Breaking Down the Essential Commodities (Amendment) Bill, 2020

INTRODUCTION

On September 27, 2020, the President of India signed off on the (i) Essential Commodities (Amendment) Bill (“ECA”); (ii) Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill (“FPTC”); and (iii) Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill (“FAPA”), collectively referred to as the “Farm Bills”.

OBJECTIVES OF FARM BILLS

This article analyses the key features of the ECA. However, to understand the Farm Bills as a whole, the objectives of FPTC and FAPA are set out in brief, below:

• FPTC: To create an ecosystem where the farmers and traders enjoy the freedom of choice relating to the sale and purchase of farmers’ produce; to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce; and to provide a framework for electronic trading. The FPTC is known as the ‘APMC Bypass Bill’ because it will bypass the state-level Agriculture Produce Marketing Committee (“APMC”) FPTC allows farmers to trade their agricultural produce outside the physical markets notified under state APMC Acts. 

• FAPA: To provide a national framework for farming agreements that protect and empower farmers to engage with any third parties in a fair and transparent manner.

Prior to the Farm Bills, the agricultural markets in India were mainly regulated by state APMC laws. APMCs were set up with the objective of ensuring fair trade between buyers and sellers for effective price discovery of farmers’ produce, regulating market practices and attaining transparency in transactions[1].  

The Standing Committee on Agriculture (“Committee”) observed that one of the reasons the APMC markets across India were not working in the interest of farmers was due to the limited numbers of traders in APMCs markets. This resulted in reduced competition, cartelization of traders, undue deduction in the name of market fee, commission charges etc. The Committee was also informed that provisions of the APMC Acts were not implemented in their true sense[2].

Against this backdrop, the Farm Bills collectively seek to (i) facilitate barrier-free trade of farmers’ produce outside the markets notified under the various state APMC laws; (ii) define a framework for contract farming; (iii) impose stock limits on agricultural produce only if there is a sharp increase in retail prices; and (iv) increase opportunities for farmers to enter long term sale contracts, increase the availability of buyers, and permit buyers to purchase farm produce in bulk.

ANALYSING THE KEY PROVISIONS OF THE ECA

Objectives of ECA

The Government of India has claimed that while India has become surplus in most agricultural commodities, farmers have been unable to get better prices due to the lack of investment in cold storage, warehouses, processing, and export[3]. The Essential Commodities Act, 1955 (“EC Act”) was enacted to prevent hoarding / black market sale of food grains at a time when India was facing scarcity issues and was dependant on importing food grains[4]. The objective of the ECA is to liberalize the regulatory systems to increase competitiveness in the agricultural sector and to enhance the income of the farmers, while also protecting the interests of the consumers.

Key Features

• The ECA seeks to restrict the powers of the Government with respect to the production, supply, and distribution of certain key commodities in order to boost immediate investment in the agricultural sector, increase competition and enhance the income of farmers.
• Section 2A of the EC Act defines an “essential commodity” as a commodity specified in the schedule of the EC Act (“Essential Commodity Schedule”). For the purposes of clarity, the EC Act was enacted to regulate the production, supply, distribution, trade and commerce in certain commodities which are declared as essential commodities and specified in the Essential Commodity Schedule. By declaring a commodity as essential, the Government can, by order, provide for regulate / prohibit the production, supply, and distribution of essential commodities its trade and commerce therein[5].
• The ECA states that foodstuffs including cereals, pulses, oilseeds, edible oils, onions, and potatoes (“Section 1A Commodities”) will be regulated by the Government only in exceptional circumstances, such as war, famine, extraordinary price rise, and natural calamity of grave nature (“Exceptional Circumstances”). Effectively, the Government is deregulating Section 1A Commodities, except in the case of Exceptional Circumstances.
• By diluting/minimizing the regulation exercised by the Government, the ECA aims to remove the fears of private investors with regard to regulatory influence while giving the freedom to produce, hold, move, distribute, and supply produce thereby encouraging private sector investment/foreign direct investment in agricultural infrastructure. Whether that will be the outcome, remains to be seen.
• The ECA also introduces stock limits on any agricultural produce, as and when they can be imposed[6]. The stock limits can be imposed based on the price trigger, i.e. if there is: (i) a 100% (hundred percent) increase in the retail price of horticultural produce, and (ii) 50% (fifty percent) increase in the retail price of non-perishable agricultural food items. The increase is to be calculated over the price prevailing during the preceding 12 (twelve) months, or the average retail price over the last 5 (five) years, whichever is lower.
• Stock limit regulations will not apply to a processor or value chain participant[7] of any agricultural produce, if the stock limit has not exceeded the overall ceiling of installed capacity of processing, or the demand for export in the case of an exporter, provided that Section 1A of the EC Act shall not apply to any order relating to the public distribution system or targeted public distribution system made by the Government under the EC Act, or any other law for the time being in force[8].
• While stock limits have been imposed, the effectiveness of the limits may seem redundant since exceptions have been provided for “value chain participants”, which is a very wide definition and includes “a set of participants, from production of any agricultural produce in the field to final consumption, involving processing, packaging, storage, transport and distribution, where at each stage value is added to the product”.

CONCLUSION

In view of the aforesaid analysis, it can be concluded that it is possible to create a predictable investment atmosphere for private players without the government giving up its authority to regulate in order to protect the interests of poor consumers and farmers. For instance, the EC Act has a concept of “locality” and mapping of different areas with regard to existing post-harvest infrastructure[9], which will allow for a nuanced approach to regulation, instead of a blanket de-regulation[10].

However, with the current stay on the implementation of the Farm Bills by the Supreme Court of India, constitution of a committee to make recommendations with respect to the Farm Bills and the unwavering protests conducted by the farmers of the country, the outcome of the Farm Bills remains to be seen.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal, Hyderabad.

[1] Page 39, Report No. 62, Standing Committee on Agriculture (2018-19): ‘Agriculture Marketing and Role of Weekly Gramin Haats’, January 3, 2019, Lok Sabha

[2] Page 39 – Page 40, Report No. 62, Standing Committee on Agriculture (2018-19): ‘Agriculture Marketing and Role of Weekly Gramin Haats’, January 3, 2019, Lok Sabha

[3] Statement of Objects and Reasons of the ECA

[4] Harikishan Sharma, Explained: What is the Essential Commodities Act, and how will amending it help? on June 04, 2020 available at https://indianexpress.com/article/explained/essential-commodities-act-amendments-explained-6442362/

[5] Section 3 of the EC Act

[6] Section 1A (b) of the ECA

[7] Explanation to Section 1A (b) of the ECA “The expression "value chain participant", in relation to any agricultural product, means and includes a set of participants, from production of any agricultural produce in the field to final consumption, involving processing, packaging, storage, transport and distribution, where at each stage value is added to the product.”

[8] Section 1A (b) of the ECA

[9] Section 3A of the EC Act

[10] Kavitha Kuruganti, Agri Reform Bills: What Will the New System, Which Effectively Bypasses APMC Mandis, Look Like? September 21, 2020 available at https://thewire.in/agriculture/farm-bills-new-system-mandis-monopoly-big-players