Govt passes major Bills on inter-state Agri trade, contract farming

Context: Lok Sabha passed The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 and The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020, to replace the two ordinances issued on the same issues earlier.


  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 seeks to provide for the creation of an ecosystem where the farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside physical premises of markets or deemed markets notified under various State agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto.
  • The Bill basically aims at creating additional trading opportunities outside the APMC market yards to help farmers get remunerative prices due to additional competition.
  • This will supplement the existing MSP procurement system which is providing stable income to farmers.


Farmers in India suffered from various restrictions in marketing their produce.

  • There were restrictions for farmers in selling agri-produce outside the notified APMC market yards.
  • The farmers were also restricted to sell the product only to registered licensees of the State Governments.
  • Further, barriers existed in the free flow of agricultural produce between various States owing to the prevalence of various APMC legislation enacted by the State Governments.


  • The new legislation will create an ecosystem where the farmers and traders will enjoy the freedom of choice of sale and purchase of agri-produce.
  • Promote barrier-free inter-state and intra-state trade and commerce outside the physical premises of markets notified under State Agricultural Produce Marketing legislations.
  • It will open more choices for the farmer, reduce marketing costs for the farmers and help them in getting better prices.
  • It will also help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
  • The Bill also proposes electronic trading in transaction platform for ensuring a seamless trade electronically.
  • The farmers will not be charged any cess or levy for the sale of their products under this Act.
  • Further, there will be a separate dispute resolution mechanism for the farmers.
  •  The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 seeks to provide for a national framework on farming agreements that protects and 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 framework in a fair and transparent manner and for matters connected therewith or incidental thereto.


Indian Agriculture is characterized by fragmentation due to small holding sizes and has certain weaknesses such as weather dependence, production uncertainties and market unpredictability. This makes agriculture risky and inefficient in respect of both input & output management.


  • The new legislation will empower farmers for engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters etc., on a level playing field without any fear of exploitation.
  • It will transfer the risk of market unpredictability from the farmer to the sponsor and also enable the farmer to access modern technology and better inputs.
  • It will reduce cost of marketing and improve income of farmers.
  • This legislation will act as a catalyst to attract private sector investment for building supply chains for supply of Indian farm produce to national and global markets, and in agricultural infrastructure. Farmers will get access to technology and advice for high value agriculture and get ready market for such produce.
  • Farmers will engage in direct marketing thereby eliminating intermediaries resulting in full realization of price. Farmers have been provided adequate protection. Sale, lease or mortgage of farmers’ land is totally prohibited and farmers’ land is also protected against any recovery. Effective dispute resolution mechanism has been provided for with clear time lines for redressal.
  • The central government recently promulgated two ordinances that seek to free inter-state trade in agricultural commodities and facilitate contract farming between growers and processors.
  • However, both ordinances give unbridled power to the lower bureaucracy in times of dispute between farmers and buyers that can also be companies in case of the contract agreement.
  • While both agriculture and markets are State subjects, the Centre is counting on the fact that trade and commerce in foodstuffs is part of the concurrent list to push through its ordinance.

Past ordinances

  • Ordinance called The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 allows any trader to engage in inter-state and intra-state trade of scheduled agricultural produce with a farmer or another trader in a trade area.
  1. trade area is defined as the any area, which is outside the APMC acts and existing private mandis.
  2. No transactions done within this zone will be subject to any state market fee, cess or levy.
  3. Any transaction in this area needs to be paid for within three days, while the receipt for such transactions has to be paid immediately
  • The ordinance empowers anyone to trade in agricultural commodities armed with just a PAN Card or any other document as specified by the Central government.
  • The ordinance also empowers anyone to open an e-trading platform for which the Centre can specify rules.
  • In the event of any dispute in such transactions, the parties, in this case, the farmer and trader, who has bought from him outside the mandi might approach the sub-divisional magistrates (SDM), who will then set up a reconciliation board comprising a chairman and at least two members.
  • In case of the contract farming ordinance called the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020, allows any company, or processors, or Farmer Producer Organization or Cooperative Society to enter into a contract farming arrangement for a minimum of one crop cycle in case of crops, or one production cycle, in case of livestock.
  • The maximum period for such an arrangement will be five years.
  • The price to pay to the farmer in such a contract farming arrangement shall be mutually decided, or in case of volatility, a minimum price has to be paid on top of which a premium also need to pay by the company.
  • In case of any dispute, if the farmer is at a fault, the buyer can recover the inputs contributed by him and the advance made by him.
  • No state act, or law, will be applicable to agriculture produce grown through this arrangement.
  • The ordinance strictly prohibits any contractual arrangement which has an encumbrance on the farmer’s land.
  • If the buyer fails to make payment on time, he will have to pay a penalty of 1.5 times the value.
  • The agreement format would be in line with the Model Contract Farming Act, framed earlier by the NITI Aayog.
  • The state will have powers to frame rules under the ordinance, while the sub-divisional magistrates (SDM) will be the primary dispute resolution authority.

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