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Sanjay Kaul

Chairman NCML & Former Joint Secretary FCI

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The Farm Trade And Commerce Act Surpasses Industry Expectations

Now farmers and aggregators will be able to directly go to warehouses, cold stores or other aggregators and buyers and sell their produce without going to the mandis.

Photo Credit : Shutterstock


The recent enactment on freeing up agricultural markets through the Farm Trade and Commerce Act is much more far-reaching than contemplated even by industry and advocates of agricultural marketing reforms. The central government had been pushing states to amend their outdated APMC Acts Act for over fifteen years. All along the stated position of the central government had been that there is little else that the centre could do as agriculture is a state subject. The model APMC Act circulated to states for adoption was itself not very revolutionary as it only ought to facilitate state-wide licenses and to free of some archaic restrictions. The Ordinance now issued goes much further. The central government has cleverly used a provision in the Constitution that gives it powers to regulate interstate trade and commerce in agriculture produce. The provisions of the Act fundamentally alter the agriculture marketing landscape in the country in several ways.

First, outside the physical confines of the mandis, any buyer or trader of agriculture produce would now be able to buy from any farmer or farm-aggregator without any license or payment of mandi cess. This would apply even to transactions within states.

Second, it would permit any warehouse complex or private yard to operate like a mandi and compete with the regulated state mandis. This would open up choices and opportunities both for farmers as well as buyers. It could also lead to private investments in agriculture marketing infrastructure, including warehouses, testing and grading facilities.

Third, this will permit small aggregators as well as corporates to operate and trade freely in all forms of agriculture produce without fetters, both within as well as across state boundaries.

Fourth, this would lead to efficiencies as it reduces one level of transportation and handling of agricultural produce that was hitherto first required to be traded under the mandi system. Now farmers and aggregators will be able to directly go to warehouses, cold stores or other aggregators and buyers and sell their produce without going to the mandis.

Fifth, it would reduce geographic asymmetry that currently exists both in terms of availability as well as prices of agricultural produce across different states because of restrictions on inter-state movement. This would mean a smoothening of price volatility that currently exists in agricultural markets.

Sixth, by providing alternate avenues to farmers, it would lead to improved price realization by farmers. However, the implementation of the provisions of the new Act on the ground will not be easy. The Act will face multiple challenges and resistance by states. The Chief Minister of Punjab has already denounced the measure on the ground that it infringes on a state subject. No BJP Chief Minister has so far publicly supported the Act. Within each state, APMC boards are powerful and influential, and they will fight to retain their privileges. Further, mandi cess forms a major source of revenue for many state governments and states could put informal restrictions on private payers who wish to operate outside the mandi system.

The Act could also come under judicial scrutiny as the Ordinance prima facia appears to go beyond the regulation of inter-state trade and commerce which alone is within the ambit of the powers of the centre. However, recent judicial pronouncements have seen the reluctance of the judiciary to strike down what it terms as policy matters. The Ordinance thus might see the safe passage through the courts.

Two other decisions, the amendment to the EC Act as well as the Ordinance on providing a legal framework for transactions through “Farmers Agreement on Price Assurance” may not fundamentally alter the situation on the ground. The EC Act amendment reserves the right of the centre and states to invoke the Act when prices rise sharply. The Finance Minister in response to a question at the Press Conference clarified that this could mean when prices, say, double. However, in several perishable commodities – such as tomatoes, onions and potatoes, the doubling of prices is very common. So who determines price rise has been unusual? The trader will continue to have a Damocles sword on his head. The second decision on a legal framework appears to be a non-starter on account of problems of enforceability, uncertainty on how a future price would be determined, and a framework that appears to favour farmers.

Tags assigned to this article:
Commerce Act farmers agriculture central government