Three farm bills decoded

The three farm bills are explained in detail below. They are decoded for our common understanding.

Farmer’s Produce Trade and Commerce (Promotion and Facilitation) bill 2020

Understanding first of the three farm bills

This bill allows intrastate and interstate trade of farmers’ produce beyond the physical premises of the APMC markets. State governments are prohibited from levying any market fee, cess or levy outside APMC areas.

Now, if it is all good and if it had really eliminated the intermediaries, then why is it that the government is again allowing the farmers to sell anywhere outside their wish? Well, that is because, the very solution that was proposed to remove intermediaries itself has created even more intermediaries. Those who cannot afford services like transportation, storage etc. had to approach the commission agents. Also, the buyers had to pay market processing fees which varies from 3 to 8% of the total transaction amount.

Keeping this in mind, the government is trying to allow the farmers to sell their produce outside the APMC’s through which buyers can be relieved of extra taxes and other additional fees.

Reality of the situation

• It is important to remember that this do-away with the market fee favors the consumers rather than the farmers.
• It isn’t the first time farmers are allowed to sell outside APMC. Take an example of Kerala, the farmers their can sell their produce directly to the end consumers. But there too, the farmers weren’t able to draw benefits from this. This is because the legislation has been facilitated to allow private partners, but the government failed to provide a favorable ecosystem for the private players.
• So, this demands humongous efforts and a suitable framework from the government to enable Public Private Partnership (PPP) in agriculture sector.

Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill 2020

Understanding second of the three farm bills

The Farmers Agreement law creates a framework for contract farming. This is done through an agreement between a farmer and a buyer prior to the production or rearing of any farm produce. It provides a three-level dispute settlement mechanism:

• The conciliation board
• Sub-Divisional Magistrate
• Appellate Authority

This allows the farmers to enter into a contract with any private entity. The agreed price for the produce must be declared in the contract agreement.

However, if the price tends to vary, the process for price fixation should be declared in the agreement. The price fixation prior to the cropping season provides considerable advantage to the farmers in tackling unpredictable price fluctuations in the future.

The contracting entity may also be willing to provide sophisticated farming machines and technology. This is in the hope of getting a desired quality of produce in return. There will be no stock limits on the farm produce under a farm agreement.

Also such produce is exempted from all the State Acts on Stock Limitations and also the Essential Commodities Act. This may even attract foreign firms to invest in the Indian agriculture sector and also foster entrepreneurship in agriculture sector.

Reality of the situation

• Farmers might not hold a marketing degrees or have marketing knowledge. One of the reason this ordinance is being criticized is that private firms would take advantage of the poor bargaining skills especially for small farmers. Furthermore, this would lead to much more exploitation of farmers.
• The unprecedented rise in cost of production due to pest attacks or natural calamities may further drive the farmers into risk.
• Lack of adequate legal protection and enforceability may often lead to breach of contracts. In spite of having a three level settlement the farmer might not see a respite within time and might eventually end up with damage of crop.
• The issue of MSP still needs attention as those farmers with small land holdings may not be able to arrive at a mutually profitable price via negotiations.

The Essential Commodities (amendment) Bill, 2020

Understanding third of the three farm bills

This bill allows the central government to regulate the supply of certain food items only under extraordinary circumstances, such as war and famine. Stock limits may be imposed on agricultural produce only if there is a steep price rise. This amendment exempts the following from the list of essential commodities: cereals, pulses, oilseeds, edible oils, onion and potatoes.

The Essential Commodities Act was enacted in the year 1955. This was a time when India was not self-sufficient in food items. Due to the absence of restrictions on stock limit, rampant hoarding of food grains and black marketing was prevalent. To curb this, government had brought in this act to impose restrictions on stock limits. But this act has failed to deliver its intended purpose.

Let’s understand how restrictions on a particular produce can affect a farmer with an example. Imagine there is a village where all farmers produce paddy. The total produce of the entire village is 100 Metric Tonnes (MT) of paddy. Imagine there is only one trader and government has imposed a stock limit of 30 MT. So the trader cannot purchase more than 30 MT even if he wants to or even if it is a profitable deal for the farmers as well.

So what should the farmers do with the surplus paddy? Until the trader is relieved they have to store their produce. Otherwise they should wait for another trader or else they should sell their produce at a lower price. This discourages the investors to invest in such activities. Imagine if the produce is perishable then the farmer cannot wait because there is high risk of damage to the produce.

Let us look at another angle too, suppose the entire 100MT is procured by a single trader when there is no stock limit. Now imagine the plight of the country when there is a shortage of food and we have to depend on only one supplier. It is very obvious that the single trader could easily sell the produce at exorbitant prices (food inflation). The ECA 1955 had completely failed to curb this.

Reality of the situation

• This act aims to provide security to the investors by removing the fear of excessive regulatory interference by the government.
• The freedom to produce, hold, move, distribute and supply will attract FDIs and also further attract investments in agriculture infrastructure such as godowns, cold storages etc.
• This bill further enhances the government’s stance on improving the ease of doing business.
• No guidelines have been prescribed to combat the expected black marketing and hoarding. These favor only high scale producers or other corporates.

Click to read analysis and impact of the three farm bills and the way forward.