Agriculture Booster- Agriculture Economy : New investment needs incentives, not only ease of doing business

Agriculture Economy : New investment needs incentives, not only ease of doing business



The Union Acts on agricultural markets (a state domain until now) are aimed to create one nation-one market and provide choice to farmers for selling their produce for better price besides attracting private investment in the agricultural markets.


The Farmer Produce Trade and Commerce (Promotion and Facilitation) Act or popularly known as APMC mandi bypass Act creates a new ‘trade area’ outside the APMC market yards/sub-yards where any buyer with a permanent account number (PAN) can buy directly from farmer sellers and the state can’t impose any taxes on such a transaction.


This is intended to promote efficient price discovery and improve market efficiency for farmers both within and across states.

More significantly, the Act includes a trader-trader transaction within or across states also as a farmer produce which is not desirable. This is similar to the Farmer Producer Organisations (FPOs) asking for exemption from income tax on their income arguing that since they deal with their member farmers’ produce, who are exempted from paying income tax, FPOs should also be exempted from income tax.


Contract Farming Act

For buyers, contract farming is the only other alternative to buying from APMC or private wholesale market, and direct purchase as corporate farming option is not available in India. This is so because under the Ceiling on Land Holdings Act non-agriculturists can’t own agricultural land and under the Land Leasing Act, can’t even lease in agricultural land, both Acts being at the state level.

Contract farming generally benefits farmers who can participate in it compared with selling in the existing open market (wholesale) or direct purchase channels. However, it involves higher cost of production, generally. But, the exclusion of small holders remains a key challenge as contracting agencies prefer larger farmers to reduce their transaction costs.


This bias in favour of large/medium farmers is perpetuating the practice of reverse tenancy (where large/medium farmers lease in lands of small and marginal farmers) in regions like Punjab.

The biggest problem with the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act is that contract farming is being confused with corporate farming (corporates doing their own farming on leased or owned land). The land ownership related fear is also unfounded as the Act clearly says that the contracting agency can’t lay any claims on farmer’s land and can’t sell/lease/mortgage it. It can’t even claim its dues from agricultural land.

Since contract farming takes mandi to the farm, it is a channel with serious implications for farmers in terms of production aspects. Therefore, it required well thought regulation but the said Act fares poorly on that count.

Missing dots and mandi linkage

Contract farmers in various parts of India have faced many problems in the past, like undue quality cut on produce or no procurement, delayed deliveries at factory, delayed payments, low price, poor quality inputs, no compensation for crop failure or higher cost of production and even stagnation of contract prices over time.

But, the Act leaves out these and many other sophisticated aspects of contract farming practice like contract cancellation damages and ‘tournaments’ in contract farming, where farmers are made to compete with each other and paid as per performance relative to the best performing farmer, which is banned in many countries The Act linking bonus or premium price under contact arrangement over and above the guaranteed or pre-agreed price with APMC mandi price or electronic market price is also not desirable as APMC markets were not seen as discovering prices efficiently.


Going back to the same mandi for reference price for contract price gives contradictory signals about the rationale for reforms.

More importantly, farmer empowerment and protection mentioned in the title of the Act have been given a miss in the Act.


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