Recent farm laws and the need for review

The three laws viz., Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 and the Essential Commodities (Amendment) Act, 2020 have generated much heat in the recent past.

Let us analyse the important provisions of these three laws and their impact on the agriculture sector.

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

Quote: Pricing of farming produce.

Sec.5. The price to be paid for the purchase of a farming produce may be determined and mentioned in the farming agreement itself, and in case, such price is subject to variation, then, such agreement shall explicitly provide for—

a) guaranteed price to be paid for such produce;

b)  a  clear  price  reference  for  any  additional  amount  over  and  above  the guaranteed price, including bonus or premium, to ensure best value to the farmer and such price reference may be linked to the prevailing prices in specified APMC yard or electronic trading and transaction platform or any other suitable benchmark prices:

Provided  that  the  method  of  determining  such  price  or  guaranteed  price  or additional amount shall be annexed to the farming agreement.

Unquote: The clauses say that in case the price mentioned in the farming agreement is subject to variation then such agreement shall explicitly provide for a guaranteed price. The interpretation of this clause gives an inference that the price in the agreement can be either a fixed price or variable price and in case of variable price, there has to be a guaranteed price that is payable to the farmer.

Variable price will arise when the agreement is entered to deliver the farm produce and settle the price for it on a future date by the farmer and the trader respectively.    

The terms guaranteed price and price reference are very important in the above clauses. The question of such price reference will arise only when the guaranteed price that is payable as per the contract terms is lower than the price reference (i.e., reference price), in which case the farmer is to be paid according to the price reference.

Also such price reference may be linked to the prevailing prices in specified APMC yard or electronic trading and transaction platform or any other suitable benchmark prices. 

In other words, the farmer is assured of a guaranteed price though the prevailing prices (i.e., market prices) may be lower than the guaranteed price and at the same time he is also assured of additional benefit of over and above the guaranteed price when the prevailing prices are higher than the guaranteed price.

Whereas when the farmer agrees for a fixed price then he will be getting only such fixed price irrespective of the prevailing prices on the date of receipt of his payment under the agreement.

Careful reading of this leads to the inference that such fixed price may be decided by the farmer and the trader mutually and it need not necessarily be equal to or at par with the market price or MSP (wherever it is applicable, since MSP is not applicable for all farm produce) or even higher than such market price or MSP that is prevailing at the time of entering into the agreement.

Therefore, this may lead to the farmers getting forced (i.e., not necessarily by the trader but by other circumstances) to agree for a fixed price that may be lower than the market price or MSP as on the date of signing the agreement for future performance.

Similarly, the farmer may agree to sell his produce and deliver the same immediately at a fixed price when such produce is ready for sale and lying with him.

In both the cases (i.e., future sale and current sale of the produce), the fixed price may be even lower than the market price or MSP which normally happens since majority of the farmers belong to small and marginal category who have a very weak bargaining power.

Unfortunately the above mentioned section 5 of The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 does not stipulate categorically linking the fixed price to MSP or market price or any other bench mark price to protect the farmer’s interests. 

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

Quote:

Section 3- Subject to the provisions of this Act, any farmer or trader or electronic trading and transaction platform shall have the freedom to carry on the inter-State or intra-State trade and commerce in farmers’ produce in a trade area. 

Section 4. (1) Any trader may engage in the inter-State trade or intra-State trade of scheduled farmers’ produce with a farmer or another trader in a trade area:

Provided that no trader, except the farmer producer organisations or agricultural cooperative society, shall trade in any scheduled farmers’ produce unless such a trader has a permanent account number allotted under the Income-tax Act, 1961 or such other document as may be notified by the Central Government.

Section 5. (1) Any person (other than individual), having a permanent account number allotted under the Income-tax Act, 1961or such other document as may be notified by the Central Government or any farmer producer organisation or agricultural cooperative society may establish and operate an electronic trading and transaction platform for facilitating inter State or intra-State trade and commerce of scheduled farmers’ produce in a trade area:

Unquote: Prior to the 2020 legislation, agricultural trade in India could only be conducted in APMC market yards (mandis) and other markets notified under state APMC Acts. However, agricultural trade could also be conducted in places other than in APMC yards or other markets notified under state APMC Acts by payment of market fee or cess by farmers and traders.

The FPTC Act, 2020 now permits the farmer and trader the freedom to carry on the inter-State or intra-State trade and prohibits the states from collecting market fee or cess from farmers and traders mentioned above. 

Quote:

Section 8. (1) In case of any dispute arising out of a transaction between the farmer and a trader under section 4, the parties may seek a mutually acceptable solution through conciliation by filing an application to the Sub-Divisional Magistrate who shall refer such dispute to a Conciliation Board to be appointed by him for facilitating the binding settlement of the dispute.

Section 15. No civil court shall have jurisdiction to entertain any suit or proceedings in respect of any matter, the cognizance of which can be taken and disposed of by any authority empowered by or under this Act or the rules made thereunder.

Unquote: reading of the above clause gives the inference that in case of dispute the parties (i.e., the farmer and the trader) may either opt for a civil suit or alternatively seek a mutually acceptable solution through conciliation by filing an application to the Sub-Divisional Magistrate.

In case the parties to the agreement opt for mutually acceptable solution through conciliation then the matter or dispute resolution will be outside the jurisdiction of the civil court. In other words, the party who feels dissatisfied with the conciliation process will lose his right to file a civil suit.

Quote:

Section 13. No suit, prosecution or other legal proceedings shall lie against the Central Government or the State Government, or any officer of the Central Government or the State Government or any other person in respect of anything which is in good faith done or intended to be done under this Act or of any rules or orders made thereunder.

Unquote: The government and its officials get an umbrella of immunity from legal proceedings against them under the shelter of acts done in good faith. This means it is for the aggrieved party in the conciliation process to establish that the government and its officials have not acted in good faith.

The Essential Commodities (Amendment) Act, 2020

Quote:

Section 3 of the Essential Commodities Act, 1955 will have the following sub sections 

I a)  The supply of such foodstuffs, including cereals, pulses, potato, onions, edible oilseeds and oils, as the Central Government may, by notification in  the  Official  Gazette,  specify,  may  be  regulated  only  under  extraordinary circumstances which may include war, famine, extraordinary price rise and natural calamity of grave nature;

b) Any action on imposing stock limit shall be based on price rise and an order for regulating stock limit of any agricultural produce may be issued under this Act only if there is—

 i)  Hundred per cent increase in the retail price of horticultural produce; or

ii)  Fifty per cent increase in the retail price of non-perishable agricultural foodstuffs, over the price prevailing immediately preceding twelve months, or average retail price of last five years, whichever is lower:

Provided that such order for regulating stock limit shall not apply to a processor or value chain participant of any agricultural produce, if the stock limit of such person does not exceed the overall ceiling of installed capacity of processing, or the demand for export in case of an exporter.

Unquote: Reading of the above clauses give an inference that the supply of foodstuffs can be regulated by the government under extraordinary circumstances as mentioned in the clauses and also when the increase in the retail price is reaching the ceiling limits mentioned in the clauses.

However, such regulations on stock limits shall not apply to a processor or value chain participant of any agricultural produce, provided the stock so held by them does not exceed the overall ceiling of installed capacity of processing, or the demand for export in case of an exporter.

Nevertheless, there is a possibility of the processor or value chain participant installing very huge capacity of processing in order to circumvent the regulation for stock limit and effectively resort to hoarding.

Analysis of the major clauses in the Acts recently passed in the parliament as mentioned indicate the following gaps.

  1. Farmers getting forced (i.e., not necessarily by the trader but by other circumstances) to agree for a fixed price that may be lower than the market price or MSP as on the date of signing the agreement for future sale as well as current sale of the produce.
  2. In case the parties to the agreement opt for mutually acceptable solution through conciliation, then the matter or dispute resolution will be outside the jurisdiction of the civil court and the party who feels dissatisfied with the conciliation process will lose his right to file a civil suit.
  3. The government and its officials get an umbrella of immunity from legal proceedings against them under the shelter of acts done in good faith. This means it is for the aggrieved party in the conciliation process to establish that the government and its officials have not acted in good faith.
  4. There is a possibility of the processor or value chain participant installing very huge capacity of processing in order to circumvent the regulation for stock limit and effectively resort to hoarding.

The gaps mentioned above will adversely affect the weaker party in the farm agreement and he will be placed in a vulnerable position. Needless to say that in the farm agreement, it is the farmer who is normally the weaker party as he is always desperate to sell his farm produce.

Therefore, it is the responsibility of the government to resolve the above gaps by having an open dialogue with the farmers’ representative bodies since these farm laws are brought to improve the conditions of the farmers. As the government has already initiated the talks let us hope there will be an amicable solution at an early date to the current farmers’ agitation. 

Reference- 

  1. https://www.prsindia.org/sites/default/files/bill_files/Farmers%27%20Produce%20Trade%20and%20Commerce%20bill%2C%202020.pdf
  2. https://ruralindiaonline.org/library/resource/the-essential-commodities-amendment-act-2020/?gclid=EAIaIQobChMI16f-ncbK7QIVDjErCh1RSg4pEAAYASAAEgK8APD_BwE
  3. https://ruralindiaonline.org/library/resource/the-farmers-empowerment-and-protection-agreement-on-price-assurance-and-farm-services-act-2020/

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About the Author

Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]