This article is written by Manasvee Malviya, from the University of Petroleum and Energy Studies, Dehradun. This article exhaustively deals with the Farmers’ act 2020 along with the need for implementation and the controversy involved.
In September 2020, the President of India assented to a long-overdue reform in the agricultural sector, that enacted two new laws, first, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 and second, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 and the government amended the Essential Commodities (Amendment) Act 2020. The reforms in the agricultural sector have been pending for a long time, but the changes made by the government have garnered criticism and controversy. Due to the changes, farmers have been dissenting across the country.
The new Acts have been eminent as historic and path-breaking movements in the agricultural reforms in the country. The Acts are implemented for the benefit of the farmers, yet they protested against the farm bills (Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill 2020, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020, and the Essential Commodities (Amendment) Bill 2020).
Detailed analysis of the Farmer’s Act of 2020
India has been an agrarian economy. After independence, the agricultural sector faced many challenges, and it required reformative actions. Initially, the farmers used to sell their produce directly to the consumer. During independence, the zamindari system was prevalent, farmers used to take loans from zamindars or from money lenders to buy seeds, fertilizers, and other things required to do farming. Zamindars and the moneylenders used to charge a high- interest rate on the amount borrowed as a result, the farmers couldn’t pay the principal amount along with the high interest. To get the money back, the zamindars or the money lenders would buy all the produce; the farmers were paid very little and had no bargaining power as they were already in debt. This cycle continues again as they have to buy things to sow their fields and require money. Thus, it is an exploitative process.
From the 1950s onwards, the government focused on the agricultural sector, and priority was given in a five-year plan. Also, the government focused on helping farmers and protecting them from exploitative middlemen. In 1955, the Essential Commodity Act was passed to protect the consumers from exploitative traders/middlemen and to ensure the availability of essential goods to the consumers, therefore, the Act provided provisions regarding the production, distribution, and pricing of the essential commodities.
At the time of the green revolution in India, in the 1960s-1970s, the government enacted Agriculture Produce Market Regulation (APMR) Act. The Act established a well-organised market or mandis across India, where agricultural marketing would occur at a regulated price. These mandis were controlled by the Agricultural Produce Market Committee (APMC).
Around the same time, an American agriculturist- Dr. Frank W Parker ( adviser ) advised the Ministry of Food and Agriculture of the disadvantages faced by the farmers due to the low selling prices of the crops. To address this problem Minimum Support Price (MSP) for crops was implemented by the Minister of Food and Agriculture- C. Subramaniam. To ensure a strong foundation of MSP, Mr. Subramaniam introduced two major institutions, first, Commission for Agricultural Costs and Prices, with the responsibility to perform detailed analysis on cultivation costs and set up MSP and second, the Food Corporation of India (FCI), with the responsibility of procuring grains from farmers in the mandis established by AMPCs for the government.
These two institutions over the period have empowered the farmers to increase their agricultural produce and encouraged them to invest in modern and efficient agricultural methods. The existence of these institutions has protected the farmers, but the middlemen have found a way to exploit them.
The problem of agricultural stagnation is not only restricted to the APMC shortcomings but also after the 15-20 years of the green revolution, the objective of the International Monetary Fund and World Bank shifted from agriculture to industry. Due to the global perception that the economy can grow only with the growth of industrial sectors, the focus was shifted. Rather than developing small-scale agriculture, the produce was shifted to a highly subsidised rate from developed to developing countries. Thus, the farmers began to face the problems- limited income, huge debts, limited yields, etc.
The Farmers Act 2020 was introduced to make structural changes in the existing rules and regulations. The idea behind introducing the law was to provide freedom of choice to the farmers and encourage corporate investments in the agricultural sector for the benefit of the farmers. The involvement of corporate sectors in the agricultural supply chain will reduce the wastage of the commodity and improve the price stability.
Decoding the three farm policies
The agricultural reforms were long overdue. In June 2020, three ordinances were introduced in the parliament to bring changes in some aspects of the agricultural sector and economy- price assurance, agricultural commodities, farm services, including farm contracts. Also, the Acts reform the agricultural marketing system by removing restrictions of the private stock-holding companies of agricultural produce or creation areas free of middlemen.
Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
The Act provides a national structure for a farming agreement, that protects and empowers the farmers to engage with agricultural business firms, wholesalers, exporters, or retailers for farm services. Also, for the sale of produce at a mutually agreed fair pricing framework for any matters related to matters thereto. This Act is an improved and simplified version of the Contract Farming Act 2017. Up to date, 20 states have adopted the Contract Framing Act. The 2020 Act, removes the complicated system of smallholdings, the registration, and other provisions regarding contract farming, thus, shifting the balance in favour of farmers.
In India, contract farming has been practised at a limited scale, not on a long-term basis. This practice was instigated in the State of Punjab. In 1998 the State started production on contract farming, facilitated by PepsiCo. Although, the initiative taken by the company and the State was unsuccessful. On the other hand, since 1961 Nestle has been in a successful agreement with farmers in the dairy sector in the Moga district of Punjab. The agreement between the two is similar to the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Act. Nestle’s partnership with dairy farmers is a perfect example of success and economic development. Thus, it is evident that contract farming has been beneficial as well as unsuccessful. But, the success stories of contract farming are more than the unsuccessful ones. Thus, contract farming has proven itself to be advantageous for farmers.
This Act sets provisions for an agreement between the farmers and the private buyers (agri-business firms) before the start of production. For the agreement between the farmers and the buyers, the minimum period must be one crop cycle, and the maximum period is set out to be five years unless the production cycle for crops is longer than five years. Further, the agreement must include the method of price determination for the commodities and the final price. And the minimum guaranteed price must be set for crops with varying prices. The Act between the farmers and corporate is restricted to:
- A fixed price to be paid as agreed between the farmers and the agri-business firms before the production to the farmers; and
- Provide farm services to the farmer, if mutually agreed as per the terms and conditions of the agreement.
The production of the desired quality is undertaken by the farmers and not by the agri-business firms. The role of these firms is only restricted to buying the product at the price which was agreed between them. This Act is much more simple than the contract farming practices, and the provisions of the Act favours the farmers.
The Act has no provisions regarding the leasing out of land for production by the farmers to the firms or the buyers. The firms/ private buyers are prohibited from acquiring the ownership rights or making any kind of modifications to the farmers’ lands. Further, the Act protects the farmers from the long process of legal redressal grievances and the agreements made under the Act provide for dispute resolution through SDM – Sub-Divisional Authority. With an appellate authority as a collector or additional collector. Furthermore, no actions can be initiated against the land of the farmers for any kind of recovery of dues and if the private buyers/ agri-business firm fails to pay the farmer, the penalty provision states a penalty extending to one and half times the amount owed by the firm. If a farmer retracts the agreement then in this case the recovery shall not exceed the actual cost incurred by the buyers or the agri-business firm. Also, power has been given to the state government to make rules in order to carry out the provisions for the purpose of this Act.
The myth is that under contract farming the corporations will direct the farmer and the farmers will not be able to fix prices according to their will. The small farmers will not be able to do contract farming if not financed by the firms. And in case of disputes, the firms will have the say. But the reality is that under contract farming, the farmers have the authority to determine the price for the produce. After entering into an agreement the farmers won’t have to seek out traders, produce will be picked directly from the farm by the purchaser and in case of dispute, a separate redressal mechanism has been set up.
Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
The Act reduces the interstate barriers and gives freedom to the farmers to sell the farm produce at any place in the country that is within APMC mandis or outside the mandis. It allows the setting up of an electronic platform for the sale-purchase of agricultural produce, thus promoting e-commerce in agriculture. There are provisions under the Act that prescribes modalities for registration of the trader and trade transaction in the trading area. Even if the new system doesn’t work according to the expectations, the government can interfere to regulate the system.
The APMC market’s ineffectiveness has led to the sale of more than half of the marketable surplus outside the mandis. Transactions outside APMC markets lack fairness and transparency as they violate APMC regulations, thus fear being busted by the APMC officials. The new Act legalizes transactions/ dealings outside the mandis, which is favourable for farmers. Also, the Act authorizes direct purchases from farmers at their doorsteps or farms- similar in the case of milk. The farmers will have the freedom to quote prices for their produce. If the State directs such reforms in the right direction, the agricultural procedures can become price dictators rather than remaining price takers.
Day by day the size of farms is getting smaller, the question is how the new Act sets provisions for benefiting the small landholder. If the farmers want to diversify their produce as high-value crops, the farmers need price assurance and a place to sell the small batches of their produce. Fresh fruits and vegetables being a high-value crop don’t mature on the same day, thus, it is harvested in small batches over time. This kind of harvesting requires a collection facility near the farm and sales options. Farm Produce and Trade commerce (FPTC) will facilitate the creation required by the smallholders for diversifications at small farms.
Traditionally, there are six to seven transactions in a supply chain for a product to reach consumers. Each transaction has its cost and margin, hence, a large price gap between procedures and consumers. FPTC compresses the value chains and eliminates all the excessive intermediation. As a result, in certain cases, farmers will be able to sell the produce directly to the consumer. The Act creates opportunities for rural youth in agricultural trading.
The myth is that the Act will stop the procurement of Minimum Support Price (MSP). The reality is that under the Act, the farmers will have the option to sell the produce at MSP along with an opportunity to sell outside the mandis.
Essential Commodities (Amendment) Act, 2020
The Essential Commodities Act has been amended for agriculture and food items. The government has the authority to regulate the production, supply, and distribution of essential goods including pulses, cereals, onions, oils, oilseed, and potatoes. The authority given to the government under this Act can be exercised only under extraordinary circumstances such as war, natural calamities, famine, and extraordinary price rises. The amendment in the Act lays transparent guidelines for imposing and regulating stock limits. The limit is a 100 percent increase in the retail price of horticulture or a 50 percent increase in the retail price of agri-food non-perishable items in the preceding 12 months or the average price of the last 5 years, whichever is less.
The amendment in the Act helps to predict the governments’ action to invoke the Essential Commodities Act based on price triggers. Further, the Act doesn’t diminish the power of the government to intrude in the market for controlling price.
The reason behind the protest
Farmers, political parties, and farm organizations have been protesting against the bill. Organizations such as the All India Kisan Sangharsh Coordination Committee (AIKSCC) and Bhartiya Kisan Union (BKU). The protestors claim that the ordinances are only intended to benefit the corporate sector at the expense of the farmers. All the Acts were opposed by the opposition parties, calling themselves anti-farmers. The farmers protested to gain more opportunities to keep their opinion and to be heard under the new bill since under the old existing system there were hardly any opportunities. Apart from this, the Acts affect the most powerful commission agents in mandis known as arhatiyas in Punjab and Haryana, as they don’t want to lose their hold on the farmers.
The state of Punjab and Haryana is affected the most due to Mandi tax loss- as the main source of revenue for the states. In addition, the Arhatiyas will not only lose their commissions but their traditional companies as well. Further, the concerns raised by the protestors also include the lack of relevance of mandis controlled by APMC, the end of the MSP regime, the risk of losing rights on their land under the framing contract, and the decrease in farm produce due to corporate agri-business dominance.
The need for implementation of the Act
- The 1991 policy reforms in India didn’t focus and cover the agricultural sector, due to the perception that development in the industry sector will boost the economy. Nobody felt the need to enhance the agricultural sector. After a few years of implementing the reforms and liberalization, the Indian economy accelerated due to non-agricultural sectors. With the increase in non-agricultural income, the agricultural income in the country remained negative. Thus, the difference between both the incomes caught the attention and the need for reforms in the agricultural sector. This was followed by the liberalization of agricultural trade because of the World Trade Organization agreement and the rising number of suicides by the farmers and agrarian distress in the country.
- India is a country that accumulates a large surplus of some commodities and, at the same time, imports immense quantities of edible oils and pulses, thus, the imbalance between the demand and supply in the country. India imports fruits and vegetables, which can be grown in the country. This is because of the poor market facility, logistics, and high risks of return.
- Another reason for the need for the Acts is for improving the export competitiveness of Indian agriculture. The declining population growth rate in India has lowered the growth rate in domestic demand for some food groups and aggregate food to a certain extent. Over the coming years, as per the current trend of demand and supply, India is required to sell 20-25% of the incremental agri-food production in overseas markets.
- The government either has no or negligible interference in the market related to agricultural segments like horticulture, milk, and fishery. In comparison to the growth rate in cereals, the MSP and other governmental interventions are high.
- India is mostly dominated by smallholdings and has small surpluses. Most of the smallholding farmers lack resources and their ability to take the risk for high-value crops. For any farmer, it is not economically viable to take only a few kilos of fruits and vegetables to the market as these mature in lots. In this sector, there must be a collection unit with price assurance so that farmers are encouraged to diversify towards high-value crops. Collection units of vegetables and fruits are based on the idea of milk collection centers.
- Although there has been development in the road networks, trade infrastructure, and communication, the agricultural sector is still disintegrated. The agricultural sector is fragmented due to price crashes, shortage, high prices, and between the harvest and lean months. The price difference of produce from a farm to retail shows an unjustified distribution, the reason being low investments in storage and the dominance of local traders in the market.
- For accelerating the growth of food processing, as required to meet the rising demand in the market and along with the creation of more jobs in rural areas for the betterment of the rural economy. For fulfilling this, the processor needs raw material of desired quality and at the desired time. In scattered markets, buying raw materials in many different small lots adds to the cost of raw materials. Therefore, it requires a new arrangement between the processors and producers.
- Lastly, the farmers are forced to go for remunerative prices through MSP and government procurement due to their disappointment with the existing marketing system in the country. Farmers must be given better options and a competitive environment to get better deals in the open market for their produce.
Why is it a controversial issue
Since independence, the overall condition of the farmers hasn’t improved a lot. According to the 2011 census, farming as the main occupation has decreased from 103 million in 2001 and 110 million in 1991 to 96 million. Over the period the number of smallholding farmers in the country has increased. It is difficult for a farmer who is already poor and in debt to accept the drastic changes in the agricultural system.
The perception farmers have regarding the Act is not positive, they are least interested in the promises done by the government in creating the ecosystem where they enjoy autonomy in selling their produce. The farmers are resistant to any kind of changes in the existing system of minimum selling price and APMC, especially farmers from Punjab and Haryana who exceptionally benefited from the green revolution. Further, the farmers don’t want any kind of intervention in MSP and APMC. Also, they are not clear about the continuation of MSP.
The government has also deregulated its authority on the agricultural market by giving agri-business firms a free hand to deal with. Private corporations are profit-oriented, thus, the farmers fear that coming into an agreement with companies will blind them to unfavourable contracts and they will become helpless. Trading outside APMC will reduce the importance of mandis. Lastly, the farmers raised the issue that throwing agriculture into an open market during the economic crisis will not provide a profitable price to the farm produce.
Issues with corporation
Giving autonomy to corporations to a large extent in agricultural sectors will eventually vanquish APMC mandis. The big corporations could have a monopoly in the agricultural market with very limited government regulation. Due to this the small retailers and small business firms may not get enough opportunities to do trade with the farmers. Hence, the business will be under the corporates and market forces. Although there will be an opportunity for the private buyers to directly contract with the farmers, what if they prefer to enter into an agreement with farmers through a middleman as it will be simple and less effort required, so the problem of middlemen will remain.
Arguments for and against the Act
For the Act
- The Agricultural Produce Market Committee (APMC) had criminalized the setting up of other competing markets for the sale/purchase of the agricultural produce, whereas the Farmers’ Produce Trade and Commerce Act will permit farmers to sell the farm produce as per their choice.
- The issues related to middlemen under the APMC will now be eliminated as farmers have the choice to sell their produce anywhere according to their choice.
- Contract farming will attract more private investment in the agricultural sector, thus, it will help modernize the infrastructure and development of this sector.
- The institution of the Farmers’ Act will end the monopoly of APMC and competition to buy farm produce from the private buyers will help farmers to get better and high returns.
- The Essential Commodities Amendment Act 2020 will help in stabilizing the prices. For example, if the supply of onion is more than its demand, it can be stored to prevent the price fall. It is resulting in the improvement of storage facilities in the country.
Against the Act
- The Act’s validity has been questioned as agriculture and trade are the subject matter of the State, but the states were not consulted before passing the Act.
- Contract farming may harm the contract farmers. Most of the farmers are uneducated, they will not be able to evaluate the terms and conditions.
- It was feared that the Acts would result in the demolition of APMC mandis which were helpful for the small farmers to make price and production choices. In a way, this bill comes as a disadvantage to small farmers.
- The states of Punjab and Haryana will lose a big source of State revenues as the state will not be permitted to levy market fees, rural and development fees, or arhtiya’s commission.
Curbing of Human Rights in light of the Farmer’s Act 2020
The Farmers’ Bill was introduced by the government, which led to protest by the farmers. According to the Universal Declaration of Human Rights, several human rights have been violated Including the right to freedom from torture, the right to speech, and the right to a fair trial. During the time of farmers’ anxiety, the Government of India had violated Articles of the Universal Declaration of Human Rights Act, Universal Resolution of Rights of Peasants and other People Working in Rural Areas, the Constitution of India, and the International Covenant on Civil and Political Rights.
The UN Human Rights during the protest had called for maximum restraint by both government and anxious farmers. Every individual has the right to peaceful assembly and expression, which should be protected. Freedom and expression must be protected both online and offline. It is important to find an equitable solution for human rights. Journalists, actors, and activists have supported and commented on the protest by the farmers, online. Charges of sedition against all the people supporting the protest by the farmers and attempts to restrict freedom of expression on social media have disturbed the essential Human Rights principles.
In India, farmers are heavily indebted, starved of funding and assured price mechanisms. Policy reforms in the agricultural sector have always been a hot topic for debate. The legislation somewhere has accentuated the crisis even further. But, the government of India through these reforms has addressed and created favourable conditions for modern agriculture. The new Acts will be able to match the demand and compete with the global agricultural market. The Bills introduced by the Central Government have faced much criticism and controversies, farmers have protested and have been subjected to a violation of human rights yet the bills managed to pass the threshold and became the Farmers’ Act 2020.
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