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Essential Commodities Act Amended: Will Ending APMC Monopoly Help Farming in India?

Jun 5, 2020 7:11 AM 4 min read

The Union Cabinet on Wednesday approved an amendment to the 65-year-old “draconian” and “vintage” Essential Commodities Act (ECA) of 1955, removing cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of “essential” commodities.

The Cabinet also passed ordinances to remove restrictions on farmers that bind them to sell their produce only to licensed traders in the APMC (Agricultural Produce Market Committee) mandis of their respective talukas or districts.

Also cleared was an ordinance aiming to facilitate contract farming i.e. Where a private buyer can contract to purchase a crop at a certain price at the beginning of a season, thus transferring the risk of market unpredictability from the farmer to the corporate sponsor. This is expected to allow farmers to directly engage with processors, aggregators, large retailer and exporters.

Today we look at these amendments, dubbed as "farm liberalisation" of sorts, and gauge their potential impact. Will these agri reforms truly aid farming in India?



What is the Essential Commodities Act, 1955

The Act provides for the control of production, supply, distribution, trade and commerce in any good deemed “essential”. The list of items under the Act includes drugs, fertilisers, pulses and edible oils and petroleum products.

The Centre can include new commodities as and when the need arises (hoarding those can draw penal measures), and take them off the list once the situation improves. The Government, for instance, in the wake of the pandemic, brought masks and hand sanitisers under the purview of ECA.

Once a notification is issued, anybody trading or dealing in a commodity, be it wholesalers, retailers or even importers, are prevented from stockpiling it beyond a certain quantity. Thereby it aims to protect consumers against irrational spikes in prices of essential commodities.


Essential Commodities Act Amendment Approved


Farmer’s Distress

Ironically, this intention to put consumer interest foremost has resulted in restricted income and poor price realisation for farmers.

In fact, one of the first decisions by the newly-elected Narendra Modi Government in July 2014 was to bring potatoes and onions under the ECA’s purview, empowering states to impose limits on stocks held by individual traders.

Restrictions on exports - via fixing a minimum price below which shipments couldn’t take place - were also put in place from time to time.

Moreover, a sustained increase in the Minimum Support Price (MSP) by the Indian Government has over-priced the country's agricultural commodities in the world market, reducing India’s competitiveness in farm exports. Between FY13 and FY19, the Government raised MSP of various agricultural commodities by 40-70%.

Presently, prices of most agricultural commodities have slipped below their minimum support price (MSP) because of lockdown-triggered labour and logistic problems, creating supply pressure on mandis near major production centres.  

Stock limits deterred traders from investing in better storage infrastructure. Food processing industries’ operations were challenged as they needed to but couldn’t maintain large stocks to run their operations smoothly. Under these restrictions, large-scale private investments naturally refused to flow into food processing and cold storage facilities.


Essential Commodities Act Amendment Approved


How Will the Amendment to the Essential Commodities Act, 1955 Supposedly Help?

The ordinances, which are a part of the ₹20Lcr ($279bn) Atma Nirbhar Bharat economic package, would reportedly remove existing barriers by promoting barrier-free trade and commerce into states outside the physical premises of the designated markets, said Agriculture Minister Narendra Singh Tomar.

They aim to provide farmers with additional trading opportunities outside the APMC market yards to help them get remunerative prices due to additional competition.

Farmers in India have thus far been forced to sell their produce to traders registered by State Governments at notified APMC markets. APMC legislations enacted by State Governments further hindered free flow of agriculture produce between several states. 

As per industry sources, 60% of agricultural trade already takes place outside the mandis through unregulated sales. By legalising and facilitating such sales, the Centre hopes that farmers will benefit, rather than middlemen.

However, for farmers to truly get access to other markets and to be able to negotiate competitive prices for their produce, State Governments should also abolish their APMC Act, bringing uniformity and clarity in agricultural markets across the country, says Arabinda Kumar Padhee, Director, Country Relations and Business Affairs, International Crops Research Institute for the Semi-Arid Tropics (ICRISAT).

Moreover, if farmers are allowed to sell outside the mandis, they need to be provided market intelligence so that they can sell their crops at appropriate locations at the right time, Padhee added. The nationwide e-trading portal needs to be upgraded to keep farmers updated about the prices of commodities at various locations.

Intrigued enough? Listen in to one of our earlier podcasts to know how the Indian agricultural value chain really works and how the Indian farmer is often caught between the devil and the deep blue sea.

Bottom Line

The gazette notification is yet to be released so only the details will make the picture clearer. While the argument that mandis and licenses restrict trade does have some credence, they are also responsible for providing a traditional safety mechanism for farmers ensuring they get paid on time.

Moreover, the “agri marketing system” - in place for so long with stakeholders so numerous and locally entrenched - is bound to resist any movement away from the status quo. 


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