How will the new farm laws work?

NEW DELHI: The government’s ambitious farm-liberalisation agenda in the form of three bills, currently being enacted into laws, could see new ways of engagement between producers of food and their buyers.

How will the new system work? “The government’s design is that all three bills will work towards the same goals i.e. removing inefficiencies through efficient investment and enabling freer trade. Big companies will meet small farmers,” a senior official said, requesting anonymity.

The three bills are The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 and the Essential Commodities (Amendment) Bill 2020.

The first two were passed by a majority voice vote on Thursday in the Lok Sabha, while the third had already been passed on Tuesday. The two bills will now have to be passed by Rajya Sabha. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 is a law that creates a new legal framework for contract farming. It is this law that has the biggest potential to change the game.

The contract farming bill provides for a national framework on farming agreements.

According to the bill’s preamble, it seeks to protect and empower farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price.

Contract farming is not new to the country but has seen limited success. Snacking firms, for instance, often enter into contracts with farmers for produce for potato wafers and crisps. However, the new legislation seeks to create a new legal framework. Currently, in states permitting the practice, contract farming requires registration with the agricultural market produce committees (APMCs), which also act as dispute settlers. Market fees and levies are to be paid to these APMCs.

The new law frees up farmers and agri-business companies to engage directly, bypassing APMCs. Agribusinesses are quite cautious about entering into contracts because of the way the political economy works.

“They feel if farmers fail to deliver or violate the contract, the political system will always side with farmers. There are issues with prices agreed to be paid. If they are set too low, it could attract political criticism,” said Amira Tandon, partner, Agstock, a firm that offers agriconsultancy.

Last year, PepsiCo sued Gujarat farmers for almost ₹1 crore for illegally growing and selling a potato variety registered by PepsiCo. PepsiCo withdrew the cases after the state government intervened. The new contract farming law’s intent is to make sure investment flows into farms. By clearly defining the legal framework, the new law could inspire confidence of both the farmers and agribusinesses.

Once contract farming becomes mainstream, agribusinesses will pool farmers together, invest in their land, provide them with know-how and technology without farmers having to fear adverse impact on land titles or corporations fearing sunk investments. As per government’s report on doubling farmers’ income, the Dalwai committee report, contract farming “will allow smallholders to integrate their production into the supply chains of processing plants” leading to efficient supply chains.

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