A Close Reading of Farmers Produce Trade Act: Does it Make Farmers Free to Trade?

The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act seeks to abolish the monopoly on trade and distribution in favour of the Food Corporation of India (FCI) and the Agricultural Products Markets. It allows farmers to sell outside the designated APMC districts, increasing their direct contact with the market, writes PRAKHAR DIXIT.

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TO develop an environment in which farmers and traders can choose buyers for their produce, and encourage remunerative rates through competitive alternative trade channels, the government introduced a new law on trading in farm products last year. This law, the Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, seeks to promote an effective, transparent, and barrier-free inter and intra-state exchange and trade of agricultural products outside the physical premises of officially-designated markets.

The claim about this law is it will free farmers to sell anywhere in the country, but that conveniently obscures the fact that farmers are already free to sell anywhere. This is because all the APMC Acts had exclusion or exemption clauses that keep farmers outside their purview. Selling beyond the APMC was not illegal or barred.

Loophole

Another government claim is that ending the "monopoly" of the APMC will eliminate middlemen. Further, that it will create an open market, allow better price-discovery, and make the supply chain more productive.

However, loosening the hold of the APMCs means that farmers will face the risk of earning lower than the minimum support price (MSP) for their crop. A few agricultural economists have said improving upon the current system may be better than tearing it down to create a new system.

There are several more legal issues and questions that remained unanswered by the legislature, which this article will address.

A critique

Section 2(e) of the act defines "inter-state trade" as buying, selling, and/or transporting farmers' produce across state borders. Section 2(f) defines "intra-state trade" as buying, selling, and/or transporting farmers' produce within a state.

The new rules say farmers can sell their goods in any market; a farmer in Uttar Pradesh can sell his wheat crop to a trader in Kerala. This sounds good, but is it feasible for small farmers to trade their goods in distant markets? This law is not meant to give farmers access to a large market but make it easier for large corporations to purchase from any part of India and consolidate their commodity purchases in one place, at the lowest possible price.

Section 2(c) defines farm produce, which covers wheat, rice, and other grains, pulses, oils, vegetables, fruits, nuts, spices, and sugarcane, poultry, fishery, dairy products, and so on. Section 2(j) defines scheduled farmers' produce as those agricultural commodities which are specifically regulated under state APMC Acts. 

The regulated commodities comprise cereals, pulses, fruit, vegetables, dairy products, flowers, bamboo, wood, wool, honey wax, tulsi, catechu, tobacco, etc. To trade in scheduled agricultural products, an individual must either be a farmer association or agricultural cooperative society, or a citizen with a PAN number or another document notified by the central government.

Only traders with a PAN number or another recognised document may trade in any scheduled produce. There may also be an electronic registry or system that traders have to register on to comply with payment or other formalities.

The term scheduled farmer produce is broad but not all fall within the ambit of farmers' produce. This is because some commodities such as roses, bamboo, camel hair, etc., are not covered by farmers' produce. [Section 2(b) defines a farmer as anyone who produces farmers' produce. Section 2(n) says a "trader" is anyone who buys a farmers' produce.]

Therefore, all activities related to the purchase and sale of farm products and commodities are specified in terms of the farmers' produce and not with regards to scheduled farmers' produce.

Section 2(n) defines a trader as a person who buys farmers' produce either for self, or on behalf of others engaged in wholesale trade, or for retail, end-use, value addition, processing, manufacturing, export, consumption, or related purposes. The import of these definitions is that even an individual consumer would need a PAN number to buy vegetables from a farmers market. This is likely to become a source of confusion.

Section 4(1) allows traders to engage with a farmer or other traders in inter-state and intra-state trade in farmers' produce, and not scheduled farmers' produce.

Also, section 4(3) says a trader shall preferably pay the farmer on the same day or within three days for the scheduled produce. This stipulation applies only to dealers and farmers who produce (or trade) scheduled farmers' produce and excludes individuals who grow (or trade) farmers' produce. In other words, this section excludes the sale or purchase of farmers' produce between two dealers.

Section 6 deals with the market fees. It says that no market fee or cess or levy, under any state APMC Act or any other state law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers' produce in a trade area.

Since market fees, rural development fees, and the Arhatiya (wholesale trader)'s commission are major sources of revenue for some states, the new law could risk state revenue.

Dispute Resolution

The most important legal loophole in the Act relates to the right of farmers to adjudicate disputes. Sections 8 to 10 deal with this issue. Section 8(1) provides that if any dispute arises between a farmer and a trader, the parties can initiate conciliation proceedings via an application to the Sub-Divisional Magistrate (SDM).

The Act does not say which SDM holds the jurisdiction: the SDM of the region where the farmer resides or where the trader lives or where the agreement has taken place.

Again, the benefit of dispute settlement is not available in disputes where individuals produce or trade exclusively in scheduled farmers' produce or where both parties are dealers.

A contractual and commercial conflict cannot be determined by SDMs and ADMs, who are controlled by the executive arm of government. Administrative bodies often do not view farmers from the point of view of their struggles. Besides, the executive cannot put itself in the role of the judiciary.

Section 8(7)(c) provides the unrestricted will of a single person to revoke the licence in any way it prefers, thus placing an undue restriction on the freedom of trade and business.

Further, section 8(8) allows for an appeal from the judgement of the Sub-Divisional Authority to the Collector or Additional Collector nominated by them. However, the appeal is irrelevant because, under the Act, there is no provision for a Sub-Divisional Authority to offer any basis for its decision. Earlier, the possibility of a poor debt-ridden farmer battling the system was grim, but at least a door was open. Farmers are now being deprived of this.

Section 13 uses the term "any other person" in the definition of "person" in the Act). This is an extremely unfortunate and ubiquitous error, for a "person" may include large multinational corporations, large retailers, etc., which also enjoy immunity from prosecution. Through this section, the government has recused itself of all liabilities and disputes that would need immediate attention.

Section 15 excludes the jurisdiction of civil courts. The result is that the contracting parties would not even have the right to consult the judiciary although an agricultural agreement should be regulated by the rules of the laws of contract.

In Anita Kushwaha vs Pushap Sudan, a Constitutional Bench of the Supreme Court held that access to justice is a basic right under Articles 14 and 21. The bench observed, "…to protect a citizen's right to access justice, the framework thus given must not only be successful, but must also be just, equitable and impartial in its approach. Consequently, the procedure which the Court, the Tribunal or the Authority may follow for adjudication must, in itself, be just and equitable and in compliance with the well-recognised principles of natural justice."

Similar contentions were upheld in Tamilnad Mercantile Bank Shareholders Welfare Association vs SC Sekar and Ors, and Brij Mohan Lal vs Union of India and Others.

The debate over APMC and MSP

The new Act opens the doors to large businesses to purchase goods directly from producers. Advocates of the law are claiming that farmers can go to the APMC-managed mandis even after the new law comes into force.

However, experience shows that once regulated markets or government-controlled sectors are opened to private players, they end up being systematically sabotaged. The healthcare and education sectors are a case in point. There is no reason to believe the same will not happen in agriculture as well.

If corporations do pay farmers better prices in the early years, the farmers would naturally abandon the APMC. Besides, since goods can be purchased directly from farmers outside the wholesale APMC markets, it sets up an arbitrage wherein traders would not visit mandis where the licence fees and other taxes have to be paid.

Gradually, the APMC structure would weaken and agricultural produce would become a market for private entrepreneurs.

The new legislation does not expressly abolish MSP, but farmers are worried that if prices are settled outside a controlled mandi, then it would become difficult for the government to track individual transactions. Thus, government purchases would give way to private investors who might ambush them and buy at lower prices.

Guaranteed rates, which are discovered at the mandi level, are also a source of credit for farmers and support during tough times such as droughts and crop failures. Even if the government declares an MSP, there is no assurance that farmers will receive that price unless the government actively engages in the market.

Attack on federalism 

One reason why there are protests against these laws is the unconstitutional manner in which the laws have been passed. It is the state governments that legislate on agriculture-related matters. The government should have consulted the Opposition, taken into account the concerns of farmers, and closed the gaps in the Act.

The central government has sole legislative authority over issues of national significance such as defence, foreign affairs, and so on, while the states handle issues of immediate and local importance such as agriculture, health, education, etc. When formulating this contentious legislation, the Centre appears to have invoked Entry 33 of the Concurrent List, which provides that Parliament can make laws related to trade, supply, and distribution of industrial products.

In matters on the Concurrent List, the central law prevails over state laws. The Union government may claim that there has been no violation of jurisdiction and it is within their power to pass laws on intra- and inter-state trade, contract-farming, prohibiting states from obtaining any fees outside the APMC mandi, etc. But for the sake of argument, if industrial products (referred to in Entry 33) such as edible oilseeds and oils, livestock feed, raw cotton and jute, cotton seeds fall within the framework of the broad category of agriculture, then what is the actual scope of Entry 14 of the State List, which provides sole authority to the state to legislate on the subject of agriculture.

Besides, the right to make laws in respect of markets and fairs also falls within the exclusive domain of states, as set out in Entry 28 in the State List. Further, the Act does not include an explanation as to how "trade area" varies from "market" (as the words "trade area" are not mentioned in the Constitution).

The central government cannot narrow down the legislative sphere of the states, nor can an entry in the Seventh Schedule be overridden or made barren by simply using different terminology. In other words, the interpretation ascribed to Entry 33 by the central government seems fictional and without constitutional authority.

In State of Rajasthan vs Shri G Chawla and Dr. Pohumal, the validity of the Ajmer (Sound Amplifiers Control) Act, 1952, passed by the state legislature, and the judicial commissioner's order was challenged. It was held that the Act falls within Entry 31 of the Union List and not within Entry 6 of the State List and is thus ultra vires of the State Legislature.

The Supreme Court, however, disagreed with the judicial commissioner of Ajmer and affirmed the constitutionality of the law. It claimed that the Act was within the capacity of the state legislature as the key issue of amplifiers (related to the health and tranquility) was largely covered by the state list and, somehow unintentionally, referring to the other list (Union List).

Similarly, in the case of ITC Ltd vs Agricultural Produce Market Committee, the Supreme Court held that the establishment of market areas, market yards, and the control of the use of facilities within such areas or yards by levying market charges are a matter of local interest and would therefore fall within the legislative competence of the state and is covered under Entry 28 of State List.

Benefits of the Act:

This Act strives to create an ecosystem in which farmers and traders have the freedom to choose the marketplace as well as agri-products. This is a historic step towards unlocking a tightly-regulated agriculture market.

Section 2(e) and (f) defines inter and intra-state trade and focuses on barrier-free trade which means that farmers can sell their produce within the state or anywhere else in the country and there is no restriction on such trade. As a result, the farmers can fetch a higher price for their produce even from merchants outside their state.

The law will help farmers stabilise prices; for example, farmers in regions with surplus produce can get better prices in regions with shortages, and also provide the commodity to uncatered areas. The Act also proposes an electronic trading platform to facilitate efficient electronic trading.

Section 3 provides that any farmer, trader, or electronic trading and transaction platform shall have the freedom to conduct inter- or intra-state trade and commerce in farmers' produce in a trade area. Besides, the law provides that there will be no tax on such trades which paves the way for farmers to get higher prices.

Further, the Act essentially aims to create additional trading opportunities outside the existing APMC market yards. This is a way to help farmers get remunerative prices owing to greater competition. This will complement the existing MSP procurement system, which provides farmers with stable incomes. It will certainly facilitate 'One India, One Agriculture Market', and will lay the foundation for ensuring golden harvests for the hard-working farmers.

Section 11 (1) and (2) provide penalties for contravention of the law, thus assuring payment security to farmers as well as traders.

Conclusion

An Act and the parallel agri-marketing reforms are potentially helpful but have a long way to go to ensure fair and reliable prices to primary producers.

The Act raises fundamental and disconcerting concerns about the wider vision of the current government for agriculture. The agricultural market reform Act means nothing to farmers without a coherent vision and a roadmap for Indian agriculture that provides the right background.

To say that protesting farmers are misled or confused is to avoid these critical issues. The government must reconsider the newly enacted legislation and provide clarification on the vision it has for Indian agriculture. It must not do so by avoiding the states and farmers, but by incorporating their concerns and aspirations.

Click here to read Part I

(Prakhar Dixit is a Delhi-based lawyer and acknowledges the inputs of his intern Saman Rizwan in the writing of this article. This is part two of a three-part series analysing the three farm acts legally and procedurally. The views expressed are personal.)