New agriculture laws: A win-win for businesses, farmers?

By Kunal Arora and Nayanika Majumdar, Lakshmikumaran & Sridharan

In September 2020, three controversial agricultural acts became law. They are the Farmers’ Produce Trade And Commerce (Promotion and Facilitation) Act, 2020 (Trading Act), the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (Farm Services Act), and the Essential Commodities (Amendment) Act, 2020 (ECA Amendment), collectively the farmers’ acts. They aim to encourage trading in farm produce. The legislation would appear to enlarge private participation in sectors previously reserved for licensed participants operating under the Agriculture Produce Marketing Committee (APMC), by introducing newer trade channels such as e-commerce platforms, while introducing a regulatory framework for transactions between producers and purchasers.

Kunal Arora,Lakshmikumaran & Sridharan
Kunal Arora
Joint Partner
Lakshmikumaran & Sridharan

The Trading Act facilitates trading in farmers’ produce outside market yards as previously required by various state APMC acts. It sets out the mechanism for trade in scheduled farmers’ produce that was previously open only to dealers licensed under the relevant APMC act. Scheduled farmers’ produce is agricultural produce subject to the applicable state APMC act from a trade area, which includes any area except market yards subject to APMC acts. The Trading Act allows trading in a trade area or on electronic platforms, which are exempt from any state’s market fees. The framework, however, is silent over trading in non-scheduled farmers’ produce.

The Trading Act introduces a broader trading regime than the current framework of the APMC acts. It allows any person to trade in scheduled farmers’ produce, but requires trader registration, sets timelines for payment to the farmers, empowers the government to make codes of conduct and payment rules, and introduces dispute resolution mechanisms. The act will benefit farmers by extending their outreach, but its success will depend on future rules and regulations in subsidiary legislation.

Nayanika Majumdar,Lakshmikumaran & Sridharan
Nayanika Majumdar
Senior associate
Lakshmikumaran & Sridharan

While the Trading Act covers the sale of existing agricultural produce, the Farm Services Act provides a framework for the protection of farmers in future sales. Under the Farm Services Act, a farmer may enter into a farming agreement with a sponsor for the sale of future agricultural produce. A farming agreement is one where ownership of the produce and risk remains with the farmer during production.

The Farm Services Act will provide for such matters as price, periods of agreement and quality standards in farming agreements. The government is empowered to prescribe a model form of the agreement. There will also be price assurance, as the price for the agricultural produce will be predetermined. In the event of any change, the sponsor must pay a guaranteed price together with an additional price to ensure parity with benchmark rates in APMC yards or other trading platforms. The Farm Services Act gives land protection by prohibiting claims by the sponsor against the farmer’s land including any structures built on it under the agreement. The sponsor or the farm service provider is now responsible for complying with the act, delivering the produce and making timely payments. Produce governed by an agreement with a sponsor is exempt from restrictions under the APMC acts.

The ECA Amendment amends section 3 of the Essential Commodities Act, 1955, to promote the trading of agricultural produce. It eases the restrictions on storing foodstuffs under government mandated stocking limits. Sub-section (1A) has been added that restricts the power of the government to regulate the supply of foodstuffs to circumstances of calamity. An order regulating the stocking limit of any agricultural item can now be issued only in the event of large, specified price rises.

The farmers’ acts provide farmers with increased channels for trading their agricultural produce and will further their interests. However, their implementation will depend on subsidiary legislation yet to be issued by the government.

The legislation presents significant opportunities for businesses to trade or deal in previously restricted agricultural produce. The legislation has been hailed as a game changer for the sectors, but growth will require a ground up implementation. The framework must evolve and address implementation concerns, so that farmers and the agriculture sector benefit as intended. Without effective checks and balances the farmers’ acts may end up as mere paper laws that make little or no impact.

Kunal Arora is a joint partner and Nayanika Majumdar is a senior associate at Lakshmikumaran & Sridharan.

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