The recent approval by the Cabinet for the issuance of three separate ordinances to further agricultural marketing and commodities trade reforms is generating significant discourse. These reforms constitute the third section of the economic package under the “Atmanirbhar Bharat Abhiyan”. The goal of these ordinances is to introduce the amendments to the Essential Commodities Act, and establishing two new laws on inter-state trading and farmer engagement with processors, exports, and others.
Essential Commodities Act (1955) Amendments
India currently stands surplus in most agricultural commodities but farmers are not receiving appropriate prices due to lack of investment in cold storage, processing and export. Such issues stem from factors like imposition of stocking curbs on farm produce, regulation of commodity prices, etc., under the Essential Commodities Act (ECA). This subsequently discourages entrepreneurial spirit resulting in limited investment in farming.
The amendments aim to deregulate commodities including cereals, edible oils, oilseeds, pulses, onions, and potatoes. ECA will only impose limits on these commodities in extreme situations such as war, famine, exceptional price rise, and natural calamity. This will attract private sector/foreign direct investment into agriculture, fostering economies of scale.
Such amendments are speculated to benefit both farmers and consumers by promoting price stability and providing a competitive market environment. In addition, it will reduce wastage caused by insufficient storage facilities.
Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
Farmers currently face restrictions in selling agricultural produce outside Agricultural Produce Market Committee (APMC) notified areas. Farmers are limited to selling produce to registered state government licensees, creating barriers for easy flow of products between states.
This ordinance aims to create an ecosystem granting farmers and traders the freedom to sell and purchase agricultural produce, whilst promoting barrier-free inter-state and intra-state trade and commerce outside APMC physical premises. It proposes an electronic transaction platform for effortless trade electronically, and a separate dispute resolution mechanism for farmers.
This move will provide farmers with additional selling options, reduce marketing costs, and allow them to receive better prices. It will support the existing Minimum Support Price (MSP) procurement system, and help those in regions with surplus produce to obtain improved prices, while consumers in regions with shortages can access lower prices.
Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020
Indian agriculture is marked by fragmentation due to small holding sizes. Coupled with weather dependence, production uncertainties, and market unpredictability, farming becomes a high-risk and inefficient industry for managing input and output.
This ordinance empowers farmers to engage directly with processors, wholesalers, aggregators, large retailers, and exporters, thus eliminating intermediaries and increasing full price realization. It also provides measures for transferring market unpredictability risk from the farmer to the sponsor.
Enhanced access to modern technology and superior inputs will be offered to farmers, along with reducing marketing costs and improving income. This initiative will draw private sector investment to construct supply chains for delivering Indian farm produce to global markets.
Way Forward
These ordinances hold potential to construct crucial agrarian infrastructure, addressing numerous issues plaguing the agricultural sector. Regarded as a transformative step, these changes may play an instrumental role in elevating farmers’ income.
