Critical Examination of the Implications of the Farm Acts, 2020 on Farmers and Agricultural Commerce

The Government of India passed three Ordinances relating to agricultural marketing in June 2020 and introduced the Bills in both the houses and successfully the Bills were passed. The President of India gave his assent for the three Bills on 27-9-2020. There are ongoing heated debates with both acclamation and criticism towards these Bills.

History of agricultural reforms

Agriculture has and still remain one of the most crucial sectors of our economy, and for long the country has been an agro-based economy. The regulation of agricultural markets and produce can be first noticed during the British rule where raw cotton, produced in large quantities in India was made available as raw material for textile mills in the United Kingdom for supposedly reasonable prices. Subsequently, in 1886, the Hyderabad Residency Order and the Berar Cotton and Grain Market Act, 1887 led to the establishment of the country’s first regulated market for agricultural produce, Karanja.[1]  This model was enacted in other parts of the country and led to the first instance of countrywide regulated markets. A major cause of concern prior to 1947 was limited to ensure regulated prices for consumers. The focus shifted towards farmers, their interests and promoting agricultural produce post-independence. This is evident by the undivided focus on agriculture and regulation by the Planning Commission Reports and the five-year plans.

 In 1938, the Government of India formulated a model Bill for agricultural markets which was thereby followed by many States to introduce Agricultural Produce Market Regulation (APMR) in the 1960s and 1970s, subsequent to the Green Revolution. This was done with an intention to ensure transparency and help farmers get a reasonable price for their produce. These markets sprung up and enjoyed a sort of monopoly in the agricultural sphere with more than 20,000 rural markets in 2015 from just 286 in the 1950s.[2] Although inter-State trade is regulated by the Union Government, since agriculture is a State List subject, the States have individual Agricultural Produce Market Committee (APMC) Act. An APMC is a statutory market committee; the State geographically divides the area into market areas which are managed by a market committee. This committee consists of representatives of farmers, warehouse owners, trade unions and Registrar of cooperative societies and the Chairman of every APMC and government representatives constitute the Market Board.

The Government of India designed a model Agricultural Produce Market Committee (APMC) Act in 2003 as a first attempt to bring reformations in the agricultural markets which regulate agricultural trade within States. It suggest new reforms in the APMC regime, it mandates the purchase of certain “notified” agricultural commodities through government-regulated markets (mandis) with the payment of designated commissions and marketing fees. Traders and intermediaries (commission agents) typically require a licence to operate in these mandis. The APMC Act was designed to protect farmers’ interests, the farmers dependent on middlemen, who were financiers, information brokers and traders. The middlemen perform the critical role in the APMC. This introduced a specific chapter on contract farming with direct sale provisions, regulation and adjudication of disputes arising from the contract between farmers and farms sponsors and many such reforms. Further, in 2013 a report was submitted by Committee of State Ministers, in charge of Agriculture Marketing to Promote Reforms which suggested new reforms but were adopted only by 16 States.[3] In 2016, the Government of India also launched an online platform for all agricultural produce and goods that facilitated farmers, buyers and traders to trade online, eNAM. The Small Farmers’ Agribusiness Consortium is the leading promoter of eNAM with around 800 markets linked to the portal.[4] All these reforms, however, still could not completely mitigate all the issues of the farmers and most of the markets were not yet linked to eNAM and the middlemen in agriculture continued to benefit. The need for agriculture reforms has been pronounced numerous times over the years due to the overwhelming discontent of farmers, their struggle and meagre income despite so many benefits provided to ensure their growth.[5]

What reforms do these Acts propose?

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020[6], the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020[7] and the Essential Commodities (Amendment) Act, 2020[8] were adopted as laws governing reforms of agricultural markets after receiving the President’s nod on 27th September.[9] The move came about after the observation that the 2017 Model Farm Acts released by the Central Government were not implemented in many States. The Acts are a result of the observations and recommendations of the Committee set in 2019 to investigate and suggest appropriate reforms in the agricultural sector, a sector which while employs nearly 50% of the population, amounts to only 16 per cent of the gross domestic product.[10]  These Acts propose a host of drastic reforms which may change the face of agricultural markets in the country.

The  Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 allow any farmer or trader or electronic trading and transaction plarform shall have the freedom to carry on the inter-State or intra-State and commerce in farmers and  sell their produce anywhere outside State notified APMC markets, even directly to buyers and traders without mandis. These mandis, that were established to prevent exploitation of farmers by intermediaries, have now become the intermediaries, acting as cartels, controlling prices and charging commission fee as per their whims and fancies. This measure, therefore, intends to protect farmers from these ongoing exploitative practices and prohibits the State Government or APMCs from levying fees, cess, or any charge on farmers produce and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 facilitates the regulations for the written farming agreement and allows the farmers to trade, even during the production stage and there is no minimum support price (MSP) that buyers need to offer to farmers also says that farmers and traders cannot go to the court for their disputes. Contract farming is not new to India, currently some States like Haryana provide for direct sale but it requires registration with the APMC in those States. Through this Act, any such registration fee and compliance is removed and is introduced across the country. Through the amendment made to the Essential Commodities (Amendment) Act, 2020, food products such as onions, potatoes, oil and oilseeds, pulses and cereals are removed from the list of essential commodities. This list basically controls and regulates the production, supply and distribution of these commodities and disallows the artificial increase in the price of these goods by hoarding them in large quantities and underselling the existing supply. Within the disclosed Statement of Objects and Reasons for these new legislations and amendments, the Union Government states that it aims to radically reform the agricultural sector, by ending the monopoly of the APMC regulated markets. These Acts were passed due to the low acceptance of the model reforms suggested by the Union and to ensure that the farmers have better offers at hand, increase the competition in the field to ensure better supply and increase in quality. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020  proposes removal of the middlemen in the agricultural market and aims to benefit the farmers through contract farming and not have to go through the trouble of finding markets or work through the agents. The Prime Minister tweeted addressing this reform that the Acts will liberate the farmers from the atrocities and bullying of the middlemen who have long benefited from the pre-existing system.[11]

Why are farmers protesting

Since these reforms were first introduced through the three Ordinances in June this year, Indian farmers, especially those belonging to the Punjab and Haryana regions have been wildly contesting these measures, demanding that these provisions be repealed. These farmers are contesting the crux of these Acts that they are anti-farmer,  in solidarity with the people.

One of the main and most contested reform is the introduction of private entities within the market and allowing farmers to directly produce and sell for private entities thereby effectively ending the monopoly of traders. Farmers fear exploitation at the hands of corporate entities and that the mandi system will be abolished. Despite reassurance from the Government that the APMC will still stay and that this is just another option for the farmers, most of them, especially small-scale farmers who constitute the majority of the farmers in the country fear that their low bargaining power will result in exploitation by big corporate giants without the protection of the Government. This fear is baseless as the Acts have numerous procedures that ensure that the farmers are protected. In fact, a specific provision exists which states that attachment of the agricultural land as mortgage within the contract is disallowed. The APMC will still remain in place and the farmers, vary of the private sponsors, are free to continue selling their produce at the mandis at the decided price.

Another fear driving the protest is that the MSP system will be abolished by the Government and that with private buyers entering into direct purchase agreements with the farmers, the Government will pull out the MSP system. The MSP regime guarantees a minimum support price at which Government procurement takes place at State-run trade markets for 23 different crops. For contract farming, the Act promises that the corporations and private buyers will be pushed to negotiate the contracts with “price assurance” but not a price regulated by the Government such as the MSP. This adds fuel to the farmers fears in terms of an assured price without exploitation and price dictation by private parties. Hence, they demand that MSP be codified as legislation to safeguard the interests of farmers.

Are the reforms unconstitutional

Entry 14 under List II of the Seventh Schedule to the Constitution of India[12], empowers the State Legislature to make laws only in respect of agriculture within the said State in respect of agriculture, including agricultural education and research, protection against the pests and prevention of plant diseases.  Entry 18 speaks of right in or over land, land tenures, rents, transfer agricultural land, agricultural  loans, etc.  Entry 28 speaks about markets and fairs, Entry 30 about agricultural indebtedness.  Entry 45 land revenue, land records etc., Entry 46 taxes on agricultural income, Entry 47 successions of agricultural land.  Entry 48 estate duty in respect of agricultural land, but does not speak about the trade and commerce.  After the process of farming, the farmer has to sell all the agricultural products by way of trade (trade is referred to as a basic economic activity that involves buying and selling of different goods and services between two or more parties involved in the transaction. Commerce involves all the activities that aid in promoting the exchange of goods and services from the manufacturer to the last customers).  The trade and commerce falls under Entry 33 List III of the Seventh Schedule[13], which speaks as under: Production supply and distribution of domestic and imported products of an industry over which Parliament has control in the public interest, foodstuffs, including oilseeds and oils, cattle fodder, raw cotton  and jute, which is within the exclusive domain of Parliament. Whereas, the Central Act at issue essentially pertains to trade of farm produce and Entry 33 under List III of the Seventh Schedule to the Constitution of India, bestows exclusive power to the Union to make laws in respect of trade and commerce. That apart, Article 19(1)(g) of the Constitution of India[14] which is a fundamental right guarantees to all its citizens the right to carry on any occupation, trade or business and Article 301[15] gives freedom to trade, commerce and intercourse within the territory of India. Article 302[16] gives unbridled power to Parliament to impose restrictions on trade, commerce and intercourse. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 is constitutional, since, it is within the exclusive domain of  Parliament to make laws in respect of trade and commerce.

Article 246(2)[17] gives power to Parliament to make laws with respect to any of the matter enumerated in  List III in the Seventh Schedule subject to clauses (3)  and (1) of  Article  246 of the Constitution of India, Article 249[18] empowers the Centre to legislate on State subjects on the grounds of national interest; however, the prerequisite for this is a resolution passed in Rajya Sabha. However, trade and commerce is not in the State List. Agriculture is not a trade but when agricultural products are bought and sold in the open market it comes under trade and commerce. However, contract farming and inter-State trade of agricultural goods is within the purview of the Centre.

The National Commission on Farmers (NCF) was constituted on 18-11-2004 under the chairmanship of Professor M.S. Swaminathan.  The Committee has conducted studies and submitted its recommendations, some of the recommendations are:

Farmers of the Future:  

(1) Cooperative farming and service cooperatives, it will benefit the smaller farmers;

(2) Group farming to promote HSGS by encouraging the groups to lease farm lands;

(3) Small holder estates for various crops;

(4) Contract farming;

(5) Farmers’ companies;

(6) Attracting youth; and

(7) Competitiveness of farmers, wherein MSP should be at least 50% more than the weighted average cost of production and the State Agricultural Products Marketing Committee Act (APMC) Act relating to marketing, storage and processing of agricultural produce to shift to one promoting grading,  branding,  packaging and development of domestic and international markets for local produce.

Now the present reforms are formed by taking into consideration the recommendations of Swaminathan Committee except the MSP.

Conclusion

As per the present reforms, the farmers are free to sell their agricultural products as per their choice, anywhere in the country, without market fee or cess or levy, by whatever name called under any State APMC Act or any other State law and the farmer may enter into a written farming agreement in respect of any farming produce. It will attract private investments in the agricultural industry. Private investments can improve the infrastructure of the agricultural sector, which can lead to its modernisation. Contract farming is helpful for farmers because they will get price assurance beforehand. These Acts bring in new technologies to the benefit of the farmers. With the advent of these new laws the farmers have got a new option to sell their produce to anyone other than the market committees. The produce of the farmers which were under the APMC subject to 8% tax at mandis will now no more be subject to any tax, an additional major benefit to the farmers. On a true and fair construction of the Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, it can safely be concluded that the 2020 Act will benefit the farmers. However, the right of every person to approach the Court is restricted under the said Act which  is unconstitutional and there should be a MPS provided to the farmers under the said Act as per the Swaminathan Committee Report.


* Advocate, Aequitasjuris Law LLP

[1] Brief History of Agricultural Marketing Regulations, its Constraints and Reforms in the Sector, DMI, available at: https://dmi.gov.in/Documents/Brief%20History%20of%20Marketing%20Regulation.pdf (last visited on 17-12-2020).

[2] Id., at 1.4.

[3] Agricultural Produce Market Committee (APMC), Arthapedia, http://www.arthapedia.in/index.php%3Ftitle%3DAgricultural_Produce_Market_Committee_(APMC) (last visited on 15-12-2020, 14:27).

[4] Mudit Kapoor, Can eNAM flip Indian Farmers’ Ffate?, Business Today (Sept. 18, 201818-9-2018, 19:52 IST), <https://www.businesstoday.in/top-story/can-enam-flip-indian-farmers-fate/story/282538.html>.

[5] Vindu Goeyal & and Hari Kumar, Indian Elections 2019: Farmers are Hurting and Millions are Voting, NY Times (20-4-2019), <https://www.nytimes.com/2019/04/20/world/asia/india-election-modi-farmers.html>.

[6] http://www.scconline.com/DocumentLink/wdP4LxVM

[7] http://www.scconline.com/DocumentLink/s4WyG5Ra

[8] http://www.scconline.com/DocumentLink/8F35O644.

[9] PTI, President Ram Nath Kovind gives assent to three Farm Bills, The Hindu (28-11-2020, 20:56 IST), <https://www.thehindu.com/news/national/president-ram-nath-kovind-gives-assent-to-three-farmbills/article32708467.ece>.

[10] Billy Perrigo, India’s Farmers are Leading One of the Largest Yet Against Modi’s Government. Here’s What They are Fighting For., Time (8-12-2020, 13:21 EST), <https://time.com/5918967/india-farmer-protests/>.

[11] Prashant Singh, PM Narendra Modi on Farm Bills: Watershed Moment in the History of Agriculture!, ZEE Business (Sep. 20, 202020-9-2020, 17:33 IST), <https://www.zeebiz.com/india/news-pm-narendra-modi-on-farm-bills-watershedmoment-in-the-history-of-indian-agriculture-135553>.

[12] http://www.scconline.com/DocumentLink/7x8jhePz.

[13] http://www.scconline.com/DocumentLink/YrJQsJi1.

[14] http://www.scconline.com/DocumentLink/74roly04.

[15] http://www.scconline.com/DocumentLink/j74p7Y4g.

[16] http://www.scconline.com/DocumentLink/0eJ8K3f4.

[17] http://www.scconline.com/DocumentLink/mA2T453Q.

[18] http://www.scconline.com/DocumentLink/01Zq019J.

One comment

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    How can farmers benefit in open market when there is already surplus. It is contrary to law of demand and supply

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