Centre paves way for licence-free purchase directly from farmers

Farmers threshing harvested wheat crops at a field during a nationwide lockdown in the wake of coronavirus, in Prayagraj, Monday, April 20, 2020 | Photo: PTI
The Union Cabinet on Wednesday cleared an Ordinance enabling buyers - be it farmer-producer companies or big retailers - to purchase directly from farmers outside the regulated mandis without any licence and armed with just a permanent account number (PAN) card.

It will not be subject to tax by the Centre or state - a step that could bring it in direct conflict with several states.

The Cabinet also approved the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020. This will facilitate contract farming between farmers and processors, and traders.

It also decided to remove cereals, pulses, oilseeds, edible oils, onions, and potatoes from the list of Essential Commodities (EC) Act of 1955, but retained the power to impose it in case of war, famine or in the event of an extraordinary rise in prices.

The installed capacity of value chain participants and exporters will remain exempted from the EC Act.

"These are welcome measures. The speed at which the government has moved is admirable. But I am worried about the imposition of the EC Act in case of extraordinary rise in prices. Who defines extraordinary rise? It needs to be deleted or the atmosphere of uncertainty that prevails will persist. There should be a third party to define extraordinary rise, not the government," Ashok Gulati, Infosys chair professor for agriculture at the Indian Council for Research on International Economic Relations, told Business Standard. 

Meanwhile, elaborating on the Ordinances, Agriculture Minister Narendra Singh Tomar said in case of the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, anyone with a PAN card can directly purchase from farmers. He will not require state or central licence. The fine print on the Ordinances will be out soon.

The price the buyer pays to the farmer will have to be mutually decided upon and payable within three days. The buyer will immediately give the farmer a receipt of the trade.

In case of any dispute in such a form trade, the farmer will approach the Sub-Divisional Magistrate (SDM). If he is still not satisfied with the decision, he can always approach the District Collector. Both have to decide within 30 days.

“In all such trades happening outside the precincts of the mandis, the buyer has to mandatorily make the payment within three days of the transaction and immediately issue a receipt,” said Tomar.

He said the Ordinance also allows the setting up of e-trading platforms outside Agricultural Produce Market Committees - rules for which will be decided by the central government. These mandis will be regulated by the central government. In the event a farmer is duped, such a platform will be immediately deregistered.

In the case of a contract farming Ordinance, Tomar said no encumbrance can be made on the land of the farmer.

In case of dispute between the buyer and seller, any decision which leads to confiscation of land of the seller (farmer) will be null and void.

He said the models of such agreements will be sent to all states for all commodities, including fruit, vegetables, milk, and eggs. The agreement will gurantee a minimum price to farmers. It will include a provision that states if the market price rises during harvest, farmers will get a share in the enhanced price as well.

“When farmers enter into contract farming agreements with big companies or processors, a minimum price is guaranteed to them in the event of a price fall, whilst also ensuring a share in the increased amount if the price rises more than the agreed-to amount,” said Tomar.

He said in case of a dispute, the SDM will be authorised to take a decision. But he cannot oblige the growers to pay anything more than what has been invested as inputs or advance by the buyer.

“In-principle, these Ordinances will unshackle the markets. But implementing them will be difficult. What happens when the produce passes through state borders? Will the state lose the right to tax it? Legal challenges could crop up,” Mahendra Dev, director, Indira Gandhi Institute of Development Research, told Business Standard.
  • No licence required for direct purchase from farmers outside mandis
  • No state or central taxes to be applied on such purchases
  • Anyone armed with just a PAN card can buy from farmers
  • Farmers will have to mandatorily be paid within three days for all out-of-mandi trades
  • Land won't be subject to any dispute or encumbrances in case of dishonour of agreement between a farmer and buyer
  • Contract agreement will guarantee minimum price to farmers and also share from increased rate
  • All disputes will be referred to the SDM and thereafter to the collector who has to decide within 30 days

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