Home Legal News Lok Sabha Passes Farmers Bills For Inter-State Trade and Contract Farming

Lok Sabha Passes Farmers Bills For Inter-State Trade and Contract Farming

by Shreya
Parliament passes Insurance (Amendment) Bill 2021
The Lok Sabha passed the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, by voice vote. The Bills for Contract farming will now be placed before the Rajya Sabha.

Also Read: Lok Sabha Passes Bill To Reduce Salary & Allowances Of MPs For One Year To Meet Pandemic Expenses

These bills seek to facilitate intra-state and inter-state trade of farmers’ produce and execution of agreements between farmers and buyers i.e. contract farming , prior to the production/ rearing of any farm produce and are already in force as Ordinances.

Salient Features of Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020:

This Bill permits sale and purchase of farmers’ produce at remunerative prices through ‘competitive alternative trading channels’ to promote efficient, transparent and barrier-free inter-State and intra-State trade of farmers’ produce outside physical premises of markets notified under various State legislations.

Trade of farmers’ produce

It permits trade of farmers’ produce outside:

  • physical premises of market yards under the state APMC (Agriculture Produce Marketing Committee) Acts
  • other markets notified under the state APMC Acts.

Such trade can be conducted in an ‘outside trade area’, i.e., any place of production, collection, and aggregation of farmers’ produce including: (i) farm gates, (ii) factory premises, (iii) warehouses, (iv) silos, and (v) cold storages.

Electronic trading

It permits electronic trading of scheduled farmers’ produce in the specified trade area.

To give effect to the same, following entities may establish and operate an electronic trading and transaction platform:

  • companies
  • partnership firms
  • registered societies (having PAN)
  • farmer producer organisation
  • agricultural cooperative society
Market fee abolished

It prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for trade of farmers’ produce conducted in an ‘outside trade area’.

Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020

This Bill seeks to provide for a national framework on farming agreements that empowers 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’.

Farming agreement

The Bill provides for a farming agreement between a farmer and a buyer prior to the production or rearing of any farm produce.

Minimum period of agreement: one crop season/ one production cycle of livestock

Maximum period of agreement: five years (unless the production cycle is more than five years))

No farming agreement shall be entered into by a farmer in derogation of any rights of a share cropper.

Pricing of farming produce

The price in Contract farming, farming produce and process of price determination should be mentioned in the agreement.

For prices subjected to variation, a guaranteed price for the produce and a clear reference for any additional amount above the guaranteed price, including bonus or premium, must be specified in the agreement.

Registration Authority

The Bill establishes a Registration Authority to provide for e-registry and for registration of farming agreements. ]

Dispute Settlement

The Bill also provides for conciliation and dispute settlement mechanism for settlement of disputes under the farming agreement.

Resolution Process

The Conciliation Board shall have a fair and balanced representation of parties to the agreement. At first, all disputes shall be referred to the board for resolution. If the dispute remains unresolved by the Board after thirty days, parties may approach the Sub-divisional Magistrate for resolution.

Right to Appeal

Parties will have a right to appeal to an Appellate Authority against decisions of the Magistrate. Both the Magistrate and Appellate Authority will be required to dispose of a dispute within thirty days from the receipt of application.


The Magistrate or the Appellate Authority may impose certain penalties on the party contravening the agreement. However, no action can be taken against the agricultural land of farmer for recovery of any dues.

Linkage of farming agreement with insurance or credit

The Bill provides that a Contract farming agreement may be linked with insurance or credit instrument under any scheme of the Central Government or the State Government or any financial service provider to ensure ‘risk mitigation’ and ‘flow of credit’ to farmer or Sponsor or both;

These Bills are being read together with the Essential Commodities (Amendment) Bill, 2020 which allows the central government to regulate the supply of certain food items including cereals, pulses, potatoes, onions, edible oilseeds, and oils, under extraordinary circumstances (such as war and famine). The Government may impose stock limits on agricultural produce, only if there is a steep price rise (100% rise).

The Bill was widely opposed in the Lower House for its potential abuse by the private sector, leading to further exploitation of the farmers forming the key issues stating:

  • Parliament is not competent to enact a legislation on the subject of Agriculture since it falls under the State List at Entry No. 14 under Schedule VII of the Indian Constitution.
  • Bills have the effect of privatizing the agricultural sector which will be detrimental to the farmers’ interest in the long run; privatization invites black marketing, hoarding and profiteering.
  • Farmers have minimal bargaining power and there’s a massive potential for exploitation by powerful, profit-oriented private sector companies.
  • By de-regularizing the agricultural sector, the Bill diminishes state control which not only affects the state Government’s revenue but also renders them incapable to regulate in case the private sector resorts to unscrupulous practices.
  • The Dispute Resolution mechanism proposed by the Bills is very complicated for the farmers.
  • Farmers are not trained electronic trading and thus, they shall be highly prone to frauds.
  • With respect to ‘Contract Farming’ as proposed by the latter Bill, the Members apprehended that the Private sector may ‘bulldoze’ the farmers into entering unfair contracts, for prices below MSP. It was further highlighted that whereas farmers need to be protected by market fluctuations induced by natural calamities such as epidemic, floods, drought, earthquake, etc., they shall not be able to seek aid from the Private Sector as they shall be exempted from any liability under the Force Majuere clause under Contract law.
  • It was also stated that in case of non-performance of Contract farming by the private sector, farmers shall be susceptible to prolonged litigation against big corporates, having deep pockets.

Responding to the debate of contract farming, Agriculture Minister Narendra Singh Tomar firstly clarified that these bills would not have any impact on the Minimum Support Price (MSP) mechanism which would continue. He then assured that the legislations will benefit the farmers by increasing competition among traders, thereby enabling them to bargain at a higher price. “Contract farming will not lead to taking over of land. If the corporates build some infrastructure, it will only benefit the farmer in the end,” he added..

He further said that in case the matter goes to the court and an unfavourable order is passed against the farmer, then he shall be liable to pay only the actual disputed amount and that his land/ property shall not be attached. Tomar also added that the contracts signed for contract farming under this law will also have a provision that if prices at time of sale are more than what was agreed to at the time of contract, then the farmers will get a certain percentage of the additional profit.

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