Analysis of Farmer Reform Acts

A. Background on Farmer Reform Acts

1. On September 24, 2020, three Central bills on farmer reforms and trading in agricultural produce that were introduced by Mr. Narendra Singh Tomar (Union Cabinet Minister for Agriculture & Farmers Welfare, Rural Development, Panchayati Raj and Food Processing Industries) and Mr. Ram Vilas Paswan (Union Cabinet Minister, Consumer Affairs, Food and Public Distribution) and passed in the Parliament in the month of September, received Presidential assent[1] (collectively, “Farmer Acts“). These are:

(i) Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (“Farmers Produce Act“) – It envisages providing farmers with an alternative trading channel, outside of the notified markets or deemed markets under various State agricultural produce market legislations (each an “APMC Act” and collectively, “APMC Acts“). Farmers will be able to freely engage with traders[2] for sale and purchase (both on inter–State and intra–State basis) of farmers’ produce[3] and scheduled farmers produce,[4] outside the physical boundary of markets notified under APMC Acts.

(ii) The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (“Farmers Agreement Act“) – It formalizes contract farming practices across India, already permitted in various States.[5] It identifies necessary elements of a contract farming agreement that may be entered into between farmers and sponsors and/or farm service providers (including processors, agri-business firms, wholesalers, exporters or large retailers) to enable farmers to sell their future produce on fixed prices.

(iii) The Essential Commodities (Amendment) Act, 2020 (“EC Amendment Act“) – It mandates that stock and price control restrictions that impact supply of essential commodities, i.e. foodstuffs, can now be imposed only in extraordinary circumstances or when the prescribed price thresholds are met.

2. A detailed analysis of the Farmer Acts and position under APMC Acts is provided below.

B. Background on APMC Acts[6]

1.Under the APMC Acts, Agricultural Produce Market Committees (“APMCs“) have been established to regulate manufacturing, processing, storage, sale, purchase, etc. of the notified agricultural produce in markets notified under APMC Acts (“APMC Market(s)“). Within these APMC Markets, there exist various market yards including principal market yard, special market yards, producer and consumer market yard, private market yard and electronic trading platforms (collectively “APMC  Market Yards“), as may be notified in each State. Within a State, it is possible to find various APMC Markets and APMC Market Yards, latter being more defined. For reader convenience, all reference to APMC Markets in this note shall also mean and include APMC Market Yards, unless stated otherwise.[7]

2. Only specific type of agricultural produce is regulated under the APMC Acts, referred to here as notified agricultural produce. In other words, farmers and traders are not bound by APMC Acts for trade of all kinds of agricultural produce.

3.  Anyone desirous of trading / marketing or operating as a commission agent, warehouseman, processor or in any other capacity in respect of the notified agricultural produce in the APMC Markets could do so after obtaining requisite licenses from the APMCs and paying fees for the agricultural produce bought and sold within the APMC Markets.

4. Generally, sale / purchase of notified agricultural produce can take place from APMC Markets only, except for certain exceptions that differ amongst States (purchase for personal consumption, sales by retailers, etc.). Any trader desirous of buying / selling in various APMC Markets is bound to obtain permission from all relevant APMCs.[8] Recently, private markets have been permitted by some APMC Acts, however, those too are subject to conditions (in form of permits and levies) prescribed by respective States.

C.  Analysis of Framer Acts and position under APMC Acts

1. Farmers Produce Act

S. No.	Provision	Position under APMC Acts	Impact of Farmers Produce Act
(i)	Sales channel available to farmers and traders
	Any farmer or trader or electronic trading and transaction platform is free to carry on trade and commerce (whether inter-State or intra-State) of farmers’ produce in any ‘trade area’, defined as any area, location or place including factory, processing plant, farm gate, produce collection centre, cold storage, or warehouse, but does not include any APMC Market Yards or other structures notified as markets or deemed markets under APMC Acts.[9] Traders can engage with farmers or with other traders (both on inter-State and intra-State basis) in trade areas, as described above. Farmers and traders can trade both in notified agricultural produce regulated under the APMC Acts, and farmers’ produce as defined under the Farmers Produce Act.	Farmers could sell their produce only in APMC Markets and faced challenges in being able to sell through other channels. Similarly, traders had to obtain permits to buy in various APMC Markets and pay fees.	An alternate sales channel has been created for farmers and traders, where farmers’ produce can be freely sold and purchased in any area outside the APMC Markets. Unlike the APMC Acts, the provisions of the Farmers Produce Act apply to all kind of agricultural produce. Complete freedom for farmers to sell to any trader, and through electronic trading platforms. The aim is ‘One Nation One Agriculture Market’. Farmers have an option to sell either in APMC Markets (such as APMC mandis), or in trade areas that exist beyond the physical boundary of APMC Markets, whether within or outside their State.
(ii)	Trader permissions, levies / fees
	The traders should have a PAN or such other document, as may be notified by the Central Government, before trading in trade areas. Central Government may notify requirements for electronic registration for a trader, modalities of trade transaction, and mode of payment. No market fee / levies / cess (by whatever name called), as otherwise payable under the APMC Act, will be levied on any farmer, trader, electronic trading platform, for trade of farmers’ produce in trade area.	Anyone intending to store, trade in, market or otherwise be involved in trading in notified agricultural produce in APMC Markets must obtain a license from respective APMCs. Licensed traders are also required to pay to APMC, market fees / levies / rates which vary amongst States.	Minimum requirements imposed on traders to buy from farmers across India. None of the trade transactions outside APMC Markets will be subject to any APMC market fees / levies. For transactions occurring electronically in the trade area, additional conditions may be prescribed on electronic trading platforms by the Central Government.
(iii)	Pricing of farmers’ produce
	The Central Government has power to develop a Price Information and Market Intelligence System for farmers’ produce and a framework for dissemination of information relating thereto. Trader must pay farmer on the same day, or maximum within 3 days of purchase of farmers’ produce [10]. Receipt of purchase must be provided to farmers on same day.	Sale price of notified agricultural produce in APMC Markets is determined by sale process which is made either by tender system or public auction or any other process, as may be approved by each APMC. The price earned by farmers therefore varies. Varied timelines may apply for farmers to be paid under APMC Acts.	Premature to comment on what pricing information will be provided under the Price Information and Market Intelligence System contemplated under the Farmers Produce Act, and the extent to which it will guide or fix market prices for farmers selling in areas outside APMC Markets. There is no indication yet that these prices will be binding on traders. The prevailing criticism against this provision is that the Farmers Produce Act fails to assure any fixed pricing for farmers. It has been argued that presently, the APMC system is more favorable to farmers as sale happen through open auction or tender system managed by APMC representatives, so prices are benchmarked. Even if traders are not bound to offer same pricing to all farmers under the APMC Acts, this benchmarked pricing still benefits farmers to a limited extent. The States have further argued that Farmer Acts will result in farmers being vulnerable to restrictive practices of medium/large MNCs, leaving them open to market forces for getting an optimum price. Payment delays faced by farmers under APMC systems may continue for sales made in trade areas under Farmers Produce Act, as same day payment is not mandatory.
(iv)	Electronic trading and transaction platforms
	Akin to a trader, anyone with a PAN card (or such other document as may be notified) can establish and operate an electronic trading platform for facilitating inter-State or intra-State commerce of farmers’ produce in a trade area. These platforms must formulate guidelines for fair trade practices.[11] These platforms may also be asked to provide information regarding their transactions.	Some States have already enabled electronic trading of notified agricultural produce on electronic trading platforms, set up either by the State Government or an agency / person licensed under the APMC Act.	Minimal requirements imposed on setting up and operating electronic trading platforms to enable trading across India, however, the Central Government has retained powers to frame rules in this regard. Electronic platforms will also be asked to share transaction information. Farmers will be able to sell online in an unrestricted manner if sales are made in trade areas. They may benefit from guidelines that apply to such sales (to be defined).
(v)	Overriding effect vis-à-vis APMC Acts
	The Farmers Produce Act will have an overriding effect with respect to any inconsistent provision contained in any State APMC Act or any other law.	–	Broadly, APMC Acts will not apply to trade and commerce of farmers’ produce in trade areas. The provisions of the APMC Acts will only apply to areas outside the regulation of the Farmers Produce Act., i.e. APMC Markets as notified across States.
(vi)	Dispute resolution
	In case of a dispute, farmers and traders can opt for conciliation before a ‘Conciliation Board'[12] appointed by Sub–Divisional Magistrate (“SDM”). If dispute is not resolved within 30 days, the SDM will settle the matter. The SDM will decide the dispute in a summary manner within 30 days. The Farmers Produce Act imposes a bar on the jurisdiction of civil court to entertain suit(s), the cognizance of which can be taken and disposed of by SDM or any other prescribed authority.	Disputes are usually settled by an arbitrator panel (consisting of agriculturists, traders, commission agents, etc.) appointed by the APMCs.	Instead of local intermediaries and farmer organizations appointed by APMCs, the SDM will appoint dispute resolution members in the Conciliation Board. Persons familiar to farmers, such as APMC representatives/local intermediaries/farmers produce organizations, could technically be appointed in these Conciliation Boards, on recommendation of the parties. The Farmers Produce Act identifies fixed timelines for dispute resolution. SDMs (who are appointed to administrate sub-district level) involvement in settling all disputes (however minor in nature) may be time–consuming and costly for farmers who are unable to reach these locations.
(vii)	Penalties
	Traders and operators of electronic trading platforms can be subject to penalty ranging between INR 25,000 – 5 lakh, and between INR 50,000 – 10 lakh respectively, for failure to comply with provisions of the Farmers Produce Act.	Heavy fines and/or imprisonment are prescribed as punishment, if a trader is found to be guilty of non–payment of fees to APMCs, or of other provisions of the APMC Acts.	Fixed fines and timely dispute resolution process available to traders under the Farmers Produce Act. No imprisonment has been prescribed.
(viii)	Summary
Farmers Produce Act neither repeals APMC Acts nor abolishes APMC markets. Farmers and traders can choose to sell and buy either (i) in APMC Markets by obtaining necessary licenses and paying cess/fees, or (ii) in trade areas (that fall outside the boundaries of APMC Markets), latter being subject to relatively lesser regulation under the Farmers Produce Act. An alternate sales channel is now available for farmers. Complete freedom for farmers to sell within or outside the State to any trader, and through electronic trading platforms. The aim is ‘One Nation One Agriculture Market’. If a sale transaction occurs outside APMC Market Yards or other structures notified as markets or deemed markets under APMC Acts, none of the provisions prescribed under the APMC Acts will apply. For instance, no license, fee, cess conditions, etc. will be imposed on traders or electronic platform providers to sell / purchase in or facilitate sales in trade areas. The prevailing criticism against this provision is that the Farmers Produce Act fails to assure any fixed pricing for farmers. It has been argued that presently, the APMC system is more favorable to farmers as sale happen through open auction or tender system managed by APMC representatives, so prices are benchmarked. Even if traders are not bound to offer same pricing to all farmers under the APMC Acts, this benchmarked pricing still benefits farmers to a limited extent. The States have further argued that Farmer Acts will result in farmers being vulnerable to restrictive practices of medium/large MNCs, leaving them open to market forces for getting an optimum price. The Farmers Produce Act has fixed a payment timeline for farmers (maximum upto 3 days). Hence, payment delays faced by farmers under APMC systems may continue for sales made in trade areas under Farmers Produce Act. Minimal requirements imposed on setting up and operating electronic trading platforms to enable trading across India, however, the Central Government has retained powers to frame rules in this regard. Instead of local intermediaries and farmer organizations appointed by APMCs, the SDM will appoint dispute resolution members in the Conciliation Board. Persons familiar to farmers, such as APMC representatives/local intermediaries/farmers produce organizations, could technically be appointed in these Conciliation Boards, on recommendation of the parties.

2. Farmers Agreement Act

S. No.	Provision	Position under APMC Acts	Impact of Farmers Agreement Act
(i)	Type of farming agreement
	Farmers can enter into farming agreement[13] for any farming produce[14] with a Sponsor[15]. Other third parties (as identified in Para C. 2 (ii) below) can also be a party to such agreements. Farming agreements can be categorized as under: trade and commerce agreement – ownership of commodity during production is with the farmer, and he gets the price on its delivery as per terms agreed with Sponsor; production agreement – Sponsor agrees to provide farm services[16] (fully or partially), to bear the risk of output, but agrees to pay the farmer for services rendered; and such other agreements or combination of agreements specified above.	Some APMC Acts or State laws recognize contract farming; however, the practice will vary State to State.	Contract farming as a concept is permissible in various States in India wherein farmers can sell their produce to sponsors pursuant to a farming agreement. The Farmers Agreement Act will bring in an institutionalized and consistent framework, applicable across India.
(ii)	Parties to a farming agreement
	The following can be a party to a farming agreement: farmer; Sponsor; aggregator[17] (such as Farmer Producer Organizations); and/or farm service provider[18] (i.e., supplier of products, machines, services, etc.). The Sponsor or the farm service provider is responsible for providing farm services to the farmer.	The requirements may differ amongst States.	The Farmers Agreement Act requires farmers to be paid for effort extended, even if the eventual produce is unsaleable. Additionally, all inputs necessary for production will be paid for by Sponsors or farm service providers. They, and not the farmer, are liable in case of any defect or deficiency. Price for future produce will be fixed in the farming agreements, enabling farmers to have remunerative value in a fair manner. Their arrangements with agri-business firms, processors, wholesalers, exporters, or large retailers for farm services etc. will be regulated.
(iii)	Key requirements of a farming agreement
	If the price payable is variable, the agreement should provide for a — guaranteed price payable; clear price reference[19] for any additional amount (like bonus or premium), to ensure best value to the farmer. Timely pick–up / acceptance of delivery from farmers and compulsory payment at the time of accepting delivery.[20] A conciliation process. Prohibition on Sponsors from acquiring ownership rights or making permanent modifications[21] on farmer’s land or premises. An option to link the farming agreement with Government / financial service provider’s provided insurance or credit instrument for risk mitigation / flow of credit. Stock limit restrictions prescribed under the Essential Commodities Act, 1955 (“EC Act“) will not apply to produce purchased pursuant to a farming agreement. Testing, inspection, grade requirements. Should be for a minimum one crop season, or two production of livestock, and maximum upto 5 years. Any farming agreement entered into pursuant to the Farmers Produce Act shall be exempt from the application of any State Act, by whatever name called. State Government may provide for electronic registry of farming agreements, to be done by Sponsors.	Similar requirements could be prescribed under APMC Acts but will differ on a State to State basis.	Any farming agreement entered pursuant to the Farmers Agreement Act will be exempted from application of any State Act, including APMC Acts.
(iv)	Dispute Resolution
	Similar to Farmers’ Produce Act. Under the Farmers Agreement Act, the parties have been given an option to form Conciliation Board as per the terms of the farming agreement. The Farmers Produce Act imposes a bar on the jurisdiction of civil court to entertain suit(s), which the SDM or any other prescribed authority is empowered to decide.
(v)	Summary
Contract farming as a concept is permissible in various States in India wherein farmers can sell their produce pursuant to a farming agreement. The Farmers Agreement Act will bring in an institutionalized and consistent framework, applicable across India. Various protective measures relating to pricing, delivery of produce, protection of produce, Sponsor liability and farmer protection for input costs for agricultural operations, have been identified under the Farmers Agreement Act. It will allow farmers to agree on a price for future produce and have price protection. Any farming agreement entered pursuant to the Farmers Agreement Act will be exempted from application of any State Act, including APMC Acts.

 

3. EC Amendment Act

(i) The primary objective of the EC Act is to ensure that essential commodities are available to customers at reasonably controlled prices. Control/prohibition orders are issued under EC Act from time to time due to reasons such as maintaining / increasing supplies, securing equitable distribution, making fair prices available, etc. Once these orders are issued, hoarding, stock piling and availability of essential commodities can be restricted by the Central Government.

(ii)’Foodstuffs’ (such as oilseeds, pulses, cereal, edible oils, onion, potatoes, etc.) is one of items classified as the essential commodity under the EC Act.

(iii) The EC Amendment Act now limits the application of the aforesaid power of the Central Government, whereby now supply of foodstuffs can be regulated only under extraordinary circumstances such as war, famine, extraordinary price rise and natural calamity of grave nature.

(iv) It further states that any action imposing stock limit limits shall be based on price rise and any order for regulating stock limit of any agricultural produce will be issued only in the given circumstance:

(a) 100% increase in the retail price of horticultural produce; or

(b)50% increase in the retail price of non-perishable agricultural foodstuffs, over the price prevailing immediately preceding 12 months, or average retail price of last 5 years, whichever is lower.

(v) An order for regulating stock limit will not apply to processors, or value chain participant[22] of any agricultural produce, if the stock limit of such person does not exceed the overall ceiling of demand capacity of a processor.

Summary:

Foodstuffs and agricultural produce have been deregulated, with a view to enable value chain participants to produce, hold, move, distribute and supply these products, without being concerned of sudden stock piling, export or pricing control orders being issued under EC Act. Typically, these orders were issued in anticipation of domestic shortage, or to control price hike, because of which participants were disinclined to invest in bulk purchase / storage of these commodities. The practice of issuing export prohibition orders in case of price rise can now occur provided the price rise falls within the prescribed thresholds and has taken place over the last 12 months or 5 years (whichever is lower). These measures are expected to help farmers sell bulk or excess produce at the time of production itself; for farmers to earn market pricing in time of shortage or price hikes; for value chain participants to invest in future purchase and bulk storage solutions, and for better distribution of agricultural produce in India.

D. Additional consideration: Minimum Sales Price (“MSP”) – Is there any linkage?

1. MSP is provided to farmers as part of Central Government’s umbrella scheme ‘Pradhan Mantri Annadata Aay Sanrakshan Abhiyan’ (“PM-AASHA“)[23]. The Central Government also provides MSP protection for procurement through existing schemes of Department of Food and Public Distribution and procurements through Ministry of Textiles (such as cotton).

2.  Under PM-AASHA, the Central Government fixes MSP for 22 mandated agricultural crops[24] every year, after considering recommendations of Central Ministries/State Governments. These rates are then applied for all procurements made by the Central Government (through its various agencies[25]) directly from farmers across States in India.

3. While MSP is granted by the Central Government under these schemes, there is presently no law that makes it mandatory. It is also not mandatory for private traders who purchase agricultural produce from farmers to offer similar MSP to farmers. In fact, much of the Central Government-procurement may not necessarily take place from APMC mandis and are instead processed through other identified locations across States.

4. To further clarify, the APMC Acts do not mention MSP, as this pricing is offered by the Central Government separately as part of schemes issued each year. Therefore, in our view, the MSP issue is unrelated to the Farmer Acts. As on date, the Central Government has not indicated that it will discontinue procurement of notified agricultural produce from farmers at MSP, as a result of notification of the Farmers Produce Act.

Footnotes:

[1] After being notified in the e–Gazette on September 27, 2020, all 3 Farmer Acts have come into force retrospectively, i.e. from June 05, 2020, being the date when the Ordinances promulgated by the President on the given subject matter came into force.
[2] The Farmers Produce Act defines a ‘trader’ to mean “a person who buys farmers’ produce by way of inter-State trade or intra-State trade or a combination thereof, either for self or on behalf of one or more persons for the purpose of wholesale trade, retail, end-use, value addition, processing, manufacturing, export, consumption or for such other purpose“.
[3] The Farmers Produce Act defines ‘farmers produce’ to mean “(i) foodstuffs including cereals like wheat, rice or other course grains, pulses, edible oilseeds, oils, vegetables, fruits, nuts, spices, sugarcane and products of poultry, piggery, goatery, fishery and dairy intended for human consumption in its natural or processed form; (ii) cattle fodder including oilcakes and other concentrates; and (iii) raw cotton whether ginned or unginned, cotton seeds and raw jute“.
[4] The Farmers Produce Act defines ‘scheduled farmers produce’ to mean “the agricultural produce specified under State APMC Acts for regulation“.
[5] Some States like Punjab have specific contract farming legislations. Other States like Karnataka have opted to amend the APMC Act, to allow contract farming. The permitted terms of contract farming may differ amongst States.
[6] While each State has its own APMC Act, we have broadly summarized some common concepts to highlight differences from Farmer Acts. States in India have chosen to do away with APMC markets (e.g., Bihar), while others do not have State APMC Acts (e.g. Kerala). In such States, sale of agricultural produce takes place in markets regulated by local-self Government, municipal or Panchayat bodies.
[7] The specific areas that are subject to regulation under APMC Acts may differ from State to State.
[8] Few States (such as Punjab) have amended their APMC Acts to bring in the concept of one single license to trade in APMC Markets in the entire State.
[9] The following areas are excluded from ‘trade are’ defined under the Farmers Produce Act: premises, enclosures and structures constituting–– (i) physical boundaries of principal market yards, sub-market yard and market sub-yards managed and run by APMCs formed under each APMC Act in force in India; and (ii) private market yards, private market sub-yards, direct marketing collection centres, and private farmer-consumer market yards managed by persons holding licenses or any warehouses, silos, cold storages or other structures notified as markets or deemed markets under each APMC Act in force in India.
[10] The Central Government may prescribe additional details in this regard.
[11] Such practices will include mode of trading, fees, technical parameters including inter-operability with other platforms, logistics arrangements, quality assessment, timely payment, dissemination of guidelines in local language of the place of operation of the platform and such other matters. If the Central Government is of the opinion that it is necessary and expedient in public interest to do so, it may issues rules to specify – (a) the procedure, norms, manner of registration; and (b) the code of conduct, technical parameters including inter-operability with other platforms and modalities of trade transactions to aid trade and commerce of agricultural produce in trade areas.
[12] The members of the Conciliation Board will consist of a Chairperson and other members (2 – 4 max.) as the Sub-Divisional Magistrate may deem fit. The other members will have to be appointed in equal numbers to represent the parties to the dispute.
[13] The Farmers Agreement Act defines ‘farming agreements’ to mean “a written agreement entered into between a farmer and a Sponsor, or a farmer, a Sponsor and any third party, prior to the production or rearing of any farming produce of a predetermined quality, in which the Sponsor agrees to purchase such farming produce from the farmer and to provide farm services……………..“.
[14] The Farmers Agreement Act defines ‘farming produce’ to include – “(i) foodstuffs, including edible oilseeds and oils, all kinds of cereals like wheat, rice or other coarse grains, pulses, vegetables, fruits, nuts, spices, sugarcane and products of poultry, piggery, goatery, fishery and dairy, intended for human consumption in its natural or processed form; (ii) cattle fodder, including oilcakes and other concentrates; (iii) raw cotton, whether ginned or unginned; (iv) cotton seeds and raw jute“.
[15] The Farmers Agreement Act defines ‘Sponsor’ to mean “a person who has entered into a farming agreement with the farmer to purchase a farming produce“.
[16] The Farmers Agreement Act defines ‘farm services’ to include “supply of seed, feed, fodder, agro-chemicals, machinery and technology, advice, non-chemical agro-inputs and such other inputs for farming“.
[17] An ‘aggregator’ is defined to mean “any person, including a Farmer Producer Organisation, who acts as an intermediary between a farmer or a group of farmers and a Sponsor and provides aggregation related services to both farmers and Sponsor.” The Farmers Agreement Act defines ‘Farmer Producer Organisation’ to mean “an association or group of farmers, by whatever name called,— (i) registered under any law for the time being in force; or (ii) promoted under a scheme or programme sponsored by the Central Government or the State Government“.
[18] The ‘farm service provider’ is defined to mean “any person who provides farm services“.
[19] The Farmers Agreement Act provides an option to link such price reference to the prevailing prices in specified APMC Markets or electronic trading and transaction platform or any other suitable benchmark prices.
[20] The State Government may prescribe the mode and manner in which payment shall be made to the farmer.
[21] This may be undertaken only if the Sponsor agrees to remove such structure or to restore the land to its original condition, at his cost. If such structure is not removed, the ownership will vest with the farmer after conclusion or expiry of the agreement period, as the case may be.
[22] Explanation.—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.
[23] PM-AASHA comprises the erstwhile Price Support Scheme with certain modifications and roll out of new schemes of Price Deficiency Payment Scheme and Private Procurement and Stockist Scheme.
[24] Such commodities include Jowar, Bajra, Ragi, Paddy, Maize, Arhar, Urad, Wheat, Barley, Gram, etc.
[25] These agencies include Food Corporation of India, Jute Corporation of India, NAFED, Central Warehousing Corporation, etc.

Authors:

Aprajita Rana, Partner
Atima Mukherjee, Senior Associate