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UNDERSTANDING THE IMPLICATIONS
NEW FARM ACTS
Ramesh Chand
Member, NITI Aayog
GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities. ABSTRACT
The three new farm acts legislated by the Government
of India have been widely acclaimed at home and
abroad as historical and long overdue. However, some
experts, states, and stakeholders, including farmers,
have been protesting against them and seeking their
withdrawal. This paper presents the context and
signiﬁcant reasons for undertaking these policy
reforms and describes the sequence of eforts made
by successive Central governments for about the past
two decades to persuade states to adopt the reforms.
Drawing from the actual contents and spirit of the
three acts, the paper discusses at length how APMC
(Agricultural Produce Market Committees) markets,
MSP (Minimum Support Price), farmers, and the rural
economy will be impacted by the new policy
environment. It also addresses the concerns raised by
farmers’ leaders and critics. The paper ﬁnds that the
new acts take forward the unﬁnished agenda of
reforms started in 1991 and the fragmented, piecemeal,
and patchy reforms undertaken across states to their
ultimate culmination. The paper addresses
apprehensions about the new acts so that the
underlying reform process is implemented in various
states with their appropriate understanding. The paper
also gives reasons for expecting the new acts to
achieve the goal of taking Indian agriculture to new
heights and ushering in the transformation of the rural
economy.
GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities. INTRODUCTION
The Union government enacted two new farm laws for agriculture, and
modiﬁed the Essential Commodities Act 1951 for agri-food stuf, in
September 2020. The new acts have been widely acclaimed as historic,
path-breaking, and a “1991 movement” for agriculture. However, some
stakeholders and experts have expressed serious apprehensions about the
efect of these acts on farmers and the agriculture sector. A narrative is
being created based on ideological and imaginary grounds to build opinion
and pressure against the new laws by ignoring the intent, content and
implications of the new policy reforms. Some people have also expressed
concern about the likely dilution of role of a small number of middlemen in
agricultural marketing, ignoring the beneﬁts to crores of farmers. This paper
discusses the implications of all the three acts on farmers, the farm sector,
APMCs, the MSP regime, consumers and the future of agriculture,
agriculturists and related aspects. It is also important to inform the public
why the Centre had to bring about these acts.
WHY POLICY REFORMS IN AGRICULTURE?
There are at least ten signiﬁcant reasons for initiating reforms in the
agriculture sector. The major policy reforms of 1991 did not cover agriculture.
Initially, many thought these reforms were useless, they would harm the
country, and were being undertaken due to pressure from the World Bank
and IMF. So, nobody felt concerned about the exclusion of the agriculture
sector from the 1991 reforms agenda. After a few years, it was found that the
growth rate of the Indian economy had started accelerating, driven by the
non-agriculture sector. Consequently, India entered the league of modern,
emerging economies instead of sinking into that of the third world. This was
attributed to liberalization, lesser control of the government on economic
activities, and dilution of inspector raj and licence/permit raj. However,
agricultural growth remained stuck at the earlier level––with negative growth
in agriculture income in ﬁve out of 12 years following 1990–91. No wonder, the
gap in the agri-income of a farmer and that of a non-agriculture worker
increased from Rs 25,398 in 1993–94 to Rs 54,377 by 1999–2000. In the next
ten years, the income of a non-agriculture worker exceeded that of a farmer
by Rs 1.42 lakh. The favourable efects of the 1991 policy reforms on the
non-agriculture sector and the growing disparity between agriculture and
non-agriculture incomes caught the attention of some experts and they
started speaking about the need for reforms in the agriculture sector. This
was followed by a series of papers, committee reports and books
emphasizing the need for bringing reforms in agriculture marketing,
liberalizing trade, and attracting modern capital and investments into
logistics and food value chains. Some clear template for reforms in
agriculture emerged around the year 2000. The need for policy reforms in
agriculture was further necessitated by the liberalization of agriculture trade
due to WTO agreement and rising cases of farmers’ suicides and agrarian
distress.
The second reason relates to imbalance between domestic demand and
supply. India is accumulating a large surplus of some commodities and at the
same time importing huge quantities of edible oil and pulses. Even the
import of fruit and vegetables, which can be grown in the country and
fetches good income, has been increasing. The reasons are the poor state of
market facility, post-harvest infrastructure, and logistics and high risks in
returns from oilseeds and pulses.
The third reason is the pressing need for improving export competitiveness
of Indian agriculture. The growth rate of India’s population is decelerating
whereas that of agriculture has increased to a record level. The declining
population growth rate has lowered the growth rate in domestic demand for
some food groups and aggregate food to a certain extent. According to the
emerging scenario of demand and supply, India will be required to sell
20–25% of the incremental agri-food production in overseas markets in the
coming years. This is not possible in the “business as usual” setting, which
involves a long chain of intermediaries, small market lots, and high
transaction costs. The country is witnessing the accumulation of a large
surplus of grain and sugar, which is getting increasingly difcult to dispose
of in the overseas markets due to poor price competitiveness of our produce.
We need to reduce the logistics cost––which is about 15%––to at least half, to
make our products competitive.
Fourth, agricultural segments such as horticulture, milk and ﬁshery––where
market intervention by the government is either nil or very little––show
4–10% annual growth. Compared to this, the growth rate in cereals––where
MSP and other interventions are quite high––remained 1.1% after 2011–12. This
clearly indicates that in recent times liberalized markets are more favourable
to agricultural growth than government support and intervention in markets.
Fifth, India is dominated by small holdings that typically have small
surpluses. Most of these farmers lack scale, resources, and the ability to take
price risk to go for high-value crops. It is not economically viable for them to
take a few kilos of fruit and vegetables to the market as these crops mature
in lots. If such farmers get markets close to production, like milk collection
centres, and have price assurance, they will be encouraged to diversify
towards high-value crops.
Sixth, despite the development of communication, road networks and other
trade infrastructure, agri-markets remain fragmented––somewhere glut and
price crash, somewhere shortage and high prices. There is also poor
integration of prices between the harvest and lean months. Farm to retail
price diference shows unjustiﬁed spread. The reason is low investments in
storage and warehouses and dominance of local traders in the market.
Seventh, the growth of food processing needs to be accelerated to (i) match
with the rising demand; (ii) pull agri-diversiﬁcation; and (iii) create more jobs
in the rural economy. For this, processors need raw material of desired
quality and at the desired time. Buying so many small lots of diferent quality
in scattered markets adds to the cost of raw materials. This requires new
arrangement and partnership between processors and producers.
Eighth, with the rise in specialization and commercialization of agriculture,
most of the output of several crops produced in a state is consumed outside
than within it. This supports efcient and barrier-free interstate trade in the
spirit of one nation one market.
Ninth, investment and capital formation in agriculture, which is so essential
for the progress and growth of any sector, has seen an unhealthy trend in
recent years––the growth rate fell from close to 10% per year during
2002–03 to 2011–12 to 2% in the following decade. The private corporate
sector has almost avoided the sector and constitutes less than 2% of the
total investments in agriculture and less than 0.5% of the total annual
investments of the corporate sector in the Indian economy. There is a
pressing need to revive investments in agriculture to modernize the sector.
Lastly, farmers are forced to seek remunerative prices through MSP and
government procurement because of their disillusionment with the existing
marketing system. Government intervention through procurement-backed
MSP is needed and justiﬁed in selected cases like staple foods for food
security. However, expanding MSP through procurement to all crops involves
very heavy ﬁscal cost––nearly one third of MSP to back MSP through
procurement. The Central government had ofered states procurement of
pulses and oilseeds at MSP and sharing the costs and losses with it. But,
states did not opt for this due to fear of heavy losses. This necessitates that
farmers are given more and better options and a competitive environment to
get better deals for their produce in the open market.
GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
03 WHY POLICY REFORMS IN AGRICULTURE?
There are at least ten signiﬁcant reasons for initiating reforms in the
agriculture sector. The major policy reforms of 1991 did not cover agriculture.
Initially, many thought these reforms were useless, they would harm the
country, and were being undertaken due to pressure from the World Bank
and IMF. So, nobody felt concerned about the exclusion of the agriculture
sector from the 1991 reforms agenda. After a few years, it was found that the
growth rate of the Indian economy had started accelerating, driven by the
non-agriculture sector. Consequently, India entered the league of modern,
emerging economies instead of sinking into that of the third world. This was
attributed to liberalization, lesser control of the government on economic
activities, and dilution of inspector raj and licence/permit raj. However,
agricultural growth remained stuck at the earlier level––with negative growth
in agriculture income in ﬁve out of 12 years following 1990–91. No wonder, the
gap in the agri-income of a farmer and that of a non-agriculture worker
increased from Rs 25,398 in 1993–94 to Rs 54,377 by 1999–2000. In the next
ten years, the income of a non-agriculture worker exceeded that of a farmer
by Rs 1.42 lakh. The favourable efects of the 1991 policy reforms on the
non-agriculture sector and the growing disparity between agriculture and
non-agriculture incomes caught the attention of some experts and they
started speaking about the need for reforms in the agriculture sector. This
was followed by a series of papers, committee reports and books
emphasizing the need for bringing reforms in agriculture marketing,
liberalizing trade, and attracting modern capital and investments into
logistics and food value chains. Some clear template for reforms in
agriculture emerged around the year 2000. The need for policy reforms in
agriculture was further necessitated by the liberalization of agriculture trade
due to WTO agreement and rising cases of farmers’ suicides and agrarian
distress.
The second reason relates to imbalance between domestic demand and
supply. India is accumulating a large surplus of some commodities and at the
same time importing huge quantities of edible oil and pulses. Even the
import of fruit and vegetables, which can be grown in the country and
fetches good income, has been increasing. The reasons are the poor state of
market facility, post-harvest infrastructure, and logistics and high risks in
returns from oilseeds and pulses.
The third reason is the pressing need for improving export competitiveness
of Indian agriculture. The growth rate of India’s population is decelerating
whereas that of agriculture has increased to a record level. The declining
population growth rate has lowered the growth rate in domestic demand for
some food groups and aggregate food to a certain extent. According to the
emerging scenario of demand and supply, India will be required to sell
20–25% of the incremental agri-food production in overseas markets in the
coming years. This is not possible in the “business as usual” setting, which
involves a long chain of intermediaries, small market lots, and high
transaction costs. The country is witnessing the accumulation of a large
surplus of grain and sugar, which is getting increasingly difcult to dispose
of in the overseas markets due to poor price competitiveness of our produce.
We need to reduce the logistics cost––which is about 15%––to at least half, to
make our products competitive.
Fourth, agricultural segments such as horticulture, milk and ﬁshery––where
market intervention by the government is either nil or very little––show
4–10% annual growth. Compared to this, the growth rate in cereals––where
MSP and other interventions are quite high––remained 1.1% after 2011–12. This
clearly indicates that in recent times liberalized markets are more favourable
to agricultural growth than government support and intervention in markets.
Fifth, India is dominated by small holdings that typically have small
surpluses. Most of these farmers lack scale, resources, and the ability to take
price risk to go for high-value crops. It is not economically viable for them to
take a few kilos of fruit and vegetables to the market as these crops mature
in lots. If such farmers get markets close to production, like milk collection
centres, and have price assurance, they will be encouraged to diversify
towards high-value crops.
Sixth, despite the development of communication, road networks and other
trade infrastructure, agri-markets remain fragmented––somewhere glut and
price crash, somewhere shortage and high prices. There is also poor
integration of prices between the harvest and lean months. Farm to retail
price diference shows unjustiﬁed spread. The reason is low investments in
storage and warehouses and dominance of local traders in the market.
Seventh, the growth of food processing needs to be accelerated to (i) match
with the rising demand; (ii) pull agri-diversiﬁcation; and (iii) create more jobs
in the rural economy. For this, processors need raw material of desired
quality and at the desired time. Buying so many small lots of diferent quality
in scattered markets adds to the cost of raw materials. This requires new
arrangement and partnership between processors and producers.
Eighth, with the rise in specialization and commercialization of agriculture,
most of the output of several crops produced in a state is consumed outside
than within it. This supports efcient and barrier-free interstate trade in the
spirit of one nation one market.
Ninth, investment and capital formation in agriculture, which is so essential
for the progress and growth of any sector, has seen an unhealthy trend in
recent years––the growth rate fell from close to 10% per year during
2002–03 to 2011–12 to 2% in the following decade. The private corporate
sector has almost avoided the sector and constitutes less than 2% of the
total investments in agriculture and less than 0.5% of the total annual
investments of the corporate sector in the Indian economy. There is a
pressing need to revive investments in agriculture to modernize the sector.
Lastly, farmers are forced to seek remunerative prices through MSP and
government procurement because of their disillusionment with the existing
marketing system. Government intervention through procurement-backed
MSP is needed and justiﬁed in selected cases like staple foods for food
security. However, expanding MSP through procurement to all crops involves
very heavy ﬁscal cost––nearly one third of MSP to back MSP through
procurement. The Central government had ofered states procurement of
pulses and oilseeds at MSP and sharing the costs and losses with it. But,
states did not opt for this due to fear of heavy losses. This necessitates that
farmers are given more and better options and a competitive environment to
get better deals for their produce in the open market.
GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
04 WHY POLICY REFORMS IN AGRICULTURE?
There are at least ten signiﬁcant reasons for initiating reforms in the
agriculture sector. The major policy reforms of 1991 did not cover agriculture.
Initially, many thought these reforms were useless, they would harm the
country, and were being undertaken due to pressure from the World Bank
and IMF. So, nobody felt concerned about the exclusion of the agriculture
sector from the 1991 reforms agenda. After a few years, it was found that the
growth rate of the Indian economy had started accelerating, driven by the
non-agriculture sector. Consequently, India entered the league of modern,
emerging economies instead of sinking into that of the third world. This was
attributed to liberalization, lesser control of the government on economic
activities, and dilution of inspector raj and licence/permit raj. However,
agricultural growth remained stuck at the earlier level––with negative growth
in agriculture income in ﬁve out of 12 years following 1990–91. No wonder, the
gap in the agri-income of a farmer and that of a non-agriculture worker
increased from Rs 25,398 in 1993–94 to Rs 54,377 by 1999–2000. In the next
ten years, the income of a non-agriculture worker exceeded that of a farmer
by Rs 1.42 lakh. The favourable efects of the 1991 policy reforms on the
non-agriculture sector and the growing disparity between agriculture and
non-agriculture incomes caught the attention of some experts and they
started speaking about the need for reforms in the agriculture sector. This
was followed by a series of papers, committee reports and books
emphasizing the need for bringing reforms in agriculture marketing,
liberalizing trade, and attracting modern capital and investments into
logistics and food value chains. Some clear template for reforms in
agriculture emerged around the year 2000. The need for policy reforms in
agriculture was further necessitated by the liberalization of agriculture trade
due to WTO agreement and rising cases of farmers’ suicides and agrarian
distress.
The second reason relates to imbalance between domestic demand and
supply. India is accumulating a large surplus of some commodities and at the
same time importing huge quantities of edible oil and pulses. Even the
import of fruit and vegetables, which can be grown in the country and
fetches good income, has been increasing. The reasons are the poor state of
market facility, post-harvest infrastructure, and logistics and high risks in
returns from oilseeds and pulses.
The third reason is the pressing need for improving export competitiveness
of Indian agriculture. The growth rate of India’s population is decelerating
whereas that of agriculture has increased to a record level. The declining
population growth rate has lowered the growth rate in domestic demand for
some food groups and aggregate food to a certain extent. According to the
emerging scenario of demand and supply, India will be required to sell
20–25% of the incremental agri-food production in overseas markets in the
coming years. This is not possible in the “business as usual” setting, which
involves a long chain of intermediaries, small market lots, and high
transaction costs. The country is witnessing the accumulation of a large
surplus of grain and sugar, which is getting increasingly difcult to dispose
of in the overseas markets due to poor price competitiveness of our produce.
We need to reduce the logistics cost––which is about 15%––to at least half, to
make our products competitive.
Fourth, agricultural segments such as horticulture, milk and ﬁshery––where
market intervention by the government is either nil or very little––show
4–10% annual growth. Compared to this, the growth rate in cereals––where
MSP and other interventions are quite high––remained 1.1% after 2011–12. This
clearly indicates that in recent times liberalized markets are more favourable
to agricultural growth than government support and intervention in markets.
Fifth, India is dominated by small holdings that typically have small
surpluses. Most of these farmers lack scale, resources, and the ability to take
price risk to go for high-value crops. It is not economically viable for them to
take a few kilos of fruit and vegetables to the market as these crops mature
in lots. If such farmers get markets close to production, like milk collection
centres, and have price assurance, they will be encouraged to diversify
towards high-value crops.
Sixth, despite the development of communication, road networks and other
trade infrastructure, agri-markets remain fragmented––somewhere glut and
price crash, somewhere shortage and high prices. There is also poor
integration of prices between the harvest and lean months. Farm to retail
price diference shows unjustiﬁed spread. The reason is low investments in
storage and warehouses and dominance of local traders in the market.
Seventh, the growth of food processing needs to be accelerated to (i) match
with the rising demand; (ii) pull agri-diversiﬁcation; and (iii) create more jobs
in the rural economy. For this, processors need raw material of desired
quality and at the desired time. Buying so many small lots of diferent quality
in scattered markets adds to the cost of raw materials. This requires new
arrangement and partnership between processors and producers.
Eighth, with the rise in specialization and commercialization of agriculture,
most of the output of several crops produced in a state is consumed outside
than within it. This supports efcient and barrier-free interstate trade in the
spirit of one nation one market.
Ninth, investment and capital formation in agriculture, which is so essential
for the progress and growth of any sector, has seen an unhealthy trend in
recent years––the growth rate fell from close to 10% per year during
2002–03 to 2011–12 to 2% in the following decade. The private corporate
sector has almost avoided the sector and constitutes less than 2% of the
total investments in agriculture and less than 0.5% of the total annual
investments of the corporate sector in the Indian economy. There is a
pressing need to revive investments in agriculture to modernize the sector.
Lastly, farmers are forced to seek remunerative prices through MSP and
government procurement because of their disillusionment with the existing
marketing system. Government intervention through procurement-backed
MSP is needed and justiﬁed in selected cases like staple foods for food
security. However, expanding MSP through procurement to all crops involves
very heavy ﬁscal cost––nearly one third of MSP to back MSP through
procurement. The Central government had ofered states procurement of
pulses and oilseeds at MSP and sharing the costs and losses with it. But,
states did not opt for this due to fear of heavy losses. This necessitates that
farmers are given more and better options and a competitive environment to
get better deals for their produce in the open market.
GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
05 WHY POLICY REFORMS IN AGRICULTURE?
There are at least ten signiﬁcant reasons for initiating reforms in the
agriculture sector. The major policy reforms of 1991 did not cover agriculture.
Initially, many thought these reforms were useless, they would harm the
country, and were being undertaken due to pressure from the World Bank
and IMF. So, nobody felt concerned about the exclusion of the agriculture
sector from the 1991 reforms agenda. After a few years, it was found that the
growth rate of the Indian economy had started accelerating, driven by the
non-agriculture sector. Consequently, India entered the league of modern,
emerging economies instead of sinking into that of the third world. This was
attributed to liberalization, lesser control of the government on economic
activities, and dilution of inspector raj and licence/permit raj. However,
agricultural growth remained stuck at the earlier level––with negative growth
in agriculture income in ﬁve out of 12 years following 1990–91. No wonder, the
gap in the agri-income of a farmer and that of a non-agriculture worker
increased from Rs 25,398 in 1993–94 to Rs 54,377 by 1999–2000. In the next
ten years, the income of a non-agriculture worker exceeded that of a farmer
by Rs 1.42 lakh. The favourable efects of the 1991 policy reforms on the
non-agriculture sector and the growing disparity between agriculture and
non-agriculture incomes caught the attention of some experts and they
started speaking about the need for reforms in the agriculture sector. This
was followed by a series of papers, committee reports and books
emphasizing the need for bringing reforms in agriculture marketing,
liberalizing trade, and attracting modern capital and investments into
logistics and food value chains. Some clear template for reforms in
agriculture emerged around the year 2000. The need for policy reforms in
agriculture was further necessitated by the liberalization of agriculture trade
due to WTO agreement and rising cases of farmers’ suicides and agrarian
distress.
The second reason relates to imbalance between domestic demand and
supply. India is accumulating a large surplus of some commodities and at the
same time importing huge quantities of edible oil and pulses. Even the
import of fruit and vegetables, which can be grown in the country and
fetches good income, has been increasing. The reasons are the poor state of
market facility, post-harvest infrastructure, and logistics and high risks in
returns from oilseeds and pulses.
The third reason is the pressing need for improving export competitiveness
of Indian agriculture. The growth rate of India’s population is decelerating
whereas that of agriculture has increased to a record level. The declining
population growth rate has lowered the growth rate in domestic demand for
some food groups and aggregate food to a certain extent. According to the
emerging scenario of demand and supply, India will be required to sell
20–25% of the incremental agri-food production in overseas markets in the
coming years. This is not possible in the “business as usual” setting, which
involves a long chain of intermediaries, small market lots, and high
transaction costs. The country is witnessing the accumulation of a large
surplus of grain and sugar, which is getting increasingly difcult to dispose
of in the overseas markets due to poor price competitiveness of our produce.
We need to reduce the logistics cost––which is about 15%––to at least half, to
make our products competitive.
Fourth, agricultural segments such as horticulture, milk and ﬁshery––where
market intervention by the government is either nil or very little––show
4–10% annual growth. Compared to this, the growth rate in cereals––where
MSP and other interventions are quite high––remained 1.1% after 2011–12. This
clearly indicates that in recent times liberalized markets are more favourable
to agricultural growth than government support and intervention in markets.
Fifth, India is dominated by small holdings that typically have small
surpluses. Most of these farmers lack scale, resources, and the ability to take
price risk to go for high-value crops. It is not economically viable for them to
take a few kilos of fruit and vegetables to the market as these crops mature
in lots. If such farmers get markets close to production, like milk collection
centres, and have price assurance, they will be encouraged to diversify
towards high-value crops.
Sixth, despite the development of communication, road networks and other
trade infrastructure, agri-markets remain fragmented––somewhere glut and
price crash, somewhere shortage and high prices. There is also poor
integration of prices between the harvest and lean months. Farm to retail
price diference shows unjustiﬁed spread. The reason is low investments in
storage and warehouses and dominance of local traders in the market.
Seventh, the growth of food processing needs to be accelerated to (i) match
with the rising demand; (ii) pull agri-diversiﬁcation; and (iii) create more jobs
in the rural economy. For this, processors need raw material of desired
quality and at the desired time. Buying so many small lots of diferent quality
in scattered markets adds to the cost of raw materials. This requires new
arrangement and partnership between processors and producers.
Eighth, with the rise in specialization and commercialization of agriculture,
most of the output of several crops produced in a state is consumed outside
than within it. This supports efcient and barrier-free interstate trade in the
spirit of one nation one market.
Ninth, investment and capital formation in agriculture, which is so essential
for the progress and growth of any sector, has seen an unhealthy trend in
recent years––the growth rate fell from close to 10% per year during
2002–03 to 2011–12 to 2% in the following decade. The private corporate
sector has almost avoided the sector and constitutes less than 2% of the
total investments in agriculture and less than 0.5% of the total annual
investments of the corporate sector in the Indian economy. There is a
pressing need to revive investments in agriculture to modernize the sector.
Lastly, farmers are forced to seek remunerative prices through MSP and
government procurement because of their disillusionment with the existing
marketing system. Government intervention through procurement-backed
MSP is needed and justiﬁed in selected cases like staple foods for food
security. However, expanding MSP through procurement to all crops involves
very heavy ﬁscal cost––nearly one third of MSP to back MSP through
procurement. The Central government had ofered states procurement of
pulses and oilseeds at MSP and sharing the costs and losses with it. But,
states did not opt for this due to fear of heavy losses. This necessitates that
farmers are given more and better options and a competitive environment to
get better deals for their produce in the open market.
GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
06 GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
07 GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
IMPLICATIONS OF NEW FARM LAWS
Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act
2020 (FPTC Act)
The FPTC Act, enacted by the Central government, gives the freedom to sell
and buy farm produce at any place in the country––within APMC mandis or
outside them. To promote e-commerce in agriculture, the new law also
allows the setting up of an electronic platform for the sale and/or purchase
of farm produce. The Act also has a provision to prescribe modalities for the
registration of traders and trade transactions in trade areas. Thus, if the new
system does not work satisfactorily, then the government can intervene to
regulate the system.
Due to inadequacies of the APMC markets, more than half of the marketable
surplus is sold outside the mandis. Such deals lack transparency and fairness
as they are in violation of APMC regulation; due to their underhanded nature,
there is also the constant fear of being busted upon by APMC ofcials. The
new Act legalizes such transactions, which is favourable for farmers. The best
part of the new Act is that it allows direct purchase from farmers at their
doorstep or farm, as is the case with milk. For the ﬁrst time, farmers will have
the opportunity to quote the price for their produce. Although these
changes might appear too good to be true, if reforms are encouraged in the
right direction by the states, it won’t take long for farmer producers or their
FPOs to become “price dictators” rather than remaining “price takers”.
08 GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
Another relevant question is how smallholders will beneﬁt from the new Act.
Our farm size is getting smaller day by day. If we want our farmers to diversify
to produce high-value crops, they need price assurance and outlet to sell
small lots. Crops like fresh vegetables and fruit do not mature on the same
day and are thus harvested in small lots over time. This requires a collection
facility or sale opportunity near the farm as is the case with dairy production
throughout the country. FPTC will facilitate the creation of the required
ecosystem for diversiﬁcation at small farms.
Traditional supply chains involve six to seven transactions between the
production point and end use (farm to fork). Each transaction involves cost
and margin, leading to a large price spread between producers and
consumers. FPTC will result in compressing the value chains and eliminating
excessive intermediation. In many cases farmers will be able to sell their
produce directly to consumers through their groups.
The new policy environment will create business opportunities for the rural
youth, including farmers’ children, in agriculture trading, as witnessed in
denotiﬁed crops and the dairy sector.
Impact on APMC
Since the sixties, concerted eforts were made to bring all wholesale markets
for agricultural produce under the “Agriculture Produce Market Regulation
Act”. This included a series of legal instruments for regulating market
conduct and trade activities. These legislations, known as APMC acts, were
enacted by all the states, except Kerala, Jammu and Kashmir, and Manipur.
They mandated that the sale/purchase of agricultural commodities should
be carried out in a speciﬁed market area and the producer sellers or buyers
must pay the requisite market fee, user charges, levies and commissions for
the agents (arthiyas), as speciﬁed under the APMC Act. These charges
varied widely across states and commodities.
Initially, a lot of investment was made for the development of regulated
markets, and their growth was much higher than that of crop output.
Improved infrastructure and APMC regulations helped remove malpractices
from markets and created orderly and transparent marketing conditions.
This freed the farmers from the exploitative power of middlemen and
mercantile capital at the time. Between the mid-nineties and 2006, growth in
market infrastructure turned one-fourth of the growth in output, despite
09 GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
large deﬁciency existing in the former. After 2006, no growth in mandi
infrastructure was reported. This increased the woes of Indian farmers as the
market facility did not keep pace with increase in output, and regulation did
not allow farmers to sell outside the APMC markets. The farmers were left
with no other choice but to seek the help of middlemen in the market and
with time, their dependency on them grew. At the same time, commission
agents and traders slowly increased their bargaining powers over the
farmers by providing them greater access to credit. This, however, led to a
system of interlocked transactions that robbed the farmers of the choice to
decide whom and where to sell, and subjected them to exploitation by the
arthiyas.
Another big setback to APMC markets started with states treating them as
sources of revenue generation through taxes, cess, and other charges,
instead of looking at them as infrastructure service for the farmers. In several
states, commission charges were increased without any improvement in the
services provided to the sellers/buyers. To avoid any protests from farmers
against these high charges, most of them were required to be paid by
buyers, like FCI. In Haryana and Punjab, where wheat and paddy sells at or
above MSP, mandi fee and rural development charges for these two crops
are 4–6 times the charges for basmati rice purchased by private players. The
reason is that wheat and paddy are almost entirely purchased on account of
FCI, whereas basmati rice is purchased by private players. In all the cases
where the produce is not purchased by public agencies, high mandi charges
afect farmers as they are factored in the price paid to the sellers by the
buyers.
The increase in mandi charges over time and the structure and level of these
charges show that the APMC markets, which were created to ensure
competitive prices for farm produce and free producers from exploitative
practices of middlemen, have come to be used for revenue generation and
rent-seeking under the cover of regulation, and at the cost of producers and
consumers. This is against the spirit of APMC regulation and makes such
mandis uncompetitive. Only a small fraction of user charges levied as mandi
fee, etc., is used for operation and maintenance of the mandis and the rest is
mostly spent as political largesse.
The efect of the FPTC Act on APMC mandis will depend upon the treatment
meted out to these markets and the charges and levies therein. Of the 25 states
10 GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
having APMC acts, 12 do not charge commission on notiﬁed crops. The
service charges, like mandi fee for representative crop, in these states vary
from 0–1% in 9 states and 2% in Madhya Pradesh and Tripura. There is no
threat from the FPTC Act to APMC mandis, in these states, as private traders
and sellers will get beneﬁts commensurate with the mandi charges.
The second category of states has Andhra Pradesh, Himachal Pradesh,
Maharashtra, and Telangana, where the service charge for mandi is 1% of the
value of the produce and the commission varies from 1–2%. Uttarakhand also
falls in this category, with 2% mandi fee and 1% commission charge.
Karnataka follows these states closely, with total charges at 3.5%. These
states can easily bring down their mandi charges to 2% or less by lowering
the commission or mandi fee to 1% or below, to keep the business in APMC
markets intact.
The third set of states includes Punjab, Haryana, Rajasthan, Gujarat,
Arunachal Pradesh, West Bengal, and Uttar Pradesh, where the total charges
vary from 5–8.5%, with the highest in Punjab followed by Haryana. Among
these states, Punjab and Haryana will not face any challenge from sale
outside of mandis as long as paddy and wheat are the dominant crops, and
are procured by the government. Ultimately, for the states in this category,
market charges and commissions need to be brought down to 2% or less, as
is the case in others and which is reasonable to enable APMC mandis to
compete efectively with transactions outside their premises.
The real threat to APMC mandis and their business is from excessive and
unjustiﬁed charges in these markets. The new FPTC Act will only put
pressure on these markets to become efcient and competitive. Discussion
with mandi ofcials revealed that a maximum of 1.5% of the total charges,
including market fee and commission, is adequate to maintain and run mandi
operations. This will not wean away traders from APMC markets as they will
get the beneﬁt of mandi infrastructure, bulk produce in one place and save
the cost required for individual transactions outside the market. The states
that are really interested in farmers’ welfare should do away with unjustiﬁed
and excessive mandi charges and keep them below the reasonable level of
1.5%. This will ensure coexistence of APMC mandis and private channels
permitted under the new Act in a true competitive spirit.
11 GENESIS OF POLICY REFORMS
There is criticism from some quarters that the new farm laws have been
rushed in without consultations with the states and stakeholders. As
mentioned earlier, the discussions on policy reforms and structural changes
in agriculture started around the year 2000. It began with suggestions for
changes in market regulation and removal of various restrictions provided
under the APMC Act. Some serious limitations of the APMC Act are as
follows, though there is variation across states:
• notiﬁed commodities produced in the area under the jurisdiction of
an APMC mandi to be sold only in them
• traders/buyers must have the licence to operate in the mandi
• multiple levies on sale/purchase transactions
• no direct sale from farmer to trader. Even if allowed user charges
and mandi cess must be paid without actually using the facility. This
kind of practice amounts to forcing all vehicles to move on toll road
and pay toll tax even if that road is not used!
• charges of middlemen, like commission agents, statutorily ﬁxed,
not capped
Realizing the need for reforms in agri-marketing and trade, all successive
governments at the Centre since 2000 made multiple attempts to persuade
states to make appropriate changes in their APMC acts. The NDA
government prepared and pushed for the Model APMC Act 2003, which
involved signiﬁcant liberalization and reforms in this law. The model Act also
included provisions for contract farming and direct purchase from the
farmers outside APMC. The UPA government continued those attempts after
coming to power in 2004 and made serious eforts to take fruit and
vegetables out of APMC regulation, which has been adopted by 16 states.
Such eforts to persuade states to reform their APMC acts continued with
the next change in government at the Centre in 2014. After several
deliberations, another committee prepared a new model act, titled, “The …
State/UT Agricultural Produce and Livestock Marketing (Promotion and
Facilitation) Act, 2017” (APLM Act). This model Act was discussed with state
ministers of agriculture/marketing, and was well-appreciated. However,
three years later only one state (Arunachal Pradesh) adopted the Model
APLM Act; market reforms in other states remained piecemeal, patchy,
diluted and very slow.
Contract farming was kept out of the Model APLM Act 2017 and a separate
model act on contract farming, “The State/UT Agricultural Produce &
Livestock Contract Farming and Services (Promotion and Facilitation) Act
2018”, was prepared by the Ministry of Agriculture and Farmers’ Welfare
after thorough consultation and discussion with states, union territories, and
experts.
When states did not come on board to reform their APMC acts––despite
repeated pleas and persuasions by successive governments at the
Centre––for 18 long years, the only option left with the Union government
was either to ignore its responsibility to secure the future of Indian
agriculture and farmers, or use the constitutional route for pan-India
implementation of agricultural policy and market reforms.
The third policy reform relates to the modiﬁcation in Essential Commodities
Act (1951) for agri-food stuf. The attempt to amend ECA also started around
the year 2002. Some agri-food commodities were removed from the list of
ECA through a government order in 2003 and changes were notiﬁed to
remove the requirement for licensing of dealers and restrictions on storage
and movement of foodgrains, sugar, oilseeds and edible oils. However, many
of the controls under ECA were brought back after 2006. Again, such
restrictions were removed under a government order on 1 October 2016. This
created uncertainty in the minds of investors and caused serious setbacks to
agricultural infrastructure, storage, logistics and modernization of the supply
chain. It was also found that this Act was of little help in cooling down prices
in most cases; and its conviction rate was very low (0.27% during 2015–17). A
strong need was felt to revisit this Act as the country moved from an era of
shortages to one of surplus production.
The above account of events clearly shows that the need and matter
underlying the new farm laws have been widely discussed for a very long
time, and they have been partly adopted and implemented by state
governments. Moreover, covid-19 threw formidable challenges to the
economy, which could be addressed through bold and courageous policy
decisions with the potential of converting challenges into opportunities.
Madhya Pradesh removed commission agents from notiﬁed crops during
1985–90, and now buyers like FCI can directly pay farmers. This was found
beneﬁcial for both buyers and sellers. Further, Madhya Pradesh is
contemplating to reduce mandi fee to 0.5% of the value of the produce.
The decision to avail services of arthiyas should be better left to producers
and sellers instead of being necessitating through law. At best, the state
government should announce a cap on commission charges rather than
ﬁxing them. The MP model of APMC is best for farmers and the farm sector.
It ensures no threat to APMC mandis from the new Act.
Impact on MSP
Fear has been expressed by the leaders of some farmers’ unions in Punjab
and Haryana that the new Act aims to gradually stop public procurement
through MSP, which will leave the ﬁeld open to private corporate players
considered a threat to farmers. MSP for wheat and paddy will remain a
genuine concern for Punjab and Haryana till better crop options are
developed. However, linking the continuation of MSP to the new Act has no
grounds whatsoever. MSP and procurement are purely administrative
decisions. If the government has the intention to change them, it does not
require the help of any act or law. The intentions of the incumbent
government regarding MSP and procurement should be better judged from
its actions. During the last six years, the current government at the Centre
has given three major pushes to the MSP regime. One, a new benchmark for
MSP, which ensures 50% or higher margin on cost A2+imputed cost of family
labour. As a result of which, MSP has moved up to a higher trajectory. Two,
much-needed procurement for ensuring MSP expanded to some other
crops. To support this, the Centre is now maintaining a bufer stock of pulses.
Three, a new scheme, ASHA, was started to extend ﬁnancial support and
share cost/losses to states that pay MSP to farmers for pulses. These moves
show the commitment of the Central government towards MSP.
Some estimates suggest that MSP reaches less than 7% of farmers in the
country. This is in sync with other evidence that shows the share of ofcially
procured crop output close to 11% in total crop output, and 7% in total
agricultural output. This raises the challenge to ensure remunerative prices
for the remaining 90% of produce. The underlying intention of the new Act
has been to keep the MSP system intact for the produce already beneﬁting
12 from it and create a policy environment that improves price realization for
the remaining produce.
Suggestions have been made to make MSP a statutory price for producers
and treat any transaction below it as unlawful. If according legal status will
ensure MSP to farmers, then this would be the easiest way for any
government to help farmers get desired prices. This can be done by state
governments and does not require Central intervention. Kerala has
announced minimum prices for 16 fruit and vegetables on 27 October.
Economic theory as well experience indicate that the price level that is not
supported by demand and supply cannot be sustained through legal means.
This was tried by Maharashtra in 2018 when the Cabinet approved a change
in law to send any trader to jail for a year and impose a penalty of Rs 50,000
for not adhering to MSP declared by the government. As open market prices
were lower than the (legalized) MSP levels declared by the state, the buyers
withdrew from market and farmers had to sufer. The move was soon
abandoned. Another example is that of sugarcane, where MSP (fair and
remunerative price) is statutory minimum price. When sugar mills (private
sector) did not ﬁnd FRP for sugarcane matching with sugar prices, they
stopped buying and crushing sugarcane. A long, protracted battle in court
could not ofer a solution. Finally, sugar mills were no longer making full
payments to sugarcane producers, resulting in the accumulation of arrears
running into thousands of crores of rupees every year. On the other side, the
new trading Act creates a favourable environment for private buyers to pay
MSP as it saves APMC fee, user charges, commission charges and many
other costs. This also shows that any move by the states to counter a Central
act while keeping market fee, user charges, commissions, cess, etc., intact,
will in practice work against private traders giving MSP to farmers by making
purchase price costlier.
The new Act has also been criticized by quoting the example of Bihar, which
scrapped the APMC Act in 2006. It is argued that freeing trade in Bihar did
not help in getting MSP––however, they were not getting MSP even before
the scrapping of the APMC Act! Price data from Bihar shows that average
farm harvest price for ten years before the scrapping of the APMC Act was
30% below MSP, which went down to 20% in the following decade. This does
not indicate any negative efect on prices received by farmers due to
scrapping of the APMC Act. The second, and more serious, ﬂaw in this
argument is that the FPTC Act is taken to imply the shutting down of APMC
CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
13 markets. The major diference between what Bihar did and what is
proposed in the FPTC Act 2020 is to create one more option for farmers
while retaining the option of selling produce in APMC mandis.
As discussed earlier, the best beneﬁt from the new Act will accrue when
APMC mandis and private channels coexist and compete. This can be
ensured by the states by nurturing APMC mandis as infrastructure service
for the farmers––like other government facilities such as hospitals, schools,
roads and parks, etc.––rather than using them for generating revenue for
the government and middlemen.
It is also pertinent to point out that the mere existence of APMC markets
does not ensure MSP, as seen in the case of many crops in Punjab and
Haryana and with wheat and paddy in several states. There are also cases of
sizable procurement at MSP in states without the APMC Act (20 lakh tons
of paddy procured in Bihar and 7 lakh tons in Kerala in 2019–20).
Implementation and continuation of MSP is an administrative decision and
in the case of rice and wheat it is part of the four pillars of food security, that
include (i) procurement, (ii) bufer stock and (iii) PDS in addition to MSP.
The system will collapse if one pillar is demolished. No responsible
government would like to be seen as doing damage to the system that has
served the purpose of food security, price stability, food self-sufciency so
well. The Prime Minister has stated a couple of times that the MSP system
will continue after implementation of the new farm acts. The Union
Agriculture Minister has even given written assurance in this regard. It is
very clear that the running MSP system has nothing to do with the APMC
Act or FPTC Act 2020.
Farmers’ Empowerment and Protection Agreement on Price Assurance and
Farm Services Act 2020
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act––or the Agreement on Price Assurance and Farm
Services (APAFS)––is greatly simpliﬁed and an improved version of the
Contract Farming Act that has already been adopted by 20 states. The new
Act shifts the balance in the favour of farmers. It removes the complicated
system of registration/licence, deposits, and various other compliances in
contract farming provisions in various states.
Contract farming has been practiced in India at a limited scale in speciﬁc
cases for a long time. The State of Punjab has been a pioneer in initiating this
practice. It facilitated multinational company PepsiCo in 1988 to start
contract farming for the production of fruit and vegetables in the state. This
initiative did not meet its objective and remained unsuccessful. However, no
fallouts were reported due to this arrangement. In contrast to this, another
multinational corporate giant, Nestle, has been enjoying a very successful
partnership with farmers in the Moga district of Punjab in the dairy (milk)
sector since 1961. More than one hundred thousand farmers supply milk to
Nestle in Moga in the partnership mode, which is almost similar to what is
provided in “Agreement on Price Assurance and Farm Services” Act. Nestle
provides technical guidance to milk producers and supplies inputs such as
feed, medicine and vaccines, and veterinary services. Nestle has created a
sophisticated supply chain at a price announced every week based on the fat
and solid content in the milk.
Though “corporate” has become a much maligned word in the current
farmers’ agitation, Nestle’s partnership with dairy farmers in Punjab is a
classic example of great success and economic transformation. Likewise,
there are scores of success stories involving formal contract farming in
almost all states. Documentary evidence points to a lot of beneﬁts for
farmers through contract farming. Obviously, there are also failures, such as
the PepsiCo experience in Punjab. If farmers don’t ﬁnd contract farming
beneﬁcial, they can leave it willingly and without any hassle. Also, there have
been no reports of ﬁrms taking control of farmers’ lands or any other assets
by misusing any provision of contract farming. In a nutshell, experience of
contract farming proves it is advantageous for farmers.
The Agreement on Price Assurance and Farm Services (new act) between
farmers and sponsors, i.e. agri-business ﬁrms, is restricted to (i) an assured
price to be paid to farmers as agreed between them and the sponsor prior to
production and (ii) to provide farm services and inputs to the farmers, if so
desired, on mutually agreed terms and conditions. As per the Act,
production of desired quality produce will be undertaken by farmers and not
by the sponsor. The role of the sponsor is restricted to buying the produce at
the price agreed in advance and supplying inputs and services. The new
agreement is much simpler than the existing contract farming practices and
many clauses have been kept in favour of farmers. This is totally diferent
from corporate farming, where production activity is undertaken by the
business ﬁrms. The new Act has no provision for leasing out land by the
farmers in any manner to the sponsor or ﬁrm. As per the Act, the sponsor is
prohibited from acquiring ownership rights or making permanent
modiﬁcations on farmers’ lands or premises. Therefore, apprehensions like
corporates usurping the lands of the farmers, or forcibly taking their assets
by manipulating the agreement are totally misplaced.
In order to protect farmers from the costly and long process of legal
redressal of grievances, the agreement provides for dispute resolution
through the sub-divisional authority (SDM) and collector or additional
collector as the appellate authority. No action for any recovery of dues
against farmers shall be initiated against land of the farmer. In case the
sponsor fails to pay the farmer, there is a provision for penalty extending to
one and a half times the amount owed. If a farmer reneges into the
agreement, the recovery shall not exceed the actual cost incurred by the
sponsor on account of any advance payment or cost of input supplied by
him.
State governments have been given the power to make rules for carrying out
provisions of the Act, such as registration of a farming agreement. The Act
keeps scope to remove any difculty in giving efect to the provisions of this
Act.
Essential Commodities (Amendment) Act
The Essential Commodities Act has been modiﬁed for agriculture and food
stuf, including cereals, pulses, potato, onion, edible oilseeds and oils. The
modiﬁcation says that the Central government may regulate the supply of
the above commodities only under extraordinary circumstances, which may
include war, famine, extraordinary price rise and natural calamities. The
modiﬁcation lays down a transparent criterion on imposing or regulating
stock limit, which is 100% increase in retail price of horticulture produce or
50% increase in retail price of non-perishable agri-food stuf over the price
prevailing in the preceding 12 months or average price of last ﬁve years,
whichever is lower. This modiﬁcation incorporates predictability in
government action to invoke ECA based on a price trigger rather than mere
perception or whim. The Act in no way dilutes the power of the government
CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
14
to intervene in the market for price control. This is evident from the action
taken by the government in imposing stock limit on onions on 23 October
2020, i.e. after the enactment of the modiﬁcation in the Essential
Commodities Act. Thus, the criticism that a free hand has been given to
stockists and market manipulators is totally unfounded.
In the past ECA has been invoked to cool down high food prices for
consumers. This obviously has an adverse efect on prices received by
producers. The commodities of farmers’ interest like fertilizers and seeds
have not been touched by the modiﬁcation in ECA. But, surprisingly,
agitating farmers’ groups are opposing the modiﬁcation even though it is
clearly in their interest,––it will encourage investment in warehouses, cold
storages, pack houses, and logistics and will help in reducing food wastage,
violent ﬂuctuations in prices and price crashes due to gluts. Farmers’ Empowerment and Protection Agreement on Price Assurance and
Farm Services Act 2020
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act––or the Agreement on Price Assurance and Farm
Services (APAFS)––is greatly simpliﬁed and an improved version of the
Contract Farming Act that has already been adopted by 20 states. The new
Act shifts the balance in the favour of farmers. It removes the complicated
system of registration/licence, deposits, and various other compliances in
contract farming provisions in various states.
Contract farming has been practiced in India at a limited scale in speciﬁc
cases for a long time. The State of Punjab has been a pioneer in initiating this
practice. It facilitated multinational company PepsiCo in 1988 to start
contract farming for the production of fruit and vegetables in the state. This
initiative did not meet its objective and remained unsuccessful. However, no
fallouts were reported due to this arrangement. In contrast to this, another
multinational corporate giant, Nestle, has been enjoying a very successful
partnership with farmers in the Moga district of Punjab in the dairy (milk)
sector since 1961. More than one hundred thousand farmers supply milk to
Nestle in Moga in the partnership mode, which is almost similar to what is
provided in “Agreement on Price Assurance and Farm Services” Act. Nestle
provides technical guidance to milk producers and supplies inputs such as
feed, medicine and vaccines, and veterinary services. Nestle has created a
sophisticated supply chain at a price announced every week based on the fat
and solid content in the milk.
Though “corporate” has become a much maligned word in the current
farmers’ agitation, Nestle’s partnership with dairy farmers in Punjab is a
classic example of great success and economic transformation. Likewise,
there are scores of success stories involving formal contract farming in
almost all states. Documentary evidence points to a lot of beneﬁts for
farmers through contract farming. Obviously, there are also failures, such as
the PepsiCo experience in Punjab. If farmers don’t ﬁnd contract farming
beneﬁcial, they can leave it willingly and without any hassle. Also, there have
been no reports of ﬁrms taking control of farmers’ lands or any other assets
by misusing any provision of contract farming. In a nutshell, experience of
contract farming proves it is advantageous for farmers.
The Agreement on Price Assurance and Farm Services (new act) between
farmers and sponsors, i.e. agri-business ﬁrms, is restricted to (i) an assured
price to be paid to farmers as agreed between them and the sponsor prior to
production and (ii) to provide farm services and inputs to the farmers, if so
desired, on mutually agreed terms and conditions. As per the Act,
production of desired quality produce will be undertaken by farmers and not
by the sponsor. The role of the sponsor is restricted to buying the produce at
the price agreed in advance and supplying inputs and services. The new
agreement is much simpler than the existing contract farming practices and
many clauses have been kept in favour of farmers. This is totally diferent
from corporate farming, where production activity is undertaken by the
business ﬁrms. The new Act has no provision for leasing out land by the
farmers in any manner to the sponsor or ﬁrm. As per the Act, the sponsor is
prohibited from acquiring ownership rights or making permanent
modiﬁcations on farmers’ lands or premises. Therefore, apprehensions like
corporates usurping the lands of the farmers, or forcibly taking their assets
by manipulating the agreement are totally misplaced.
In order to protect farmers from the costly and long process of legal
redressal of grievances, the agreement provides for dispute resolution
through the sub-divisional authority (SDM) and collector or additional
collector as the appellate authority. No action for any recovery of dues
against farmers shall be initiated against land of the farmer. In case the
sponsor fails to pay the farmer, there is a provision for penalty extending to
one and a half times the amount owed. If a farmer reneges into the
agreement, the recovery shall not exceed the actual cost incurred by the
sponsor on account of any advance payment or cost of input supplied by
him.
State governments have been given the power to make rules for carrying out
provisions of the Act, such as registration of a farming agreement. The Act
keeps scope to remove any difculty in giving efect to the provisions of this
Act.
Essential Commodities (Amendment) Act
The Essential Commodities Act has been modiﬁed for agriculture and food
stuf, including cereals, pulses, potato, onion, edible oilseeds and oils. The
modiﬁcation says that the Central government may regulate the supply of
the above commodities only under extraordinary circumstances, which may
include war, famine, extraordinary price rise and natural calamities. The
modiﬁcation lays down a transparent criterion on imposing or regulating
stock limit, which is 100% increase in retail price of horticulture produce or
50% increase in retail price of non-perishable agri-food stuf over the price
prevailing in the preceding 12 months or average price of last ﬁve years,
whichever is lower. This modiﬁcation incorporates predictability in
government action to invoke ECA based on a price trigger rather than mere
perception or whim. The Act in no way dilutes the power of the government
CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
15
to intervene in the market for price control. This is evident from the action
taken by the government in imposing stock limit on onions on 23 October
2020, i.e. after the enactment of the modiﬁcation in the Essential
Commodities Act. Thus, the criticism that a free hand has been given to
stockists and market manipulators is totally unfounded.
In the past ECA has been invoked to cool down high food prices for
consumers. This obviously has an adverse efect on prices received by
producers. The commodities of farmers’ interest like fertilizers and seeds
have not been touched by the modiﬁcation in ECA. But, surprisingly,
agitating farmers’ groups are opposing the modiﬁcation even though it is
clearly in their interest,––it will encourage investment in warehouses, cold
storages, pack houses, and logistics and will help in reducing food wastage,
violent ﬂuctuations in prices and price crashes due to gluts. Farmers’ Empowerment and Protection Agreement on Price Assurance and
Farm Services Act 2020
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act––or the Agreement on Price Assurance and Farm
Services (APAFS)––is greatly simpliﬁed and an improved version of the
Contract Farming Act that has already been adopted by 20 states. The new
Act shifts the balance in the favour of farmers. It removes the complicated
system of registration/licence, deposits, and various other compliances in
contract farming provisions in various states.
Contract farming has been practiced in India at a limited scale in speciﬁc
cases for a long time. The State of Punjab has been a pioneer in initiating this
practice. It facilitated multinational company PepsiCo in 1988 to start
contract farming for the production of fruit and vegetables in the state. This
initiative did not meet its objective and remained unsuccessful. However, no
fallouts were reported due to this arrangement. In contrast to this, another
multinational corporate giant, Nestle, has been enjoying a very successful
partnership with farmers in the Moga district of Punjab in the dairy (milk)
sector since 1961. More than one hundred thousand farmers supply milk to
Nestle in Moga in the partnership mode, which is almost similar to what is
provided in “Agreement on Price Assurance and Farm Services” Act. Nestle
provides technical guidance to milk producers and supplies inputs such as
feed, medicine and vaccines, and veterinary services. Nestle has created a
sophisticated supply chain at a price announced every week based on the fat
and solid content in the milk.
Though “corporate” has become a much maligned word in the current
farmers’ agitation, Nestle’s partnership with dairy farmers in Punjab is a
classic example of great success and economic transformation. Likewise,
there are scores of success stories involving formal contract farming in
almost all states. Documentary evidence points to a lot of beneﬁts for
farmers through contract farming. Obviously, there are also failures, such as
the PepsiCo experience in Punjab. If farmers don’t ﬁnd contract farming
beneﬁcial, they can leave it willingly and without any hassle. Also, there have
been no reports of ﬁrms taking control of farmers’ lands or any other assets
by misusing any provision of contract farming. In a nutshell, experience of
contract farming proves it is advantageous for farmers.
The Agreement on Price Assurance and Farm Services (new act) between
farmers and sponsors, i.e. agri-business ﬁrms, is restricted to (i) an assured
price to be paid to farmers as agreed between them and the sponsor prior to
production and (ii) to provide farm services and inputs to the farmers, if so
desired, on mutually agreed terms and conditions. As per the Act,
production of desired quality produce will be undertaken by farmers and not
by the sponsor. The role of the sponsor is restricted to buying the produce at
the price agreed in advance and supplying inputs and services. The new
agreement is much simpler than the existing contract farming practices and
many clauses have been kept in favour of farmers. This is totally diferent
from corporate farming, where production activity is undertaken by the
business ﬁrms. The new Act has no provision for leasing out land by the
farmers in any manner to the sponsor or ﬁrm. As per the Act, the sponsor is
prohibited from acquiring ownership rights or making permanent
modiﬁcations on farmers’ lands or premises. Therefore, apprehensions like
corporates usurping the lands of the farmers, or forcibly taking their assets
by manipulating the agreement are totally misplaced.
In order to protect farmers from the costly and long process of legal
redressal of grievances, the agreement provides for dispute resolution
through the sub-divisional authority (SDM) and collector or additional
collector as the appellate authority. No action for any recovery of dues
against farmers shall be initiated against land of the farmer. In case the
sponsor fails to pay the farmer, there is a provision for penalty extending to
one and a half times the amount owed. If a farmer reneges into the
agreement, the recovery shall not exceed the actual cost incurred by the
sponsor on account of any advance payment or cost of input supplied by
him.
State governments have been given the power to make rules for carrying out
provisions of the Act, such as registration of a farming agreement. The Act
keeps scope to remove any difculty in giving efect to the provisions of this
Act.
Essential Commodities (Amendment) Act
The Essential Commodities Act has been modiﬁed for agriculture and food
stuf, including cereals, pulses, potato, onion, edible oilseeds and oils. The
modiﬁcation says that the Central government may regulate the supply of
the above commodities only under extraordinary circumstances, which may
include war, famine, extraordinary price rise and natural calamities. The
modiﬁcation lays down a transparent criterion on imposing or regulating
stock limit, which is 100% increase in retail price of horticulture produce or
50% increase in retail price of non-perishable agri-food stuf over the price
prevailing in the preceding 12 months or average price of last ﬁve years,
whichever is lower. This modiﬁcation incorporates predictability in
government action to invoke ECA based on a price trigger rather than mere
perception or whim. The Act in no way dilutes the power of the government
CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
16
to intervene in the market for price control. This is evident from the action
taken by the government in imposing stock limit on onions on 23 October
2020, i.e. after the enactment of the modiﬁcation in the Essential
Commodities Act. Thus, the criticism that a free hand has been given to
stockists and market manipulators is totally unfounded.
In the past ECA has been invoked to cool down high food prices for
consumers. This obviously has an adverse efect on prices received by
producers. The commodities of farmers’ interest like fertilizers and seeds
have not been touched by the modiﬁcation in ECA. But, surprisingly,
agitating farmers’ groups are opposing the modiﬁcation even though it is
clearly in their interest,––it will encourage investment in warehouses, cold
storages, pack houses, and logistics and will help in reducing food wastage,
violent ﬂuctuations in prices and price crashes due to gluts. Farmers’ Empowerment and Protection Agreement on Price Assurance and
Farm Services Act 2020
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act––or the Agreement on Price Assurance and Farm
Services (APAFS)––is greatly simpliﬁed and an improved version of the
Contract Farming Act that has already been adopted by 20 states. The new
Act shifts the balance in the favour of farmers. It removes the complicated
system of registration/licence, deposits, and various other compliances in
contract farming provisions in various states.
Contract farming has been practiced in India at a limited scale in speciﬁc
cases for a long time. The State of Punjab has been a pioneer in initiating this
practice. It facilitated multinational company PepsiCo in 1988 to start
contract farming for the production of fruit and vegetables in the state. This
initiative did not meet its objective and remained unsuccessful. However, no
fallouts were reported due to this arrangement. In contrast to this, another
multinational corporate giant, Nestle, has been enjoying a very successful
partnership with farmers in the Moga district of Punjab in the dairy (milk)
sector since 1961. More than one hundred thousand farmers supply milk to
Nestle in Moga in the partnership mode, which is almost similar to what is
provided in “Agreement on Price Assurance and Farm Services” Act. Nestle
provides technical guidance to milk producers and supplies inputs such as
feed, medicine and vaccines, and veterinary services. Nestle has created a
sophisticated supply chain at a price announced every week based on the fat
and solid content in the milk.
Though “corporate” has become a much maligned word in the current
farmers’ agitation, Nestle’s partnership with dairy farmers in Punjab is a
classic example of great success and economic transformation. Likewise,
there are scores of success stories involving formal contract farming in
almost all states. Documentary evidence points to a lot of beneﬁts for
farmers through contract farming. Obviously, there are also failures, such as
the PepsiCo experience in Punjab. If farmers don’t ﬁnd contract farming
beneﬁcial, they can leave it willingly and without any hassle. Also, there have
been no reports of ﬁrms taking control of farmers’ lands or any other assets
by misusing any provision of contract farming. In a nutshell, experience of
contract farming proves it is advantageous for farmers.
The Agreement on Price Assurance and Farm Services (new act) between
farmers and sponsors, i.e. agri-business ﬁrms, is restricted to (i) an assured
price to be paid to farmers as agreed between them and the sponsor prior to
production and (ii) to provide farm services and inputs to the farmers, if so
desired, on mutually agreed terms and conditions. As per the Act,
production of desired quality produce will be undertaken by farmers and not
by the sponsor. The role of the sponsor is restricted to buying the produce at
the price agreed in advance and supplying inputs and services. The new
agreement is much simpler than the existing contract farming practices and
many clauses have been kept in favour of farmers. This is totally diferent
from corporate farming, where production activity is undertaken by the
business ﬁrms. The new Act has no provision for leasing out land by the
farmers in any manner to the sponsor or ﬁrm. As per the Act, the sponsor is
prohibited from acquiring ownership rights or making permanent
modiﬁcations on farmers’ lands or premises. Therefore, apprehensions like
corporates usurping the lands of the farmers, or forcibly taking their assets
by manipulating the agreement are totally misplaced.
In order to protect farmers from the costly and long process of legal
redressal of grievances, the agreement provides for dispute resolution
through the sub-divisional authority (SDM) and collector or additional
collector as the appellate authority. No action for any recovery of dues
against farmers shall be initiated against land of the farmer. In case the
sponsor fails to pay the farmer, there is a provision for penalty extending to
one and a half times the amount owed. If a farmer reneges into the
agreement, the recovery shall not exceed the actual cost incurred by the
sponsor on account of any advance payment or cost of input supplied by
him.
State governments have been given the power to make rules for carrying out
provisions of the Act, such as registration of a farming agreement. The Act
keeps scope to remove any difculty in giving efect to the provisions of this
Act.
Essential Commodities (Amendment) Act
The Essential Commodities Act has been modiﬁed for agriculture and food
stuf, including cereals, pulses, potato, onion, edible oilseeds and oils. The
modiﬁcation says that the Central government may regulate the supply of
the above commodities only under extraordinary circumstances, which may
include war, famine, extraordinary price rise and natural calamities. The
modiﬁcation lays down a transparent criterion on imposing or regulating
stock limit, which is 100% increase in retail price of horticulture produce or
50% increase in retail price of non-perishable agri-food stuf over the price
prevailing in the preceding 12 months or average price of last ﬁve years,
whichever is lower. This modiﬁcation incorporates predictability in
government action to invoke ECA based on a price trigger rather than mere
perception or whim. The Act in no way dilutes the power of the government
CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
17
to intervene in the market for price control. This is evident from the action
taken by the government in imposing stock limit on onions on 23 October
2020, i.e. after the enactment of the modiﬁcation in the Essential
Commodities Act. Thus, the criticism that a free hand has been given to
stockists and market manipulators is totally unfounded.
In the past ECA has been invoked to cool down high food prices for
consumers. This obviously has an adverse efect on prices received by
producers. The commodities of farmers’ interest like fertilizers and seeds
have not been touched by the modiﬁcation in ECA. But, surprisingly,
agitating farmers’ groups are opposing the modiﬁcation even though it is
clearly in their interest,––it will encourage investment in warehouses, cold
storages, pack houses, and logistics and will help in reducing food wastage,
violent ﬂuctuations in prices and price crashes due to gluts. CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
18 CONCLUSIONS
Policy reforms in agriculture continue to be a hot topic in public discourse
since the last two decades. For several years, academic experts,
stakeholders, and farmers’ leaders pleaded for reforms in pre-budget
consultations and meetings with NITI Aayog and the erstwhile Planning
Commission. At the political level, the election manifestos of the two biggest
national political parties, Congress and BJP, also promised to liberalize
agriculture markets to free farmers from the shackles of APMC regulations.
The reason for this was obvious. The “business as usual” approach was
yielding only incremental changes whereas the sector needed
transformative ones to address agrarian distress, create avenues for
remunerative employment of the rural youth, raise farmers’ income to meet
their aspirations, and create a favourable environment for new-age
agriculture that matches the changing demand scenario, compete with
global agriculture and is also sustainable. In fact, what was needed for
agriculture was clearly known, the Central government has shown political
courage to implement that across India.
Coming to the acts, the Farmers’ Produce Trade and Commerce Act ofers
farmers the choice to sell their produce within APMC markets or outside
them; to private channels, integrators, FPOs, or cooperatives; through a
physical market or on an electronic platform; and directly at farm or
anywhere else. It has no intent or provision to tamper or dilute MSP and
poses no threat by itself to APMC markets. The real threat to APMC mandis
and their business is from excessive and unjustiﬁed charges levied by states
in these markets. The new FPTC Act will only put pressure on APMC markets
to become competitive. Discussions with mandi ofcials revealed that a
maximum of 1.5% of total charges, including market fee and commission for
arthiyas, is sufcient to maintain and run mandi operations. This will not
wean away traders from APMC markets as they will get the beneﬁt of mandi
infrastructure, bulk produce in one place and save the cost required for
individual transactions outside the markets. States that are really interested
in farmers’ welfare should do away with unjustiﬁed and excessive mandi
charges and keep them below the reasonable level of 1.5% including
commission etc. There is a strong case for states to run APMC system as
infrastructure service for farmers without charging market fee in their
interest. This will ensure healthy competition between APMC mandis and
other channels permitted under the new Act with signiﬁcant gain to farmers.
The Farmers’ Empowerment and Protection Agreement on Price Assurance
and Farm Services Act covers two aspects: (a) provision for guaranteed
price and (b) input and technical services to farmers by registered individual,
ﬁrm, company, cooperative society, etc., under a mutually acceptable
agreement between the farmer and sponsor prior to production. This Act
intends to insulate interested farmers, especially small farmers, against the
market and price risks so they can go for the cultivation of high-value crops
without worrying about the market and low prices in the harvest season. If a
farmer is interested, they can also get technical services and inputs from the
sponsor. There is nothing in the Act beyond these two provisions.
The Act does not require any farmer to go for this agreement; the decision is
left entirely on the farmer. The Act prohibits the farming agreement to
include the transfer, sale, lease, mortgage of the land or premises of the
farmer. All apprehensions about this Act relate to corporate farming, which
is totally diferent and not allowed in any state of India. The PAFS Act is
inclined towards farmers. No party is bound to continue with the agreement
beyond the agreed period. The Act will promote diversiﬁcation, quality
production for premium price, export and direct sale of produce with desired
attributes to interested consumers. It will also bring new capital and
knowledge into agriculture and pave the way for farmers’ participation in the
value chain. Scope is kept in the two acts for changing some provisions, if
needed.
The third Act involves modiﬁcation in the Essential Commodities Act for a
group of agri-food commodities. The modiﬁcation speciﬁes transparent
criteria in terms of price trigger for imposing ECA rather than leaving it to
arbitrary decisions by bureaucrats to invoke the Act. The power of the
government to impose ECA remains intact as has been seen in the decision
to impose stock limit on onions after the modiﬁcation in ECA. There is
nothing in this modiﬁcation against farmers. On the contrary, the
modiﬁcation sets a much higher limit for rise in producer prices before the
government takes action on stock limits. The modiﬁcation in ECA will attract
much-needed private investments in agriculture from input to post-harvest
activities.
By removing all kind of charges and levies on sale/purchase of farm produce,
the new Central Act saves signiﬁcant cost to buyers and thus improves the
prospects of payment of MSP by private traders to farmers. In contrast to
this, any move by the states to counter the Central Act and giving a legal
status to MSP while keeping market fee, user charges, commissions, cess,
etc., intact will work against private traders giving MSP to farmers, by making
purchase price costlier.
In a nutshell, the three policy reforms undertaken by the Central government
through the three new Acts are in keeping with the changing times and
requirements of farmers and farming. If they are implemented in the right
spirit, they will take Indian agriculture to new heights and usher in the
transformation of the rural economy. The reforms have generated optimism
for India to become a global power in agriculture and a powerhouse for
global food supply. The reforms carry the seed for farmers’ prosperity and
transformation of the rural economy and to make it a growth engine of the
Indian economy.
The views expressed in the paper are personal.
19

New Farm Acts 2020 (English)