Farmers’ Acts: Is it too early to see farm sector reforms as gamechanger?

Updated: Nov 18, 2020 6:22 PM

The legislations seem to encourage private participation in avenues earlier reserved only for licensed participants by introducing newer trade channels such as e-commerce platforms.

Through the Export Policy 2020-25, one of the pivotal aims is doubling the income of farmers and also increasing exports from the agricultural sector, all those ingredients will be adopted.Through the Export Policy 2020-25, one of the pivotal aims is doubling the income of farmers and also increasing exports from the agricultural sector, all those ingredients will be adopted.

Kunal Arora, Nayanika Majumdar

Despite and amidst unprecedent uproar, presidential assent was accorded to three farmers’ bills, on September 27, 2020, in this monsoon session. The bills, which are now acts, namely, the Farmers’ Produce Trade And Commerce (Promotion and Facilitation) Act, 2020 (‘Trading Act’), the Farmers (Empowerment And Protection) Agreement On Price Assurance And Farm Services Act, 2020 (‘Farm Services Act’) and the Essential Commodities (Amendment) Act, 2020 (‘ECA Amendment’), collectively the ‘Farmers’ Acts’ are deemed to have come into force since June 05, 2020. The Farmers’ Acts essentially aim at fostering trading in farm produce. The legislations seem to encourage private participation in avenues earlier reserved only for licensed participants under the state Agriculture Produce Marketing Committee (APMC), by introducing newer trade channels such as e-commerce platforms, while also laying down a regulatory framework for the transactions between farmers and purchasers of their produce.

Trading Act

The Trading Act primarily aims to facilitate inter-State and intra-State trading in farmers’ produce outside the premises of market yards as notified under various state APMC Acts. It allows for trading in farmers’ produce and sets out the mechanism for a trader to trade in scheduled farmers’ produce which until now was permitted only for a dealer licensed dealer relevant APMC Act. The Trading Act allows trading in a trade area or on electronic platforms, which would be exempt from the State’s market fee or any other cess or levy. It must be noted, however, that the framework is silent regarding the regulation of trading in non-scheduled farmers’ produce.

The Trading Act seeks to allow for a broader trading regime as an alternative to the current framework provided by the APMC Acts. This it does by allowing any person to trade in scheduled farmers’ produce i.e. agriculture produce notified under the respective state AMPC Act from a ‘trade area’ which has been broadly defined to include any area excluding the market yards and deemed markets notified under the APMC Acts. Some of the salient features of the Trading Act are:

  • Registration requirement for traders
  • Set timelines for payment to the farmers
  • Central Government empowered to frame code of conduct and payment rules
  • Dedicated dispute resolution mechanism to facilitate faster redressals

The Trading Act appears to be backed with an intent to benefit the farmers by enhancing their outreach, however much of its success would be dependent on the rules and regulations to be introduced by the Central Government for its effective implementation.

Farm Services Act

While the Trading Act covers the sale of existing agricultural produce, the Farm Services Act provides a framework for the protection of farmers vis-à-vis arrangements for the sale of future produce. Under the Farm Services Act, a farmer can enter into a farming agreement with a ‘sponsor’ for sale of future agricultural produce. A farming agreement may be in the nature of a future trade agreement wherein the ownership of the produce remains with the farmer during production or a production agreement where the sponsor agrees to provide farm services and bears the risk of output while committing to make payment to the farmer.

The key highlights of the Farm Services Act are as under:

  • Farming Agreement – To provide for supply of farming produce or the farm services including terms pertaining to price, period of agreement, quality standards, etc. Central Government is empowered to prescribe a model form of the agreement.
  • Price Assurance – The price for the agricultural produce is required to be predetermined. In the event of any change, the sponsor is required to pay a pre-agreed guaranteed price along with such additional price to ensure parity with a benchmark price as per the rates specified in an APMC yard or any other trading platform.
  • Protection of Land – The Farm Services Act prohibits any kind of claim by the sponsor against the farmer’s land including any structures created thereon pursuant to the agreement.
    Sponsor’s responsibility – The responsibilities related to compliance with the Farm Services Act, delivery of the produce and timely payment have been placed on the sponsor or the farm service provider.
  • Exemptions – The farming produce governed by farming agreement with a sponsor is exempt from restrictions under the APMC Acts and the Essential Commodities Act, 1955.

ECA Amendment

In order to further promote the trading of agricultural produce, section 3 of the Essential Commodities Act, 1955 has also been amended to ease the restrictions imposed on storing foodstuffs by government mandated stocking limits. Now, sub-section (1A) has been introduced under Section 3 which restricts the power of the Central Government to regulate the supply of foodstuffs, only under extraordinary circumstances such as war, extraordinary price rise and natural calamity of grave nature. Moreover, an order for regulating stock limit of any agricultural produce can now be issued only in the specified conditions i.e. in case of 100% increase in the retail price of horticultural produce or 50% increase in the retail price of non-perishable agricultural foodstuffs, over the price prevailing to be calculated as per the method prescribed.

Potential Impact and Way Forward

The Farmers’ Acts provide the farmers with increased avenues for the trading of their agricultural produce by opening up channels to newer trading mechanisms in addition to APMC market yards (which will also continue to exist in the parallel). While the intent of the Farmers’ Acts is crystal, i.e., it seems to be in the interests of the farmers, an analysis of the legislations shows that the implementation largely will depend on the regulations framed by the Central Government under these enactments which are yet to see the light of the day.

From an overall economic standpoint as well, these legislations present significant avenues for businesses looking to venture into trading or dealing of agriculture produce which was earlier restricted to channels bound by State regulations. With the recent spurt in investment in agriculture and allied sectors such as agri-tech, logistics, and warehousing, it is speculated, and with good reason, that these sectors will see a rise. While the Farmers’ Acts are indeed being hailed as a gamechanger for agriculture and related sectors, the key to ushering growth in such sectors would be on proper implementation from the ground up which would snowball into the overall development of the agriculture sector.

The Central Government must ensure that the government machinery does not lose its focus on the spirit of the Farmers’ Acts and their effective implementation. In light of this, the framework must also keep evolving in the near to long future to address the potential implementation-related concerns, such that, the farmers and the agriculture sector as a whole receive the benefits that are intended for them under these legislations. In the absence of effective checks and balances to ensure active implementation, the Farmers’ Acts may end up being ‘paper laws’ having little to no impact on the agriculture sector.

Kunal Arora is Joint Partner & Nayanika Majumdar is Senior Associate at Lakshmikumaran & Sridharan Attorneys. Views expressed are the authors’ personal.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1GST returns deadline: Reminders to 25,000 defaulter taxpayers
2Top 25,000 GST payers of Oct yet to file returns in Nov, tax officers to send reminders
3We must look to leverage FTAs with countries having transparent trading mechanisms: Goyal