By Saumya Dhyani ~ Army Institute of Law, Mohali


When 60-61[1]% of a country’s total population is engaged in agriculture, the concerns and issues of this sector can hardly be ignored. However, the irony lies in the fact that the meal provider of the nation often fails to secure a square meal for himself and his family. Farmers of India have been the victim of economic exploitation since British times. The recent protests in the states of Punjab and Haryana have once again compelled us to look into the farmer welfare legislations. It all started when the Government of India on June 5 notified 3 ordinances commonly known as the Farm Bills and specifically named as –

  • The Famers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020,
  • The Farmers (Empowerment and Protection Agreement on Price Assurance and Farm Services Ordinance, 2020.
  • The Essential Commodities (Amendment) Ordinance, 2020.

The bills were passed in the monsoon session of the parliament which began on September 14. Subsequently, the bills received the President’s assent on the 20th of the same month amongst the ongoing protests, against the bills especially in the states of Punjab and Haryana. To understand what reforms the bills aim to bring, it becomes important to understand the current agricultural markets as established and governed by the Agriculture Produce Marketing (Regulation) Act, popularly known as the APMC Act

Reasons for Enacting the APMC Act

After independence, India lacked a regulated market system through which the agricultural produce could be sold to the consumers. This unregulated system was often misused by the Zamindars, who gave loans to the farmers at exorbitant rates. When the farmers were unable to pay back the loans to the Zamindars, they seized the farm produce as repayment of loans and interests thus disabling the farmers from becoming sustainable, as a result of which they again had to seek loans for even the farming essentials. This made the farmers vulnerable to economic abuse as they were forced to enter into a never-ending cycle of debts, leaving them at the mercy of Zamindars. To stop this exploitation, the government introduced the APMCs.

The Current Market System under the APMC

This system regularized the agricultural markets, also known as mandis. Under this establishment, the state is geographically divided into different markets or mandis, which is further divided into principal or submarkets. Once these markets were identified no person or agency could sell or buy agricultural produce outside of them, which means that the farmer would also have to bring his produce to the mandi and the trader would also have to buy it from the mandi. To further regulate the market, it is made mandatory under this system that a trader has to get a license from the State Government for the particular mandi in which he wants to carry out the trade. The produce has to travel through multiple layered systems which include the Commission agent (arthis), trader, wholesaler and retailer to reach to the consumer. A transaction agent discovers the market price of a commodity-based of demand and supply forces. The agricultural produce is sold through the process of auction. Government control over the market is further established through the process of MSP or minimum support price.

Minimum Support Price

Minimum[n1]  support price is the price fixed by the government[2] based on the recommendations of the Commission for Agricultural Costs and Prices, the Department of Agriculture and Co-operation, [n2] below which the agricultural commodity cannot be sold. It is also the price that government agencies pay whenever they procure or buy that particular crop from the farmers.[3] It is important to note that the government does not declare an MSP for all the commodities, it is done only for 22 crops[4].

Defects in the Current Structure & Reasons for Reform

  • In the current system, it is often seen that cartels are formed by traders who refuse to purchase crops above a certain rate. Since the nature of the goods is perishable, the farmers are forced to sell their goods at those low prices.

  • In this model, when the produce travels from the farm to the fork, it has to pass through many middlemen like the trader, wholesalers, retailer etc. This leads to price inflation at each stage, and ultimately it is the customer who has to bear the price of this inflation.
  • The license system was limiting the entry of many agents or traders in the market as nexus of govt employees, local politicians etc. made it difficult to get the license.
  • Commission agents generally charged large fees from both the farmer and Wholesalers. 
  • State government levies market fees on the whole process. Its value ranges from 3-8% depending from state to state. Apart from this, other statutory levies or mandi taxes add up to hefty amounts.
  • The cost of producing crops is different in different states. E.g. the cost of producing rice is different in Punjab as compared to that in Chhattisgarh. However, when it comes to fixing the rate of MSP since it is decided by the central government one rate is applicable throughout the country which again becomes problematic.

The government realized the importance of a liberalized agricultural market and came up with the APMC Act of 2003. It facilitated the private sector and cooperatives to be licensed and allowed them to set up markets. It also made provisions for contract farming and direct marketing by the private players. The conditions of the farmers however stayed the same or in many places changed from bad to worse. The Shanta Kumar Committee in 2015 submitted in its report that only 6% of the farmers were the beneficiaries of the MSP system.[5]. While in 2016, the Niti Ayog observed that only 81% of the farmers were aware of the MSP system[6]. It had become very clear now that the agricultural markets need structural reform.

In 2014 Maharashtra Government introduced the ‘farmer to consumers’ market calling it as the “the second-generation reforms in Maharashtra’s agriculture marketing sector”[7]. These aimed at setting a parallel market system devoid governmental control, thus increasing the role of private players. In view of improving the current market scenario, the central government passed the 3 farm bills.

The Farmer’s Produce Trade & Commerce (Promotion & Facilitation) Act, 2020

The preamble of the first act helps us to walk through the objective that this act seeks to achieve. It aims to provide and facilitate the creation of a new ecosystem where the farmers and traders can have the freedom of choice concerning[n3] sale and purchase. This act also aims to improve the conditions of the farmers by getting them remunerative prices through competing alternative trading agencies. The primary aim of the act is to establish an efficient, transparent and barrier-free inter-state trade for the farmers produce. Finally, it aims to create an electronic trading platform.

 Sections 3 & 4[8]gives farmers the freedom to indulge in inter-state trade, in areas outside the APMC mandis. This provision is popularly being reported as an enabling step towards the “one-nation one-market” policy. It simply means that the previous compulsion on the farmers and traders to go to a particular mandi as notified by the state government has been done away with. The farmers can now bypass the current APMC mandi system. This would also help eliminate the middlemen in between. 

The next highlight of the act is Section 6. It states that “no market fee or cess or levy” shall be levied on any farmer or trader or even on any electronic trading and transaction platforms. The State government levy mandi taxes, the % of which varies from state to state. The money collected from these taxes goes to the state government’s treasury. However, this taxation authority of the states has now been taken away.

The new act does not aim to replace the old APMC system. It wouldn’t stop the functioning of the mandis; rather it created another platform for sale and purchase. Nothing would prevent the farmers from selling their produce or traders from buying from these mandis.[9]

It proposes to create a new electronic trading platform for the direct online trading of farm produce. Companies, partnership firms and societies have been permitted to establish them.

The state governments of Punjab and Haryana are expected to be affected by this provision as these two states levy a considerable amount of mandi tax which ultimately becomes a significant chunk in the revenue of the state.[10]

Additionally, the Central Government has been given the powers to frame rules and regulations under the Act.

The Farmers (Empowerment & Protection) Agreement of Price Assurance & Farm Services Bill, 2020

This act talks about establishing a framework to engage farmers in Contract Farming. Contract farming would enable the farmers to directly conclude an agreement with a buyer (before the sowing season) by which he has to produce a particular crop and then sell the same produce to the buyer at pre-determined prices[11].

The Act has also laid down the time duration or the number of cycles for which contract farming can be carried on. The agreements must have a minimum duration of one cropping season or one production cycle of livestock. While the maximum period can be five years. If the farmer and the buyer want to extend the contract for production cycles beyond five years, then the desired period has to be mutually decided by both the parties.

In the case where agreement has been made for the production of seeds, the buyers (called sponsors under the Act) are required to pay at least two-thirds of the agreed amount at the time of delivery. While the remaining amount is to be paid after due certification within 30 days of the date of delivery. For all the other cases, the entire amount of the products shall be paid at the time of delivery with a receipt bearing all the details of the trade transactions. The bill also provides for a grievance redressal system. It provides for a three-level dispute settlement mechanism. Level 1 being the conciliation board, comprising of representatives of parties to the agreement, level 2 comprising of the sub-divisional magistrate and level 3 comprises of the appellate authority.

Salient Features of the Essential Commodities (Amendment) Act, 2020

The amendment removes some essential agricultural products like cereals, pulses, oilseeds, edible oils, onion, and potatoes from the list of essential commodities. It further restricts the powers of the government concerning the production, supply, and distribution of certain vital commodities.


It is indisputable that the APMC system, which was first enacted to protect the farmers from exploitation, had become their primary source of misery. The new acts aim to give some relief to the farmers. It is often said that the success of legislation is marked by seeing whether it was able to fulfil the object which it sought to achieve. Laws should be followed not only in letter but also in spirits, and the execution of these laws are yet to see.


Farm Bills: An Introspection of the Past & A Hope for the Future

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