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A Critical Analysis of the Three Farm Acts, 2020

The Indian Parliament passed three agriculture bills, these bills replace the ordinances which were brought in to action during the COVID-19 lockdown and aims at liberalising trade in agriculture commodities.

This blog post aims at discussing the various changes that have been brought about by the new bills which have now received the president’s assent and are now acts.

Historical Background
The Indian Parliament passed three agriculture bills — Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, Farmers (Empowerment and Protection) Agreement of Price Assurance, Farm Services Bill, 2020, and the Essential Commodities (Amendment) Bill, 2020 in its monsoon session on 23 September, 2020.

These bills replace the ordinances which were brought in to action during the COVID-19 lockdown and aims at liberalising trade in agriculture commodities.

Amid the stiff opposition from the opposing party, there have been voices that have come out in support of the bills stating that they would unshackle the workforce engaged in the agriculture sector.

The bills finally received the president’s assent on 28th September, 2020 and became Acts.

Legislative history:
Farming, being a subject of the state list was governed by the enactments made by the respective states, which gave rise to a question of constitutionality of the present statutes.

However, it should be noted that a large number of these states had based their enactments on the Model State Agricultural Produce Marketing Act, 2003.

It was this enactment that gave the Agricultural Produce Marketing Committees their legal monopoly, effectively breaking up the large Indian farming market into disjoined sections and barring the entry of private players into the sector.

Although section 45 of the model Act gave a scope for direct purchase of agricultural produce from agriculturalists, it was to be done by getting a licence from the director, managing director or prescribed authority, as the case may be.[1]

The states in fear of losing revenue effectively never gave permission, thus giving rise to the middlemen mandis and caused farmers to remain in poverty for decades.

The Essential Commodities Act, 1955 was enacted to prevent stocking of food materials, which could turn the tide of agreeing upon prices on food markets against farmers. The act was enacted so that it could prevent traders from hoarding essential items, thus artificially inflating the prices of such items.

The major changes brought in by Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act is truly a welcome legislation and was long due in India. India had always been shirking away from a truly open market economy and was trying to create a highly guarded market for its farmers.

Although it had high ideals of protecting its farmers from opportunistic traders, it was in fact creating a lot of hardships for the very farmers it wished to protect.

The Parliament had enacted a model State Agricultural Produce Marketing Act, 2003[2] which was adopted by various states after making their own variations. Although the statute was adopted by 16 states by making amendments to their respective state APMC Acts[3], it gave rise to a form of legal monopoly by the agricultural mandis, which resulted in breaking up of markets and poorer competition as well as prevented corporations from joining or investing in the agricultural markets.

Section 40(1) of the Model State Agricultural Produce Marketing Act, 2003 provided that:
All notified agricultural produce shall ordinarily be sold in the market yards/ sub market yards or in the private yards of the licence holder, subject to the provisions of sub-section (2). Provided that the notified agricultural produce may be sold at other places also to a licence holder especially permitted in this behalf under section 45 this Act.

Provided further that it will not be necessary to bring agricultural produce covered under contract farming to the market yard / sub market yard / private yard and it may be directly sold to contract farming sponsor from farmers’ fields.

As it can be seen, the Agricultural Produce Marketing Committees (hereinafter called, the APMC), which were run by Government servants, was plagued by delays and bureaucratic red-tapes which led to a great deal of harassment and delay in selling for the farmers and producers.

Further, the APMC having a monopoly provided only a set Minimum Selling Price or some higher amount which resulted in very little motivation for the farmers to invest in their land and make more farm produce.

In fact, in foreign countries, farmers often collaborate with each other and form corporations so as to infuse more capital in their farmland. However, considering the APMCs having broken up the agricultural market, the same was not feasible in India, until now.

Now, comparing that with the newly enacted the Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020[4], it can be seen that section 3 of the statute provides –
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.[5]

The statute noting the importance of regulating certain farm produces like tobacco, provides a category called scheduled farmer’s produce and defines it in section 2(j) of the Act as the agricultural produce specified under any State APMC Act for regulation.

However, section 4 of the Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 goes on to liberalising the agricultural markets further by providing traders in agricultural products to buy from farmers directly than having to go and buy from agricultural mandis.

Section 4 provides
  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 co-operative 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.
     
  2. The Central Government may, if it is of the opinion that it is necessary and expedient in the public interest so to do, prescribe a system for electronic registration for a trader, modalities of trade transaction and mode of payment of the scheduled farmers’ produce in a trade area.
     
  3. Every trader who transacts with farmers shall make payment for the traded scheduled farmers’ produce on the same day or within the maximum three working days if procedurally so required subject to the condition that the receipt of delivery mentioning the due payment amount shall be given to the farmer on the same day, provided that the Central Government may prescribe a different procedure of payment by farmer produce organisation or agriculture co-operative society, by whatever name called, linked with the receipt of payment from the buyers.

As it can be seen, apart from vastly increasing the size of market and destroying the monopoly of the state APMCs, it also enables a level playing field for traders all over India to compete for farm products, except for scheduled farm produces.

It should also be noted that the statute provides for payment of the price agreed upon within three days of the delivery of the produce. However, this is not a vast change as section 41(2) of the Model State Agricultural Produce Marketing Act also provided safeguard for farmers ensuring payment for the farm produces on the same day, subject to extension of 5 days.

The sub-section 2 of section 41 provides-
  1. The price of the notified agricultural produce brought in the market yard,/sub market yard / private yard shall be paid on the same day to the seller in market yard /sub market yard / private yard . Payment of notified agricultural produce purchased , out of such yard / yards, shall also be made to the seller, if he is not a trader, on the same day there itself.
     
  2. In case purchaser does not make payment under clause (a), he shall be liable to make additional payment at the rate of one percent , per day of the total price of the agricultural produce, payable to the seller within five days.
     
  3. In case the purchaser does not make payment with additional payment to the seller under clause (a) and (b) above, within five days from the day of such purchase, his licence / registration shall be deemed to have been cancelled on the sixth day and he shall not be registered or granted any licence or permitted to operate under this Act for a period of one year from the date of such cancellation.[6]

Another welcome feature of the new Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 is that section 6 of the statute expressly bars states to charge any cess or market fee or levy on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produce in a trade area.[7]

This will help grow the market and stimulate competition on the part of traders from different states with regard to agricultural produce in the country and also lead to entry for sponsors to conduct investments in agricultural produce. Also, the platform will possess similar liabilities as of any other online marketplace, which will further safeguard the rights of farmers.

Further the bar of levying charges on electronic trading will help conduct online trade of farm produces and increase selling power for farmers all throughout the country.

However, this opening of the agricultural markets for all traders throughout the country has given rise to a worry that poor farmers may be exploited by traders as farmers have far lesser negotiating power than the corporate business houses that are going to enter the farm produce business. Further analysis of the next statute in line, which is the Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 is sure to allay these doubts.

The major changes brought in by The Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020

This statute was brought in to fix the drawbacks that the previous statute had not yet addressed, which was exploitation of farmers by corporations.

As such, section 3(2) of the Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 provides that –

No farming agreement shall be entered into by a farmer under this section in derogation of any rights of a share cropper.[8]

The explanation attached to the sub-section further goes on to provide:
For the purposes of this sub-section, the term "share cropper" means a tiller or occupier of a farm land who formally or informally agrees to give fixed share of crop or to pay fixed amount to the land owner for growing or rearing of farming produce.

As such it can be seen that the Act serves to protect farmers against unscrupulous business houses seeking to take away the rights of farmers as share croppers.

Section 5 of the Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 provides for the price that is to be paid for a farming produce to be determined and mentioned in the farming agreement itself.

The section notes that the price may be subject to variation and therefore provides for the option to select a guaranteed minimum price with the option to provide a reference to any bonus or premium, that will serve 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.[9]

Linking of the price to those in the APMC yard or electronic trading and transaction platform will help the farmer to know how the price that he is getting stacks up to other offers.

This is important as previously in 2006, Bihar Government repealed its APMC Act with a similar objective to attract private investment in the sector and gave charge of the markets to the concerned sub-divisional officers in that area. However, this led to a lack of required marketing infrastructure as the existing infrastructure eroded over time due to poor upkeep.[10]

Section 3 of the Act provides for a farming agreement between a farmer and a buyer prior to the production or rearing of any farm produce. The minimum period of an agreement will be one crop season, or one production cycle of livestock. The maximum period is five years, unless the production cycle is more than five years.

This section helps the farmer not get entangled into obligations for years after the production cycle of his crops, as that can lead to corporations getting control of farmers’ work and lands perennially even for several production cycles of the farmers’ crops, indirectly killing competition in the market.

This section allows farmers to enter into contracts with corporates, and simultaneously prevents corporates from taking undue advantage of farmers, most of whom are illiterates.

The Act also helps prevent the farmers from getting entangled into disputes with the business houses by enabling disputes between farmers and sponsors or traders to be resolved via conciliation.

Section 13(1) of the Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 also provides that –

Every farming agreement shall explicitly provide for a conciliation process and formation of a conciliation board consisting of representatives of parties to the agreement. Provided that representation of parties in such conciliation board shall be fair and balanced.

As such, it can be seen that the Government encourages the disputes between the two parties to be resolved amicably without any interference from the state.

The proviso to the section also serves to stress on the constitution of the conciliation board to be fair and balanced.

As stated by Justice Hidayatullah in the case of Shah Bojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha[11] – As a general rule, a proviso is added to an enactment to qualify and create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule.

Therefore, it can be seen that the proviso serves not to enact a general rule, different from what is provided in the section but to safeguard against possible filling of representations by the more powerful party making the conciliation proceedings unfair and unbalanced.

However, if the dispute resolution is not successful, it may be appealed to the to the Sub-Divisional Magistrate, who shall be called the Sub-Divisional Authority for deciding the disputes under farming agreements and thereafter to the Appellate Authority, which shall be presided over by the Collector or Additional Collector nominated by the Collector.

This section is noteworthy as it keeps in mind the huge delay that usually occurs in civil courts and recognises that farmers usually do not have the financial capacity to appeal against orders passed by civil courts and pay huge fees for hiring good lawyers.

This section aims at turning the imbalance on its head by adopting the simple method of conciliation which is helpful for both the farmers as well as corporates – both of which aims at not getting into unnecessary litigation.

Also, the statute enables the disgruntled party to take further solace in an appeal to the sub-divisional authority which shall basically perform as a quasi-judicial body in this regard.

In order to protect the farmer’s land from being taken away, the statute via section 15 also ensures that "Notwithstanding anything contained in section 14, no action for recovery of any amount due in pursuance of an order passed under that section, shall be initiated against the agricultural land of the farmer."

The major changes brought in by The Essential Commodities (Amendment) Bill, 2020
The Essential Commodities Act, 1955 empowers the central government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities.

The Act in order to prevent hoarding barred stocking of goods marked as essential products. However, section 2 of the Essential Commodities (Amendment) Act, 2020 helps liberalise the stocking of farm produce by sponsors or traders so as to help provide a boost in the investment on farm produces,

Section 2 provides:
In section 3 of the Essential Commodities Act, 1955, after sub-section (1), the following sub-section shall be inserted, namely:
(1A) Notwithstanding anything contained in sub-section (1):
  1. 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;
  2. 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:
    1. hundred per cent. increase in the retail price of horticultural produce; or
    2. 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:

Provided further that nothing contained in this sub-section shall apply to any order, relating to the Public Distribution System or the Targeted Public Distribution System, made by the Government under this Act or under any other law for the time being in force.[12]

The explanation appended to the section provides that:
the expression value chain participant, in relation to any agricultural product, means and includes a set of participants, from production of any agricultural produce in the field to final consumption, involving processing, packaging, storage, transport and distribution, where at each stage value is added to the product.

This amendment was welcome in the sense that it actually realised the omni-present concerns of non-investment in the agriculture sector as to that being the bar of traders to stock farming produce. It is an accepted fact that all business houses all across the world have to stock the goods that they sell in order to reach a wider market.

As such, preventing businesses from stocking will in turn result in diminishing their profit margin which would in turn demotivate them to invest in the farmers’ land which is the aim of the previous two enactments discussed.

Conclusion
On comprehensively analysing these three statutes, it seems that they are actually quite welcome legislations that can literally turn around the dismal state of agriculture in India. However, considering this is no small feat and the statutes are quite massive in their reach, it is no doubt that they have ruffled quite a few feathers of vested interests all over India.

In fact, IMF chief has said on record that the new farm laws has potential to boost farm income whilst simultaneously stressing on India’s massive need of reforms in the agricultural sector.[13] As such, it is only a waiting game to see how much of a boon to farmers does the new laws actually become in the next decade.

End-Notes:
  1. Model State Agricultural Produce Marketing Act, 2003, s. 45
  2. The Model Act The State Agricultural Produce Marketing Act, 2003, available at: http://agricoop.nic.in/sites/default/files/apmc.pdf (last visited on October 19, 2020)
  3. Ministry of Agriculture , Final Report of Committee of State Ministers, In-charge of Agriculture Marketing to Promote Reforms, (January, 2013)
  4. The Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (Act 21 of 2020)
  5. The Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (Act 21 of 2020), s. 3.
  6. The State Agricultural Produce Marketing Act, 2003, s. 41(2
  7. The Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (Act 21 of 2020), s. 6.
  8. The Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 (Act 20 of 2020), s. 3(2).
  9. The Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 (Act 20 of 2020), s. 5.
  10. Investment in Agricultural Marketing and Market Infrastructure – A Case Study of Bihar, available at: https://www.ccsniam.gov.in/images/pdfs/Final_report_of_Bihar_research_study.pdf (Last Visited on October 15, 2020)
  11. AIR 1961 SC 1596
  12. The Essential Commodities (Amendment) Act, 2020 (Act 22 of 2020), s. 2.
  13. India’s new agri laws have potential to raise farm income: IMF's Gita Gopinath, available at: https://www.livemint.com/news/india/indias-new-agri-laws-have-potential-to-raise-farm-income-imf-s-gita-gopinath-11611733370008.html (Last Updated on Jan 27, 2021)

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