Centre ordinances give shield to farmers, aim to boost trade

APMC regulations require farmers to only sell to licensed middlemen in notified markets, usually in the same area where farmers reside, rather than in an open market, scuttling price discovery.

A commercial buyer of farm produce will only need a permanent account number or PAN and no licence or other documentation to enter into a transaction, while a farmer’s land cannot be taken as a collateral or confiscated for violation of a farming contract, key provisions of the two draft ordinances announced by the Cabinet on June 4 show.

The Union Cabinet had announced far-reaching steps to unshackle the country’s farm sector, approving amendments to the six-decade-old Essential Commodities Act and pushing two ordinances, one aimed at freeing up farm trade from all restrictions and the other guaranteeing a legal framework for purchases at pre-agreed prices to farmers.

According to the ordinances, a buyer will have to pay a farmer within three days and in the meantime give the farmer a revenue stamped money receipt. A farmer can directly approach district-level magistrate in case of dispute with a buyer. Such transaction will not be subject to any taxes at the point of sale, the draft provisions show.

The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 will effectively bring the curtains down on the decades-old agricultural produce market committees regulations (APMC) system that regulates buying and selling of farm produce. An ordinance is a law promulgated when Parliament is not in session.

APMC regulations require farmers to only sell to licensed middlemen in notified markets, usually in the same area where farmers reside, rather than in an open market, scuttling price discovery.

Ushered in during the 1960s, APMC regulations were meant to protect farmers from distress selling. Over time, these have often facilitated the creation of cartels and monopolies, evidence suggests.

In December 2010, when onion prices peaked, a probe by the country’s statutory anti-monopoly body, the Competition Commission of India, revealed that one firm accounted for nearly a fifth of the total onion trade for that month at Lasalgoan APMC, Asia’s largest onion market in Maharashtra’s Nashik.

These reforms in “agricultural marketing” have been a long time in the making and various government panels and economists have often argued for changing existing structures of agricultural trade.

Draft provisions of The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020, which will usher new rules for contract farming and futures trading, show that farm land cannot be taken as collateral or confiscated by the sponsor of contract farming.

If market prices of crops at the time of actual transaction is higher than what was agreed upon by farmer and buyer of farm produce, the farmer will get a share in higher prices too.

“The ordinance will empower farmers for engaging with processors, aggregators, large retailers, exporters etc., on a level playing field without any fear of exploitation,” a Cabinet note said.

The ordinance is the first Indian law to shift the risk of farming from farmers to large buyers and aggregators by potentially ushering a legal framework where contract farming will be undertaken as pre-assured prices. This will protect farmers from price crashes.

According to NR Bhanumurthy, a professor at the National Institute of Public Finance and Policy, New Delhi, there could be initial hiccups in implementation of the law as it seeks to move all risks to the sponsor of contract farming with none on the farmer.