Farm Bills 2020 – A boon or bane for Indian farmers?

Aligned with the government objective of doubling farmers’ income by 2022, the Union government has passed three new farm bills. These bills are expected to bring about a much needed revolutionary change in the agrarian economy by creation of a new marketing system. As part of this new ecosystem the farmers and traders will enjoy freedom of choice of sale and purchase of agriproduce. It will promote barrier-free inter and intra-state trade and commerce outside the physical premises of markets notified under the state promoted Agricultural Produce Marketing Committees (APMCs) as against the current system wherein the farmers sell their produce to state regulated mandis (APMCs) at Minimum Support Price (MSP). The three new farm Bills proposed and its key provisions are explained hereunder:

  • Bill on agri market: The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 aims to create an environment where farmers and traders will have the liberty to sell and purchase farm produce outside state registered APMC ‘mandis’. The bill will aim towards promoting barrier free inter and intra state trade of farmer produce, provide a facilitative framework for electronic trading, shrink marketing/transportation costs and thereby benefit farmers by getting better prices.
  • Bill on contract farming: The Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 allows the farmers to enter into contract with agribusiness firms, processors, exporters, large retailers for sale of produce at a pre-agreed price. This aggregation and contract model promoted by the bill will help the small and marginal farmers by enabling access to better inputs and modern technology and improving incomes by minimizing marketing costs, by allowing them to engage in direct marketing eliminating intermediaries for full price realization. This will help to transfer the risk of market unpredictability from the farmers to the contracting party. This model in. The contract will also allow the farmer to have a dispute resolution mechanism in place along with redressal timelines.
  • Bill on commodities: The Essential Commodities (Amendment) Bill, 2020 aims to remove commodities like cereals, pulses, oilseeds, onion and potatoes from the list of essential commodities. This will help in withholding the imposition of stockholding limits on such commodities items except under “extraordinary circumstances” like war, natural calamity etc. This change will eliminate fears of excessive regulatory interference in business operations of private investors and attract private sector/FDI into the farm sector. This will help in creation of a competitive market environment, stabilize prices for farmers and consumers and minimize loss of farm produce. Further, it is expected to attract investment for strengthening farm infrastructure like cold storage, modernizing food supply chain.

With the farmers allowed to sell produce independent of government controlled markets, they will be able to fetch better price for their produce. The major issue that these bills addresses is the over-dependence on middlemen, commission agents, officials and bureaucracy associated with current system. These bills will empower the farmers to shift to a more flexible system and eventually turn them into traders for their own produce and have better control over the process. This will ultimately help in addressing key agrarian challenges related to low prices for farm produce, overproduction, farm losses, high transportation costs as well as increasing debts and high-interest rates. This will only be a parallel system and the current MSP based procurement system will remain but will hamper the monopoly market enjoyed by the APMC mandis.

The key challenge with these bills are the lack of guideline, regulatory oversight and reporting. They do not specify the terms for larger context of State intervention in agriculture, and agricultural policy. The farmers demands for rolling back of all the three bills and the existing mandi system to remain in place. With the bills not having any provision regarding MSP, farmers fear that disrupting the mandi system of marketing will hamper the selling of products at MSP and they may even get prices lower than MSP’s for selling their produce outside the mandis. However, it should be noted these new Bills are introducing an additional channel and will be running parallel with the existing one to ensure free trade. Farmers demand that MSP should be at least 50% more than the weighted average cost of production and if not paid it should be a punishable offence. Instead of these Bills they are demanding for a law that should be in place that guarantees payment from buyers through intermediaries and banks don’t deduct money in the name of loan recovery.

Further according to these bills, the farmers feel they will be weaker in their ability to negotiate for the contracts with the big private companies, exporters, wholesalers for agreeing on terms and resolving disputes. Price limits for extraordinary circumstances are so high that they likely to be never triggered. Larger companies will still have the independence to stock commodities and dictate price and terms to the farmers. Moreover, with the farmers selling produce outside the APMC markets, states will lose revenue by not being able to collect mandi fees. Even through the government declares the MSP’s for crops there exists no law mandating their implementation (except sugarcane). These new Bills raises question on the fate of state commission agents as well as the eNAM platform. Also, the ordinance does not mention anything directly or indirectly implying an end or phasing out of MSP based government procurement.

Although the government hopes that the new bills will help in improving farm gate prices triggered through competitive markets and higher private investments in the food supply chain, the bills require few regulatory and statutory provisions to optimize its full potential.

It would be advisable to include a regulatory backing to the MSP to do away with farmer fears. A boon or bane for Indian farmersSo as to realize the desired benefits of these bills the system needs to be strengthened with better roads for linking farmers to markets as well as climate controlled storage facilities powered with reliable electricity connections. To evaluate the impact potential of the bills on the food supply chain, the government would need to understand how the mean trade is shifting out of the APMC yards, wholesale price fluctuations, how the government procurement of food grains is changing as well as the implications on food implication. It would be important to monitor how private entities are holding stocks to avoid hoarding for manipulating retail prices. This calls for a transparent system on privately held stocks for stringent trade policy decisions. Even though these bills bring in the much indeed fresh breath in agri marketing systems, until the current flaws are addressed realizing its full potential is a far-fetched idea.


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