The New Farm laws

The Government of India  enacted three  new farm laws for agriculture in September 2020:

  1. The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act, 2020;
  2. The Farmer’s (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act 2020;
  3. The Essential Commodities (Amendment) Act, 2020

The new Acts have been  acclaimed as  path-breaking, and a “1991 moment” for agriculture by some  and  criticized by others who include the key stakeholders, namely farmers who want the laws repealed. The first law is the most fundamental and  critical of the three, as it affects all farmers. The second law on contract farming will only involve those who voluntarily choose to enter into a contract with agribusiness.  The third law is essentially an amendment of the existing Act to remove limits on storage of farm products by traders, which can  potentially impact consumer prices and access to food grains with implications for  national and household food security. This blog addresses the first law dealing with marketing of agricultural produce in a regulation free trade ecosystem.

The general public, and many in the professions,  are not fully aware of the nuances of  trade in farm produce. So, there is general appreciation of  liberalization of agricultural trade promised under the  laws,   based on impressions of  how the 1991  liberalization  of industry played out in the national  economy. This has led to a  biased view of the farmer agitations against the laws and any criticism by concerned professionals.  Comparing the farm laws to industry’s ‘1991 moment’ for agriculture is unfair.  Agriculture employs over 60 crores people compared to a few million in public sector industry. Public sector Industrial employees are also highly skilled workers who could be absorbed immediately in private sector when the government demitted ownership. They were also given a generous retirement package which provided a buffer till they found gainful employment. Many of them actually set up their own industry.

By this Act,  individual  farmers’ will be  thrown into the open and free trade market with their hands tied,  as there is no regulatory oversight over  the trade processes and  players, nor a  social safety net buffer to protect them from losses. For every other public trading platform (eg  SEBI/NIFTY for stocks, public auctions of art or property, etc. ), designated public regulators provide oversight for minimum floor prices, authentication of traders, the trading process, and payments transfers, to ensure fair and just trade.

The  core principle  underlying the Act  (stated  in its preamble) is to improve market efficiencies by creating  a  new trade ecosystem that  will enable farmers  to freely access  national and international markets, free from the shackles of State regulations.  It is assumed that the new trade ecosystem will automatically lead to remunerative prices for farmers (presumably by enabling access to new  markets). Some provisions in the Act  cause serious concerns  to farmers about  fairness and justness of the terms of  trade in the new ecosystem sought to be created. Free trade without statutory third party authentication of the traders and oversight  on price discovery,  payments  and dispute resolution (which APMCs  statutorily provide) can result in unfair advantages to the traders, leading to non-remunerative prices to farmers,  delayed payments, and inequitable access to grievance redress.  This has driven farmers  to seek repeal of the Act  in its present form, as they fear that this  will only  exacerbate and legalize the  imbalances of the current flawed State regulation controlled trade ecosystem of APMCs.  The text of the Law also recognizes these fears in the form of  some general  statements or caveats (about what the Central Government may do to address the concerns, if it so chooses), but sidesteps  explicit inclusion, in the Act or in its Rules, of statutory protections to farmers  in price discovery, trader authentication, payments, and grievance redress. Read more