Will The Farmers’ Produce Trade And Commerce (Promotion And Facilitation) Ordinance 2020 Be A Game-Changer For Indian Farmers?

By Kavitha Kuruganti

An Ordinance to provide for the creation of an eco-system where the farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels; to promote efficient, transparent and barrier free inter-state and intra-state trade and commerce of farmers’ produce outside the physical premises of markets or deemed markets notifed under various state agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto. – Preamble to “The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020” (No.10 of 2020), promulgated by the President of India on 5/6/2020)

FIRST, SOME FACTS.

  • The largest portion of marketable surplus of agricultural produce in India is sold outside the regulated market yard spaces and NSSO data reflects this. Only around 40% or lesser number of farmers go to mandis (regulated markets) for marketing.
  • The number of regulated markets in India are less than 6700 for its 14 crore agricultural households – 2284 APMCs which operate 2339 principal markets and 4276 sub-market yards. There are 23000 rural haats which are weekly markets on designated days.
  • The marketable surplus with small and marginal holders is quite low to begin with and given the lack of institutional credit coverage, these farmers resort to selling to local traders who also often double up as input dealers for seeds and agro-chemicals.
  • There are a diversity of marketing channels that exist and are possible for farmers; however, not all of them receive required emphasis and interventions. These include APMC markets and licensed traders and commission agents there, state procurement agencies which also operate through women’s SHGs and their federations in some states, farmgate traders, processors (like sugar mills in the case of sugarcane or rice mills or cotton ginners or spinning mills), input dealers/moneylenders, rural haats, direct marketing to consumers through rythu bazaars/uzhavar santhai/apni mandi etc., cooperative societies and new age FPOs, direct marketing to retailers, contract farming entities etc.
  • e-NAM portal had 1.55 crore farmers/sellers, 68000+ commission agents and 1.22+ lakh traders/buyers registered by March 2019, including 650+ FPCs/FPOs. However, the inter-state trade through this portal has been dismally low, and MSPs (Minimum Support Prices) are not always secured in this channel either by farmers.
  • The number of new age FPOs (Farmer Producer Organisations) that actually function for their members is a contested figure and the number appears to be significantly lower than what is usually cited, which is six thousand.

LEGAL REALITY AND FACT-CHECK ON THE PR SPIN:

As part of the so-called “historic” agricultural reforms package, using the Covid-19 scenario as an opening for this and riding rough-shod over federal polity in India, the Government of India has announced some major changes in the statutory frameworks governing agricultural marketing in India. The Ordinance that reforms the supposed grip of APMCs over agricultural marketing is called “The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020”. It has been touted as that reform which will give freedom to farmers to sell anywhere in the country conveniently lying about the fact that farmers are already free to sell anywhere – all APMC Acts had exclusion or exemption clauses that kept farmers/agriculturists out of the purview of the Acts. They were never criminalised in any Act and had freedom to sell wherever they could.

When this is pointed out, the advocates of the current reforms point out that the restrictions on traders, as a corollary, mean restrictions on farmers. This is not legally or even practically true however. Other than exclusions and exemptions given to farmers, some APMC Acts also allow for turnover-based exemptions for buyers.

It is nobody’s case to pretend that farmers have been waiting for these reforms to go to other states, that too with their small volumes of produce to sell with great knowledge of distant markets, and that this historic reform now allows that.

So, let us get this out of the way first and foremost – farmers’ freedom to sell was never in question and no point in framing it as such for the PR spin since it obscures real interventions to be made.

WERE MANDIS EVER THE CENTRAL MARKETING SPACES FOR A MAJORITY OF FARMERS?

Going by NSSO data as well as data on arrivals and trading in regulated markets in the country, it is clear that mandis at best feature as marketing channel for around 35% of our farmers on an average, that too depending on the commodity. This clearly shows that much trading was happening in channels outside the laid-down areas of regulation, but was criminalised.

It should be remembered regulation was brought in for a reason – exploitation related to price fixing, actual payments, grading related exploitation, procedural and transactional opaqueness, cheating in weighment etc., are all real experiences of farmers, and this has not always been addressed despite the numerous regulations.

Cartelisation of traders/monopsonies and lack of true ‘contestability’, the questionable role of commission agents who mainly ensure cash flows for traders and who very often are family members of licensed traders (whose fees have been made into the burden of the buyer rather than the farmer after many years of fleecing the farmers), the politicisation of the institutions of regulation/APMCs which act as springboards for electoral politics in the country, lack of enough number of market yards or required infrastructure in the yards, the lack of remunerative price realisation for farmers even in regulated markets where even MSPs are not obtained as modal prices are all well-known. It is clear that big players in the agri-supply chains are not going to incur the transaction costs of buying directly from many smallholders of India, and they will continue relying on intermediaries/aggregators in any case.

Having said that, several areas of functioning of mandis can be improved and it will not serve farmers’ interests to ignore this channel of marketing. We do need density of mandis to be improved, without full control of marketing in scheduled areas and commodities in the hands of APMCs. We do need licensed traders to be able to operate across mandis. We do need the intermediary costs to be reduced in the APMC transactions. APMCs should be de-politicised, run mainly by concerned line department. It is no secret that even regulated markets have not ensured MSPs being realised by farmers. Floor prices for auctioning should be over and above the MSPs announced for a particular commodity, and if required a deficiency payment system for traders instituted. If not the traders, farmer-sellers need a proper price deficiency payment system. Amendments and investments to this effect will help.

It is clear from Bihar and Kerala which have no APMCs and have de-regulated agricultural marketing that farmers have not benefited in such a system either.

MARKET INTERVENTION AND PROCUREMENT:

The power of the state procurement agencies to initiate procurement operations and boost market prices cannot be overstated. It is of course not being advocated that the state should procure all agricultural produce of all farmers. What is being advocated is smart and prompt intervention operations that take care of low market prices for farmers, so that other buyers are also forced to increase the price on offer. This should be done without dumping the procured material into the open markets at the time of large arrivals from farmers again at the end of the season.

Further, in the Covid-19 world where the lockdown affected millions of Indians whose lives can be described as “hand-to-mouth” existence, there is an urgent need to ensure a “food security basket” for all households. This requires an expended PDS to be set up both in terms of diversity of grains as well as quantity. Procurement for food schemes is always at MSP in any case, and can include local CBOs (cooperative societies, women’s SHGs, FPOs etc.) for grassroots and localised procurement operations.

IGNORED INITIATIVES – THIS APATHY AND NEGLECT DOES NOT HELP FARMERS:

Government of India under NDA rule has shown how it is more interested in PR spins than serious, stable interventions by moving from one scheme to the other, one announcement to the other without serious addressal of design and implementation issues. This applies to PM-AASHA for instance. No investments were made on the scheme announced with fanfare. No investments made for procuring at new MSPs which according to the government is cost of production plus 50% margin, which of course is not true. While the GRAM scheme was announced with 2000 crore rupees’ outlay, very little implementation was witnessed to improve the rural haats was seen. Not even 150 haats were upgraded the last one heard about this scheme’s implementation. The concept of Rythu Bazaars was not scaled up in all states. The announcement about support to 10,000 FPOs was made, but the fact that a private consultant with very little presence on the ground with farmers was entrusted with the implementation tells us that this is one more scheme already going down the drain. 

THE CURRENT ORDINANCE:

The current ordinance allows freedom to buyers to purchase “farmers’ produce” from farmers or other traders (outside the physical spaces of markets managed/regulated by APMCs) in any “trade area” including farm-gates, factory premises, warehouses, silos, cold storages and other places. Strangely enough, trader definition consists of end-user or consumer also!

The Ordinance specifies “farmers’ produce” and “scheduled farmers’ produce”, with the latter being produce specified for regulation under any state APMC Act. For the latter – scheduled farmers’ produce – only those traders who have a PAN number allotted under IT Act or such other document which may be notified by Central Government can take up trading. Further, there may be a requirement to register in an electronic registration system for traders dealing with ‘scheduled farmers’ produce’ and compliance to modalities of trade transactions and modes of payments that could be notified.

For scheduled farmers’ produce, the Ordinance specifies that farmers have to be paid on the same day, or within a maximum period of three working days with a receipt of delivery that mentions the due payment amount being issued to the farmer on the same day of delivery.

It has to be noted that nothing of this sort has been mentioned for “farmers’ produce” and it is unclear why farmers who are selling “unscheduled” farmers’ produce will not be protected. 

Given the “may” legalese that was used in the Ordinance with regard to registration requirements and compliance to some transaction modalities, it is not clear who will be monitoring or over-seeing the trade transactions or at least be able to enumerate the players involved.

Without a licensing system, there should at least have been an insistence on registration to at least have a database of buyers, that too integrated across states. However, this does not appear to be the case. In an unequal market setting where most farmers are desperate to dispose off their harvested produce so that cash flows can be managed, including in terms of debt management, will they be able to insist on same day payment, or document-based proof of delivery and payment that is due to them, or will they even be able to find entirely new buyers that they can trust and give their produce to?

DISPUTE RESOLUTION:

In the June 2020 Ordinance, the dispute resolution mechanism has been kept simple and may be overly-simple! It envisages that recovery of amount and imposing of penalties will be possible by a 3- or 5-member Conciliation Board consisting of a Chairperson and equal representatives of both parties (farmer and trader). The fact that this has been limited to a farmer and trader, it is more manageable than all disputes arising out of the new trading transactions that have been allowed including between traders. What is unclear is if this SDM-led dispute resolution with this Conciliation Board with a 30-day time limit, followed by a Sub-Divisional Authority if needed with another 30-day time limit (with an additional power to restrain the trader from undertaking further trade and commerce for any specified period), and an Appellate Authority consisting of the Collector or Additional Collector who are again expected to dispose off the appeal within 30 days, will actually be able to deal with the potential volume of litigation brought to their notice.

Importantly, where is the dispute resolution application to be made, at the place of residence of farmer or where the trade transaction took place (across states, as is being projected by the advocates)? What kind of documentary evidence will be asked if unequal power relations result in the farmer not having any documentary proof of the transaction? The details have been left to the rules and are awaited.

Critically, it appears that justice to the farmer is conceptualised only as payment to be made to the farmer at any price that might have been fixed, depending on the power relations between the trader and farmer. Justice, it appears, is not about any unfair weighment for instance, or unfair grading by the buyer, or unreasonably low prices that might have been fixed etc.  

STATE GOVERNMENTS, THEIR REVENUES AND ROLES:

The Constitutional propriety of the Ordinance is being debated. It is not just about the legality of whether this is a state subject or a concurrent subject, but about the spirit of federal polity. Entry 26 of the Seventh Schedule of the Constitution of India in the State List is about Trade and Commerce within the state, but subject to the provisions of Entry 33 of List III (Concurrent List). Similarly, Entry 27 of the State List is about Production, Supply and Distribution of Goods subject to provisions of Entry 33 of List III. Entry 33 of the Concurrent List is about trade and commerce in, and the production, supply and distribution of industrial products, food stuffs including edible oilseeds and oils, cattle fodder including oilcakes and other concentrates, raw cotton and cotton seed and raw jute. Here, the law passed by the Parliament will prevail and not the Legislature of a State if any provision of the latter’s is repugnant to any provision of the law made by the Parliament. Having said that, it is clear that the Entry 33 of the Concurrent List is not exhaustive in its coverage of all kinds of “farmers’ produce”. Punjab government is arguing that it is about industrial goods in fact, and agri-based raw materials for industry.

It is also clear intra-state trading is under the purview of state governments whereas even this has been usurped by the Centre now. This Ordinance’s constitutional validity will probably be determined by the judiciary now when it is challenged by possibly a state government like Punjab’s. Punjab for instance will be losing significant revenues with the current Ordinance kicking in since the Ordinance says that no market fee or cess or levy shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produce in a trade area. If trade moves into “trade areas” outside the physical premises of markets regulated by APMCs in Punjab, revenues will be affected. On the other hand, if procurement agencies continue to operate from the mandi infrastructure, and therefore, within the APMC jurisdiction, this may not be so.

The Ordinance’s Section 14 lays down that the provisions therein will have an over-riding effect over other Acts. Whether this means that state APMC Acts will also continue to exist without being repealed needs to be seen. Meanwhile, while we are debating this Ordinance, several states have already used their own Ordinance routes to change the APMC regulations in their states, and to de-regulate agricultural produce trade in various ways.

Further, as another analyst has pointed out, legal reforms of this kind alone are not likely to ensure economic improvements for farmers, given the deep structural constraints of Indian farmers that are playing out here. She points out that to overcome these constraints, a great deal of consensus, coordination and capacity are needed, and this cannot be addressed without state governments being actively involved. The current Ordinance really leaves no space for state governments!

THE BOTTOMLINE FOR FARMERS

In the end, for the farmers, it is not so much about “markets” being created but about prices. Prices have to be remunerative, to cover not just the cost of production but leave a profit margin for dignified living (which is why the demand for Kisan Ayog’s formula of comprehensive C2+50% as the MSP resonates with farmers). Even in regulated markets, farmers did not get remunerative prices. Nor did they obtain such prices in de-regulated markets. Nor in e-NAM. The fact that markets and prices for a majority of smallholder farmers are tied in with credit, with small volumes, with an acute need for immediate returns after harvests and lack of advantages that aggregation brings in is what will ensure that no single measure can be considered to be a silver bullet. And the said Ordinance is certainly no silver bullet while it may open more avenues for marketing of farmers’ produce. However, those avenues need to have some oversight and protective mechanisms for farmers given that it is a completely unequal playing field right now when individual farmers interface with markets.

Realising the criticality of remunerative prices for farmers, All India Kisan Sangharsh Coordination Committee (AIKSCC) of which the author is a part of, has evolved a statutory framework to guarantee remunerative prices to all farmers. It is high time that governments considered conferring such a legal entitlement on all farmers of the country and enacted such a statute as The Farmers’ Right To Guaranteed Remunerative Minimum Support Prices For Agricultural Commodities Bill, 2018.

Kavitha Kuruganti is a farmers rights activist and farm policy analyst associated with the Alliance for Sustainable & Holistic Agriculture (ASHA, www.kisanswaraj.in). Kavitha works closely with the major farmers’ movements in India.