THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES ACT, 2020

Author: Himanshu Ranjan

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The document begins with an introduction of the Act. It creates a national framework on farming agreements with an aim to protect and empower farmers. When a farmer engages with agri-business firms, processors, wholesalers, exporters, or large retailers it could be primarily for two reasons. The first is for farm services and the second is for the sale of future farming produce. In such an engagement both the trader (known as Sponsor) and the farmer need to arrive at a mutually agreed remunerative (profitable for both) price in a fair and transparent manner. 

Then the Act goes on to define terms some of which are:

  • APMC Yard
  • Company
  • Electronic trading and transaction platform
  • Farm services
  • Farmer
  • Farmer Producer Organisation
  • Farming agreement
  • Farming produce
  • Firm
  • Force majeure 
  • Sponsor

They have their usual meanings. But to substantiate farm services relate to input supply provided to the farmers in the form of seed, feed, fodder, agrochemicals, machinery, and technology, advice, non-chemical agro-inputs. Farmer Producer Organisations means a registered group of farmers or as depicted in some government schemes. A sponsor is a person who enters into an agreement with the farmer to purchase the farming produce. 

Now, the Act provides for the protection of the rights of sharecroppers. Sharecroppers are those workers who work on other’s land and get a percentage of the produce in return. It tells that no farmer should enter into an agreement that is derogatory for the sharecropper. 

The duration of the farming agreements could be for one crop season to up to five years (even more in some specific cases). 

The farmers and the sponsors can refer to the model farming agreements and such guidelines provided by the central government. 

It is specifically mentioned the agreement should be a written agreement. 

The agreement can contain specific points about the quality, grade, and standards of farming produce. 

Now, this can be an area of dispute. As a farmer is not producing a piece of machinery but the crop that is subject to various forces – soil, climate, pests, … A farmer faces more uncertainty. If the farming produce is not of the required quality and standard as mentioned in the agreement, what would the farmer do in such a more vulnerable situation? 

The use of the word ‘may’ suggests that even a third-party who would verify the quality of the farming produce can only be consulted if it is already put up in the agreement. 

The Act suggests that the farmers should ask the sponsors a guaranteed price for their produce and the way that price is determined should be present as an annexure in the agreement. The prices prevailing at the APMC yard can be taken as a reference. 

It is the duty of the sponsor to procure the farming produce within the given time and once procured they can’t retract. That is any inspection for quality must be done before procurement by the sponsor. 

Now the payment by the sponsor needs to be done in full when they accept (proceed to procure) the produce except in the case of seed production where initially a sponsor can pay two-thirds.  For the same, a receipt needs to be provided by the sponsor to the farmer. 

Here, the suggestion is that even for seed production full amount should be transferred to the farmers. The problem with receipts could be that they may get lost. Therefore, in this age of digital payments, the sponsor and farmer should take note of the digital transaction which even when one forgets can be looked back at. The government should also encourage the same. 

The Act further overrides any State Acts that can prohibit such types of agreements with regard to any farming produce. 

The Act further states that a sponsor is free to stock the farming produce. However, the actual words are quoted below: 

Notwithstanding anything contained in the Essential Commodities Act, 1955 or in any control order issued thereunder or in any other law for the time being in force, any obligation related to stock limit shall not be applicable to such quantities of farming produce as are purchased under a farming agreement entered into in accordance with the provisions of this Act.”

Now, comes another important part. The Act states that

No farming agreement shall be entered into for the purpose of— (a) any transfer, including sale, lease, and mortgage of the land or premises of the farmer

Thus, the sponsor is prohibited from any type of agreement that relates to the land of the farmers. Also, any structures they will build on the farmer’s land need to be either restored by them otherwise that would belong to the farmer. 

Here, the sponsor is clearly prohibited with regard to any land agreement. Then what does the term “decretal amount shall be recovered as arrears of land revenue?” mean in the other farm law? If the amount needs to be recovered from the sponsor then has the government been empowered to mortgage or sell the land of the sponsor in case of default by them in order to pay the dues to the farmers. Could it also mean that farmers’ land in case they took inputs from the sponsors can be mortgaged or sold by the government in order to pay the dues to the sponsors? The two statements need to be looked into in combination and the government should issue a clarification to what it means. 

Further, the Act asks both the sponsors and farmers to take the benefits of the government insurance schemes. 

The Act also says that any farmer producer organization, any company, LLP, firm,… (designated as ‘person’ in the Act) can also be a part of the agreement and their role needs to be explicitly stated in the agreement. 

Now, another important statement: 

At any time after entering into a farming agreement, the parties to such agreement may, with mutual consent, alter or terminate such agreement for any reasonable cause.” 

Now, again the problem here is the use of the two words ‘mutual consent’. What if only the farmer wants to terminate the agreement but the Sponsor or the third parties (person) don’t? Without mutual consent, can a farmer terminate the agreement?  

The Act further states that the electronic registry of such farmer agreements can be done by the States. 

The next part of the act about dispute resolution is similar to what already provided in the other farm law. A conciliation Board, then the SDM, then the collector – all of who are presumed to be acting in good faith with the powers of a civil court and then the civil courts can’t be approached but again it’s not explicitly stated that one can, of course, go to higher courts. 

It is also explicitly stated that –

where the order is against the farmer for recovery of the amount due to the Sponsor on account of any advance payment or cost of inputs, as per terms of the farming agreement, such amount shall not exceed the actual cost incurred by the Sponsor”  

Thus, it becomes clear that even farmers can have overdue payments to the sponsor – and if they fail to pay such an amount then “decretal amount shall be recovered as arrears of land revenue”. That means the government can mortgage or sell the land if such a payment is not made. But, then in the next section, the Act clearly states that 

Notwithstanding anything contained in section 14, no action for recovery of any amount due in pursuance of an order passed under that section shall be initiated against the agricultural land of the farmer.”

It is a crucial point as the Act clearly states that no action can be taken against the agricultural land of the farmer. 

But then if one connects it with “decretal amount shall be recovered as arrears of land revenue” then there the word mentioned is just land whereas in section 15 the words mentioned are agricultural land. 

Does it mean that the government can still initiate action for the recovery of the amount that comes under non-agricultural land belonging to the farmers? Again, there needs to be some clarity in this regard. 

It is good that the farmers are exempted from paying the overdue in ‘Force Majeure cases’. (any unforeseen external event, including flood, drought, bad weather, earthquake, epidemic outbreak of disease, insect-pests and such other events, which is unavoidable and beyond the control of parties entering into a farming agreement)

However, the sponsors have to pay up to one and a half times the overdue if they fail to make such a payment. And their “decretal amount shall be recovered as arrears of land revenue” 

The Act would override any state laws. However, it gives freedom to the state governments to make rules with regards to mode and manner of payment, and with regards to the registration authority. The central government can make rules but those rules need to be in agreement of both the Houses of the Parliament. 

In Summary, 

The Act is all about setting up a law that facilitates a farming agreement between the farmers and the sponsors including any third parties (a company or firm). The Act is meant to provide more profitable pricing to the farmers outside the APMC yards or an assured guarantee for the procurement of their produce by anyone with whom the farmer enters into an agreement. 

Possible improvements: Farmers are most vulnerable when their farming produce is not of the desired quality. It is not in their control because growing crops and manufacturing machines have different uncertainties with higher uncertainty in the former.  At such a vulnerable point if the sponsor refuses to pay the agreed amount to the farmer then the quality needs to be mandatorily verified by an impartial third party. In the Act, it is an option but not mandatory. In such a situation, the government needs to assure a minimum support price or MSP that’s not explicitly mentioned in the Act. The MSP can be based on the C2 + 50 percent as suggested by the Swaminathan formula. For the purpose of seed production also, the full amount in one initial payment needs to be credited to the farmers by the sponsors. It is also possible that receipt of the payments can be lost, therefore all the payments should have digital proofs. This would be of help in dispute resolution. The government must proceed and push in the direction of electronic registries and e-payments. The Act states that termination of the agreement can only be with mutual consent with the Sponsor or third parties. The farmers need to be given an option that they can terminate the contract whenever they want (or at least stay till one crop cycle) especially in the light of the fact that some agreements can go as long as five years. The Act states that no action can be taken against farmer’s agricultural land for the recovery of overdue. However, the Act should mention any land including agricultural land because some farmers may have lands other than agricultural lands such as their residential lands, among others. The Act has also mentioned that any rules made by the central government need to be agreed upon by both the Houses of the Parliament. Therefore, a better law can be made by improving upon this Act for the benefit of small farmers. The role of the state governments needs to be broadened and their feedback needs to be taken for further improvement. 

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