashtra, holders of direct-marketing licence still paymandi cess.

The area outside an APMC in all States will come under the purview of the Centre. The ordinance allows any FPO (farmer producer organisation)/co-operative society or other persons to establish an electronic-trading platform for inter-State and intra-State trade.

The Centre will direct a Central government organisation to develop a price information and dissemination framework for the benefit of farmers. So, it will be the survival of the fittest, and APMCs will have no choice but to fall in line.

If APMCs want to retain their business, they will have to scale up the infrastructure and and offer transparency in auctioning and accuracy in weighing.

They will have to consider building new mandis closer to the farm-gate to attract small farmers . If they fail, farmers will sell at the farm-gate itself to anyone who is willing to buy.

Until now, this was limited to commission agents/traders who had the APMC licence, but now it can be any trader/exporter/processor.

Below are the implications of the two other announcements made by the Centre last week through the ordinance route.

Once the President gives his assent and it is notified in the gazette, the ordinance will become law.

Value-chain players not hit

The Cabinet has made amendments to the Essential Commodities Act (ECA), too, through an ordinance. It has removed cereals, pulses, onions, potatoes, edible oil and oilseeds from the purview of the Act.

While all along there was a fear of frequent policy changes that prevented even those in the business of agri-processing or exports from investing in cold stores or warehouses, that is set to change now.

The Act will swing into action only during times of war or famine or extraordinary price increases — to the tune of 100 per cent at the retail level for horticulture produce and 50 per cent in case of non-perishables, year-on-year — and slap stock limits on traders and others. But that is no reason to worry.

Even in such times, the installed capacity of a value-chain participant and the stock of an exporter will remain exempted, says the ordinance.

Given that onions got included under the ECA in 2014 under the UPA-I regime (onions were removed from the purview of the Act in 2004), there is surprise in the market as to how this reform is now pushed through.

Probably, the government is not willing to let go of the advantage of farmers in its bid to control inflation.

The private sector is happy that the disincentives for investment in warehouses and storage is gone. There are benefits for farmers, too.

Market prices of agri commodities, especially horticulture crops, crash mainly because they are seasonal and there are excess supplies in the market at the time of harvest. Now, with the restriction on stock-holding removed for all value-chain participants, they will procure the produce from the farmer and pay him a price for it.

Contract farming: Fair play

The Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 was also passed by the Cabinet last week.

The ordinance assures farmers (and FPOs) a level-playing field, allowing them to enter into contracts with purchasers.

It appears that the modalities of the agreement will be drawn up by the Centre and given to States to adopt. It will provide all details, including the time of supply, quality, grade, standards and price. Given the quality of the produce is agreed upon at the time of signing the contract, there will not arise a case where the person, who has entered into the contract with the farmer, refuses to take the produce after the harvest despite it meeting the specifications.

The ordinance says that the agreement will have a condition that the mutually accepted grade and standards will be monitored and certified by third-party quality assayers.

The agreement will also indicate the minimum guaranteed price for the produce.

At the time of actual sale, if the price (based on the reference in the APMC yard or electronic trading platform or other benchmark) is higher than that agreed upon, the farmer will get a share of that increase, too.

The sponsor is liable to pay the farmer the agreed amount at the time of accepting the delivery.

Settlement of disputes will be done through a board that has representatives of both farmers and sponsors.

Any dispute that arises will be first taken up to the conciliation board; if not settled within 30 days, either of the parties can approach the Sub-Divisional Magistrate. If still not satisfied, the parties may appeal to the Collector.

What is important to note is that the produce sold through farming agreement under this ordinance will be exempt from provisions of State Acts.

Provisions of the ECA also will not apply to the produce procured from farmers under this agreement.

Notably, the ordinance has the provisions for establishing a registration authority. State governments will be given the power to notify a Registration Authority that will register and hold a record of all farming agreements under this ordinance.

The powers of the authority can be decided by the State.

If States give this authority the power to look into the track record of the sponsor and advise farmers, it will protect farmers from fly-by-night operators.

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Published on June 07, 2020
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