7 PM Editorial |Are the 3 Farm Ordinances ‘1991 Moment’ For Agriculture?|21st July 2020

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Are the 3 Farm Ordinances ‘1991 Moment’ For Agriculture?


COVID 19 pandemic has brought an economic crisis that needs to be addressed.To address the economic crisis in rural areas, the central government has promulgated three farm ordinances as part of Atmanirbhar Bharat Abhiyan. These ordinances liberalize trade and marketing of agricultural produce and reduce stock limits. Further they enable contract farming which provides guaranteed price for farmers.

Agriculture is a state subject. But the centre can enact laws under entry 33 of the concurrent list which deals with trade and commerce of agricultural produce, including “foodstuffs”, “cattle fodder” and “raw cotton”. 3 farm ordinances are done under the same.

These reforms are seen as a ‘1991 moment’ for the agriculture sector.

Provisions of 3 farm ordinances:.

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020: Liberalizes marketing of produce.

  • Allows trade of agricultural produce(includes, milk, eggs, fish etc) outside APMC’s. Trade can be done at any place of production, collection, and aggregation of farmers’ produce.
  • Any buyer of produce may engage in inter state and intra state trade.
  • Electronic tradingis allowed through online platforms. Central government will prescribe standards of operation for such portals in regards to quality, conduct, and payments.
  • State governments cannot levy market fee, cess or levyon farmers, traders and electronic trading platforms for any trade
  • A dispute resolution mechanismwith conciliation and settlement procedures.

Essential Commodities (Amendment) Ordinance, 2020: Amends Essential Commodities act(ECA), 1955

  • The Central government may regulate the supply of certain food items only under extraordinary circumstances.  These include: (i) war (ii) famine (iii) extraordinary price rise and (iv) natural calamity of grave nature.
  • A stock limit may be imposed only if there is
    • 100% increase in retail price of horticultural produce
    • 50% increase in the retail price of non-perishable agricultural food items
  • Any stock limit will not apply to a processor or value chain participant of agricultural produce if stock held by such person is less than the:
    • Overall ceiling of installed capacity of processing
    • Demand for export in case of an exporter
  • Provisions of the Ordinance regarding the regulation of food items and the imposition of stock limits will not apply to any government order relating to the Public Distribution System(PDS) or the Targeted Public Distribution System(TPDS)

Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020: To enable contract farming

  • Farming agreementscan be made before production between farmers and sponsors.
    • Agreement may provide for mutually agreed terms and conditions for supply, quality, standards and price of farming produce as well as terms related to supply of farm services.
    • This agreement may be linked to insurance services.
    • Agreement must mention prices to be paid for farming purchase. There must be a guaranteed price. In addition, bonus or premium may be included
  • State government may establish a registration authorityfor registering farming agreements
  • Farming agreements will be exempt from stock limits and state acts regulating sale and purchase of farming produce.
  • Dispute settlement: Conciliation process is must through a conciliation board for all disputes. If unresolved after conciliation, a settlement process with Magistrate and appellate authority is available.
Long term benefits of reforms:
  • Competition to APMCs: Allowing private trade(direct and electronic) provides competition to APMC’s. This will lead to standardization and rationalization of mandi fee structure and limit the commission charged by traders on sale of farmers’ produce. This increases farmers’ incomes directly.
  • Enables One nation, one market. This ensures fair price discovery.
  • Private investments in agricultural storage, supply chains and technologyas stock limits are removed and contract farming is enabled. This will increase exports and farmers incomes as well as reduce wastage.
  • Diversification of crops will be enabled due to contract farming.
Case of ITC in Madhya Pradesh(MP):

ITC was allowed in trade and commerce of select commodities in MP. It has led to gain of farmers due to price competition with APMC’s. In addition, APMC’s upgraded themselves through electronic weighing and quick payments to remain competitive.

Critique of marketing and trading reforms in ordinances:
  • Prices are already market driven: Shantakumar committee observed that only 6% of farmers get MSP – Minimum Support Prices and only 22 crops are procured under MSP. Hence a vast majority of farmers sell produce as per market prices. In such a scenario, ordinances will not bring much changes in marketing.
  • Lack of APMCs is the problem and not APMC itself: India has about 7000 APMC mandis. These are grossly inadequate. In such a situation, more than 80% of small and marginal farmers are already selling their produce to unlicensed traders and aggregators. This leaves the farmers open to exploitation.

Also APMC has been part of the solution as it played a main part in PDS and food security.

  • APMC acts are already being reformed by state governments. Uzhavar Sandhai in Tamil Nadu, the Rythu Bazaar in Andhra Pradesh and Telangana, the Apni Mandi in Punjab, the Raitha Santhe in Karnataka and the Krushak Bazaar in Odisha are some such initiatives. But this may be decelerated as ordinance prohibits state governments to levy fees, cesses on trade which deprives them of revenue.
  • Complete dismantling of APMCs will result in rural distress. The Bihar case below proves that.
Failure of APMC liberalization in Bihar:

Bihar has revoked APMC act in 2006 and dismantled APMC market infrastructure. This was done to attract private investments in the agricultural supply chain.

But studies have pointed out it resulted in proliferation of private unregulated markets(run by traders and commission agents) which charge a market fee from traders as well as farmers, without any infrastructure for weighing, sorting, grading and storage. Large organizations have also bought produce from traders and aggregators rather than farmers.

  • Other reforms are needed to enable freedom of marketing to farmers: Traders and commission agents provide credit to farmers during production, harvest and supply. Hence without addressing access to credit, inputs, storage, transport, and timely payments, farmers will continue to supply to these middlemen.
  • Dispute settlement mechanisms will be disadvantageous for farmersdue to greater economic power of traders and contract farming companies.

Hence there is still a need for state regulation and intervention to enable farmers realize better incomes. Other structural reforms must be undertaken to make farming economically and ecologically viable:

  • 60% of subsidy(fertilizers, electricity etc) is cornered by 3 crops – Rice, wheat and sugarcane. This has led to depletion of groundwater and loss of biodiversity due to monoculture. In addition, excessive use of chemicals is threatening food chains and biodiversity. Liberalization will only exacerbate this phenomena. Government regulation must ensure that this is addressed.
  • Investments in irrigation and ecological transition must be made. Good example is Andhra Pradesh Community Managed Farming model, which promotes agroecological principles with the use of locally-produced, ecologically-sustainable inputs focusing on soil health, instead of depending on chemical fertilisers. This increases resilience of agriculture against climate related risks.

Reforms initiated can be the ‘1991 moment’ depending on the nature of the implementation. Appropriate state intervention is needed and not complete deregulation(which is counter productive as seen in case of Bihar). State intervention must promote competition and strengthen the diversity, dynamism, enterprise, and resilience of India’s agricultural markets. APMCs must be continued and infrastructurally upgraded. In addition, other structural reforms in irrigation, inputs, subsidies, MSP etc must be undertaken as per M.S.Swaminathan committee recommendations which addresses structural issues and benefit farmers. Only then can we realize the vision of ‘Doubling farmers incomes’ and reduce urban-rural income gap

Source: https://indianexpress.com

Mains question:
  1. What are the provisions of Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020? Critically discuss whether it will lead to marketing freedom for farmers? [15 marks, 250 words]
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