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Lack of mandatory written contracts, provision to invoke controlling powers among many bones of contention
A woman reaps wheat crops during the harvest season amid the nationwide Covid-19 lockdown, near Raispur village in Ghaziabad district of Uttar Pradesh
A day after the Centre promulgated three ordinances to free up inter-state trade in agricultural commodities, provide a regulatory framework for contract farming and amend the Essential Commodities (EC) Act, experts raised several questions on some key provisions of the Acts. However, the Centre’s move has largely been welcomed.
Amendment to Essential Commodities Act
One big point of discord that relates to the amendments to the Essential Commodities Act is the provision to invoke its controlling powers on exempted food items. That is, 100 per cent increase in retail price of horticulture produce or 50 per cent increase in retail price of non-perishable items as compared to the previous 12 months or last five years average, whichever is lower.
Experts said this provision would restrict big-ticket investments in the sector.
Cereals, pulses, edible oils, onions and potatoes have been pushed out of the EC Act and its provisions will apply only if the conditions of 100 per cent increase mentioned above sets in.
“So now, onions are selling at Rs 15 a kilogram. If suppose, the prices move to almost Rs 40 a kilogram in the next 3-4 months, will the government impose stock limits? This is undoing the reform measures and will create uncertainty in the minds of people who wish to set up big storage facilities,” said Ashok Gulati, Infosys Chair Professor for Agriculture in ICRIER.
Gulati said though the government has exempted ‘value-chain participants’ from provisions of the above mentioned clause but what happens if a farmer-producer organisation (FPO) decides to store potatoes that it bought from farmers. Will It be subjected to the same provisions, like the case of big traders?
Sukhpal Singh, chairperson of the Centre for Management in Agriculture at IIM-Ahmedabad, said sugar has been kept out of the provisions of the exempted foodstuff, which means the government will continue to exercise control over it.
Kiran Vissa, co-covenor of National Alliance for Sustainable Agriculture, said that amendments to the EC Act have nothing to do with farmers’ welfare but instead meant to please big players and agriculture companies. This is because small and marginal farmers don’t have the storage capacity to attract provisions of the EC Act.
However, NITI Aayog member Ramesh Chand said in the definition of ‘value-chain participant’ that includes anyone involved in processing, packaging, storage, transportation and distribution, adequate leeway has been given.
Such persons can store the exempted goods upto their installed storage or production capacity without attracting stock limits.
Free inter-state trade
Experts said there is a lot of confusion over some of the definitions which, unless fixed, could lead to major implementation challenges.
In addition, the provision to refer all disputes in such forms of trade to the sub-divisional magistrate or the conciliation board appointed by him gives a lot of powers to the officer.
“Another point which I found missing is taxes on inter-state trade. Now, if a trader buys goods from other states, what happens to taxes other than mandi tax and cess that is levied. Though GST will have taken care of a lot of these issues, but some clarity could have been better,” said Mahendra Dev, director of Indira Gandhi Institute of Development Research.
Dev said the role of FPOs will also become crucial in the inter-state Act.
Singh said that in the definitions, FPOs have been recognised as farmers. That is wrong, as they do not sell any produce but aggregate and purchase.
He said FPOs are not mentioned in the definition of persons who can do trade which is wrong, according to him. He said, as per the Ordinance, anybody who is buying from one or more persons is defined as a trader, but FPO is not a trader but a commission agent.
He said the Act lays down separate methods of payment other than the one mentioned for traders, if any FPO or cooperative society buys, which is wrong.
The Act says that a trader has to necessarily make payment to the farmer in such out-of-mandi transactions within three days of delivery of goods.
“The dispute resolution mechanism to me looks highly complicated,” said Singh.
However, Chand said that just to believe that all out-of-mandi trading will land up in dispute is false.
“In India, almost 7 crore farmers sell milk daily to various agencies for the last several years and there hasn’t been any big dispute so far. And here, we are talking of agriculture crops, which are sold maximum 3-4 times in a year. How many of them will lead to a dispute is a big question,” Chand added.
Sukhpal Singh says that the Act does not make it mandatory for anyone to enter into written agreements between the buyers and seller. “So, when you are having a law why haven’t you made written contracts mandatory,” said Singh.
He said fixing a guaranteed price for the produce as mentioned in the Ordinance goes against the very grain of a contract. “That apart, in one of the provisions, the law says that bonus price will be determined on the basis of APMC rates. So, when the government believes that an APMC does not allow proper price discovery, why is it fixing it to bonus rate?” asked Singh.
Vissa said his experience shows that most seed companies in Andhra Pradesh and Telangana do not enter into any written contracts with farmers. This keeps them at a disadvantageous position as compared to companies.
However, Chand added that a lot of problems and details in the pacts between farmers and buyers will be ironed out in the agreement formats that will soon be circulated to states. They include issues on area, acreage and place of delivery, among others.