A Step Towards Agricultural Reforms: Understanding the Newly Promulgated Agri-Ordinances

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The President of India promulgated two agriculture-related ordinances on 5th June, 2020. These laws aim to bolster farming and allied activities, so their benefits would be best reaped by the rural sector. These form a part of the ‘Aatmanirbhar Bharat Abhiyan’ reforms. The two ordinances are:

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

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

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In testing the entire agricultural ecosystem and its related activities during the COVID-19 crisis, the Central Government re-confirmed the need for speeding up the process of reform and creating a national legal ecosystem to promote intra- and inter-state exchange of agricultural production.

The Indian government also recognized the need for the farmer to sell agricultural produce at a place of his choice by increasing the number of prospective purchasers. A framework facilitating agricultural agreements was also deemed necessary. Thus, the two ordinances were promulgated. 

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


Presently, farmers are restricted from selling their agricultural produce outside the notified Agricultural Produce Market Committee (APMC)market yards. The farmers are also restricted to sell their produce to the state government’s licensees only. Barriers exist in the free flow of agrarian produce between various states. This is due to the prevalence of specific APMC legislation enacted by individual states.

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This ordinance aims to establish additional trading opportunities beyond the APMC market. This will help the farmers to achieve higher rates due to greater competition. It will facilitate efficient, transparent and barrier-free inter-state and intra- state trade and commerce of farmers’ produce outside the physical premises of markets or considered markets that have been notified by different State legislations on agriculture. The Legislation would also include a facilitative mechanism for electronic trading and related matters. 

Any area outside the APMC Acts and existing private mandis is defined as a trade area. There will be no State Market Fee, cessation or levy for transactions within this area. This ordinance mandates traders to make payments to farmers within a period of three working days or on the same day. It enables everyone to trade in agricultural goods with only a PAN Card or any other document, as specified by the Central Government. If a dispute arises, the parties, in this case the farmer and trader could approach the sub-divisional magistrate (SDM). The SDM will establish the reconciliation board consisting of a chairman and at least two members. According to the Agriculture ministry this ordinance will pay the way for creating ‘One India, One Agriculture Market’. 

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

This ordinance will enable farmers to directly engage with processors, aggregators, wholesalers, major retailers and exporters. It will permit farmers and buyers to enter into contracts. The farmer will be assured of a certain price at the time of sowing. The buyer will get the harvested produce at the pre-decided rate subject to quality norms. For such an arrangement, the maximum period shall be five years. The price paid to the farmer in such a contract shall be decided mutually, or a minimum price must be paid in the case of volatility. Payment by the company in the form of premium also needs to be done. 

In the event of any dispute where the farmer is at fault, the buyer can recover the inputs he contributes and his advance. No State act or law applies in this arrangement to agricultural products. Any contractual arrangement that implies a burden on the land of the farmer is strictly prohibited by the Ordinance. If a buyer fails to make the payment on time, he must pay 1.5 times the value of the penalty. During production he can inspect the products or get it evaluated by a third party. The format of the agreement would be in line with the model Contract Farming Act that had been laid down by NITI Aayog. The State will have powers to regulate the ordinance. The SDM will be the primary authority to settle conflicts.

Benefits of the Ordinance 

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These ordinances will provide many benefits to the farmers. It will establish an ecosystem in which farmers and traders would have freedom to choose agri-produce sales and purchases. It shall also encourage barrier-free inter-state and intra-state trade and exchange within and outside of physical premises of markets notified by the state’s legislation on marketing of agricultural products.

It will open more choices to the farmer, by reducing farmers’ and marketing costs. It will also help them to improve prices. Farmers will carry on direct marketing, thus eliminating intermediary operators. This will result in full price realization and will provide adequate protection to farmers. Farmers ‘land is completely prohibited from sale, rental or mortgage. Additionally, the risk of market unpredictability would be transferred from the farmer to the sponsor.

Possible Drawbacks

Contract farming may be disadvantageous for some small farmers. Small farmers may not have the bargaining power and may lose out in the open market. The ordinance does not ensure that the contract agreed to by a small farmer with little bargaining power would be fair. Moreover, the concept of inter-state trade in goods goes beyond small-scale farmers. One of the key reasons for APMCs’ failure or other government support initiatives is that small scale farmers often find it less productive to spend on travel to reach out to the potential markets.

In relation to the provision relating to free inter-state trade, the policy of taxation, in particular levies other than mandi taxes and cessation, is ambiguous. Furthermore, in India most farmers are small-scale and marginal farmers with limited produce. Thus, it would be a struggle to get a good bargain in both the free market and the contract selling.

In addition, the price differentials and subsidies offered by various government institutions encourage farmers to sell in the State itself. Furthermore, experts have pointed out that the provisions in these ordinances are unclear. In the ordinance relating to contract farming, for example, there is no provision of a mandatory written agreement. The responsibility of arbitration not being with the government may also be an issue. Both laws specifically state that the central, state and/or appeal authority will not be involved in any legal proceedings .

The power of dispute resolution has been given to the lower bureaucracy in cases of contract farming. The powers to adjudicate has been vested with the sub-divisional magistrates (SDM). This might lead to problems in implementation. 

Conclusion

These ordinances are intended to develop the country’s required agricultural infrastructure and solve many agricultural issues. It is considered a bold step towards agricultural development and the increase in farmers’ revenue. The trade area is under no regulation. Therefore, it is necessary to ensure that the farmer is timely paid for his sale proceeds.

These ordinances will promote APMC reform. Now the AMPC’s will face competition from other trade areas. Therefore, they would need to provide farmers with better facilities and become more transparent. They will continue to make good business in the interest of farmers because they will still be the key source for price discovery.

The actual benefit to the farmers would only be known in due course. In the meantime, experts have requested government protection to ensure that farmers are not at a disadvantage.


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