Feb 15, 2022

Farm Laws: What is Changing in the Agriculture Sector in India

Shonottra Kumar

In June 2020, three farm bills were introduced in the Parliament – Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and Essential Commodities (Amendment) Bill, 2020. While the intent of these Bills is to introduce reforms in the agricultural sector, these have been widely debated across forums and have also sparked protests in several States.

Two out of these three bills were passed amid a stormed well and the third was passed without the presence of many opposition MPs in the Rajya Sabha. These farm bills have received the President’s assent and pending publication in the Official Gazette, will soon become binding laws.

Situation before the farm bills

Before the introduction of this Bill, the agricultural markets were regulated with State specific Agriculture Produce Marketing Committee (APMC) laws. Under this framework, markets regulated under the APMC laws, or commonly known as APMC mandis, were set up for farmers to sell their produce to licensed traders and agents. These license traders would then further sell the produce to vendors.

One of the functions of the APMC is to ensure that the farmers get a fair price for their produce. Under this framework, farmers were also assured of a Minimum Support Price (MSP) for their produce by the government. In the event their produce was not bought by the licensed traders and agents, the government would buy the produce from them at this agreed upon price. It was seen as a fall-back option to ensure the farmers were protected.

However, it is important to note that not all States followed the APMC framework.

What is Changing?

Without going into the specifics of each law, here is an overview of what is changing in the agriculture industry landscape in India.

Sell Produce Beyond APMC Mandis

Farmers will now be allowed to sell their produce to outside traders and private markets, both interstate and intrastate, beyond the physical premises of the APMC mandis and other notified markets under the State APMC laws. As claimed by the government, this provision does offer a choice to the farmers to sell to other private traders offering a higher price and not limiting themselves to the APMC mandi, there is no clarity on Minimum Support Price being offered at these private markets.

Online Trading of Farm Produce

The new law provides for the setting up of an online platform to facilitate direct electronic trading and sale of certain farm produce over the internet. Companies, partnership firms, registered societies (having PAN cards) and farmer producer organisations or agricultural cooperative societies can operate such online platforms.

No Market Fee by State Governments

State governments will not be able to levy any market fee or cess under the State APMC laws or any other State laws on farmers, traders, electronic trading and transaction platforms for the trade of scheduled farm produce.

Introduction of Contract Farming Agreements

One of the new laws introduces the concept of contract farming. Through this, agreements can be set up between the farmers and the buyers directly before the production or rearing of farm produce. Such agreements will have details of the duration of agreement (minimum one crop season and maximum 5 years), the prices to be fixed for the produce, references for any additional amount over and above the price fixed like bonus or premium, linking agreement with insurance or credit instructment and so on.

Settlement of Disputes under Contract Farming Agreements

The law on contract farming provides that in the event there is a dispute between the parties to the agreement, i.e. a farmer and the buyer, the contract must have a provision for setting up a conciliation board to resolve the dispute. Such a conciliation board must have representatives of each of the parties.

In the event the agreement does not provide for a conciliation process or if the conciliation proceedings fail to settle the dispute, either of the parties can approach the Sub-Divisional Magistrate who will be the concerned authority to deal with the dispute.

Deregulation of certain Essential Commodities

The Essential Commodities Act allows the government to regulate or prohibit the production, supply, distribution, trade and commerce of items that are listed as ‘essential commodities’ under the law. By way of the third farm bill, i.e. the amendment to the Essential Commodities Act, certain items such as cereals, pulses, potato, onion, edible oilseeds and oil were deregulated and removed from the list of essential commodities, unless there are extraordinary circumstances like war, famine, extraordinary price rise and natural calamity of grave nature.

Stock Limits

Setting a stock limit means setting a limit to the quantity on how much can a trader or agent hoard a particular commodity. The Essential Commodities Act provides stock limits on certain listed commodities.

However, the third farm bill, i.e. the Essential Commodities Amendment,  provides that if any stock limit has to be imposed on agricultural produce it can only be done based on price rise alone. This means that if there is a 100% price rise in horticulture produce and 50% price rise in non-perishable agricultural produce, only then can a stock limit be imposed.

Conclusively, while the intention of these reforms may be to liberalise the agricultural sector and offer more benefits to the farmers, the criticism of the same cannot be ignored. Historically, farmers in India have been on the receiving end of exploitative practices and whether these reforms will be successfully implemented, only time will tell.


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