The two farm Acts and the ECA seem more like a package of freedom for corporate buyers in the name of freedom for farmers
The agitation over the three farm reforms has become protracted and vexed. The Government which initially claimed that the Acts will benefit the farmers has now recognised that there are problems in the Agricultural Produce Trade and Commerce (Promotion and Facilitation) Act (popularly known as APMC mandi Bypass Act) and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act (in short, Contract Farming Act). Therefore, it is now open to amending them, while the farmer unions are demanding a repeal of all three, including the Essential Commodities Act (ECA, 2020) though the ECA is not a new Act, arguing that they are so poorly designed that amendments won’t do. Let’s see some of the provisions and implications here.
ECA, 2020: The ECA, as per its original mandate, can be amended in terms of inclusion or exclusion of any commodity from the list of essential commodities. The amended ECA provides for relaxation for stocking of cereals, edible oil, pulses, onion and potato crops, though that would still not be absolute freedom from the ECA. Such freedom can never be possible in a country like India where agriculture is governed by both producer and consumer interest. Even the Minimum Support Price (MSP) is determined keeping in mind both producer and consumer interest. This ECA relaxation allows larger stocks without limits for various users of farm produce like exporters, processors and value chain participants. Still, the option of imposing stock limits for reasons of war, famine, natural calamity and extraordinary price rise is retained. The amended Act places stock limits if horticultural produce prices rise 100 per cent and prices of non-perishables by 50 per cent above the previous year/five-year average price respectively. It is debatable whether this kind of price rise should be allowed before imposing stock limits given the levels of food insecurity and poverty in India.
These ECA relaxations sound good from the perspective of value chain participants but may not really help growers directly. In fact, the “de-fanging” of the ECA would be a windfall for trading companies who speculate on prices. Only some Farmer Producer Organisations (FPOs) may be able to use it for storing their produce for better prices and processing/value addition, if they have warehouses and are into processing, storage, packing, transport and distribution. The consumer benefit of this relaxation is not a given as it may actually lead to larger hoarding and therefore, higher consumer prices.
The APMC mandi bypass Act, 2020: This creates a new trade area outside the APMC market yards/sub-yards where any buyer with a Permanent Account Number (PAN) can buy directly from farmer sellers and the State Government can’t impose taxes on such a transaction. It is expected to lower costs for buyers and bring higher prices for farmers. But, buying at a lower price does not necessarily mean that buyers would pass on the saving to farmers as a higher purchase price.The claim is also made of growers having many channels for selling now and not just the APMC one. This is misplaced as majority of the farm produce (with the exception of some States like Punjab and Haryana) did not go through APMCs. Further, most agricultural States have already provided for a channel choice by amending their APMC Acts and direct purchase and contract farming are common now. Problematically, in the new trade area, there is no authority to provide counterparty risk coverage for farmer sellers unlike the APMC where licenced buyers and commission agents had to give bank guarantees. The argument that APMC mandis are monopolistic and exploitative is not entirely true. In States like Karnataka, Gujarat and Maharashtra, there are elections for APMC office-bearers. There are representatives of traders, commission against, farmers, cooperatives and the Government on APMCs and they are multi-stakeholder elected bodies. Only Punjab has not had an election to the APMCs in nearly 40 years. It only nominates chairpersons and members. It is important to recognise that, for small and marginal growers, the APMC mandi is the last resort channel of sale. If APMCs are reduced in importance, small farmers would not gain unless more of them are organised into FPOs and become attractive to private agencies for contract farming or direct purchase from which they are, by and large, excluded till now.
Contract Farming Act, 2020: The use of the term farming agreement in the Act itself is unusual as it is being confused with other arrangements like sharecropping or leasing pacts. The biggest problem is that it is being confused with corporate farming (firms doing their own farming on leased or owned land) and it is definitely not that, as land leasing and land ceilings Acts at the State level are still intact though they may not remain so for long, going by what Karnataka, Rajasthan and Punjab are planning in terms of opening up of land markets. But, the way the “production agreement” is defined raises doubts whether it is more about land leasing and corporate farming rather than contract farming. The confusion has led to the Rajasthan Amendment Bill, 2020 assuming that the sponsor can lease farmers’ land. The “trade and commerce agreement” under the Act also includes direct purchase which is not the appropriate transaction under this Act. The other indication that direct purchase is a part of this Act is in the fact that large retailers are mentioned as contracting parties.
The global and the Indian truth about large retailers or supermarkets is that they don’t have contract pacts with farmers and buy directly without any advance commitment of price or quantity and a farmer does not grow for them to begin with.
The Act links bonus and premium over and above the guaranteed price, with the mandi price or electronic market price which is anti-contract farming in nature. The contract price, like many other basic aspects of contract, should be left to the parties to negotiate and can’t be tied to any other channel especially APMC price, as these markets were seen as not deciding the prices efficiently. Now, going back to the same mandi does not speak very well of the Act. Since contract farming takes mandi to the farm, it is a channel with serious implications for farmers in terms of production. But it leaves out many sophisticated aspects of modern contract farming practices like contract cancellation clauses and damages therein. The very basic aspects of contract farming like acreage, quantity and time of delivery are not specified, which is a must for any law regulating it as these are mandatory aspects of such an arrangement whether with supply of inputs or otherwise. In fact, the 2003 model of the APMC Act had such provisions and even a model contract farming pact. Therefore, it required well-thought-out regulation but the Act fares poorly on that count.
The Act specifically mentions that quality, grade and standards for pesticide residue, food safety, good farming practices, labour and social development standards may also be adopted in the farming agreement. It is sad that the social and labour aspects are only suggested and not made mandatory given the fact that child labour and labour exploitation in wages and work conditions are widely prevalent in contract farming. It is also affecting India’s exports and reputation in global markets for fair trade and ethical products.
The Act is more about facilitation and promotion of the contract farming mechanism rather than its regulation. That the Act goes all the way to facilitate contract farming is clear from the fact that it mentions that ECA, 2020 would not apply to contract farmed produce. Why should this provision of another Act be specifically mentioned in another law which has nothing to do with this law directly or indirectly?
In both the new farm Acts, FPOs are treated only as a farmer and not a buyer which also needs correction as these entities themselves also undertake contract farming in many States and are never involved in production and, therefore, can’t be called farmer. The APMC mandi bypass Act also provides for separate payment rules for FPOs which is unnecessary as these are member-owned bodies and don’t need to be told when and how to pay their members. It is like telling Amul how to pay its members!
One of the major objectives of the new Acts is to attract private investments in agri-business and markets. But investments come not due to a change in law, but incentives. Bihar completely deregulated the market instead of reforming it in 2006 by repealing the APMC Act. But one has not seen any new investments there. The APMC structure has collapsed there with procurement and purchase centres falling. The two farm Acts and the ECA seem more like a package of freedom for corporate buyers in the name of freedom for farmers.
The writer is Professor, Centre for Management in Agriculture, IIM, Ahmedabad. The views expressed are personal.
