Why Punjab stands to lose from farmers’ produce trade and commerce ordinance

Instead of putting Punjab farmers at the mercy of big corporates and private players, there is a need to strengthen existing infrastructure 

By Parikshit Goyal
Published: Tuesday 30 June 2020

The Union government announced three agriculture-related ordinances as part of its novel coronavirus disease (COVID-19) relief package — permitting agricultural trade outside the boundaries of market committees, easing regulation and control under the Essential Commodities Act and facilitating contract farming.

Out of these, the Farmers’ Produce Trade and Commerce Ordinance, 2020, seems to have the most far-reaching implications, particularly for the agrarian state of Punjab.

The Ordinance

In a nutshell, the Ordinance aims at paving the way for a ‘One Nation, One agriculture market’ by creating barrier-free intra-state and inter-state trade. The buyer can purchase directly from the farmer, without going to the state level Agricultural Market Produce Committees (APMCs) and mandis (wholesale markets).

There will be no tax or levy on such trade and buyers will not require a licence. The Ordinance allows any person having a PAN card to take part in electronic trading in agricultural produce. The objective is to provide farmers a greater choice in selling their produce, better price remuneration and attract large-scale private investment into agri-businesses.

What about APMCs and MSP?

The Ordinance, however, may not be beneficial for a state like Punjab. Though it does not explicitly provide for dismantling the APMCs, abolishing the state mandis or ending the minimum support price (MSP) system, there is reasonable apprehension among experts and farmers alike that it will do exactly that.

The Ordinance contains the provision regarding having an overriding effect over the state APMC acts (Section 14). There are fears that it will render the entire APMC mandi network and the MSP system redundant, once the sweeping changes under the Ordinance are introduced.

In Punjab, the APMC regime has stood the test of time and has a valuable contribution towards the Green Revolution. The state has a well-developed infrastructure in place, for open marketing, storage of produce and transport system from farm to mandis / godowns.

The Ordinance will lay waste to the sprawling network of regulated mandis built over 60 years, which includes 153 principal yards, 284 sub-yards and 1,443 purchase centres.

Livelihood and revenue loss

Section 6 of the Ordinance provides that no market fee or cess or levy under any state APMC act shall be levied on any farmer, trader or electronic trading platform. As a result, Punjab will lose a substantial chunk of revenue which it generates from as fees / cess on the transactions in the agricultural trade.

Currently, the tax / commission rate in APMCs in Punjab stands at 8.5 per cent. In 2019-20, Punjab collected Rs 3,600 crore as revenue from the trade fees. It is to be noted that the revenue generated as tax or fees from sale of agricultural produce is used by the state government to develop rural roads and linkages with state mandis.

The Food Corporation of India (FCI) pays 2.5 per cent commission to APMC licenses commission agents, arhtiyas, under the state APMC Act in Punjab. Apart from revenue, many livelihoods are also at stake.

About 36,000 arhityas in Punjab earned Rs 1,600 crore as commission fee; around three lakh workers are engaged in loading and unloading activities at the mandis and their income was Rs 1,100 crore last year.

It is because of the assured procurement by government at fixed MSP that the wheat-paddy cropping system could be successfully implemented in Punjab.

Cultivation of rice has depleted groundwater resources. Punjab has put its own health at stake for almost six decades. Though there have been calls for crop diversification in Punjab for several years now, the Ordinance would in no way lead to it as its objective is to bring changes in agricultural trade — not in agricultural practices per se.

Detrimental to farmers’ interests

To enjoy the gains of the Ordinance, farmers will need sufficient capital, enough understanding of the free-market forces, comprehension of price and market fluctuations and electronic / broadband connectivity. Only then will they be able to compete in the open for all pan-India market.

The farmers will have to guard against the likelihood that private traders may insist on buying the produce immediately after harvest, when the prices are low.

Most farmers do not have storage capacity so they will have to sell to traders and corporations at lower prices. Punjab is one of the few states that are surplus in grain production. There is a possibility that after harvest, companies will buy grains from Punjab at low prices and later sell them to foodgrain deficient states at higher prices, thereby causing distortion in the market and a fall in farmers’ income.

One may look at Bihar as an example. It did away with the APMC regime in 2006. According to several reports, the move has not helped the state.

Instead, private traders have taken full control of agricultural produce and have set up small markets where farmers are being charged commission. Traders buy farm produce at below the MSP and sell it at higher prices in other states.

It is also important to bear in mind the overall size of land holdings in Punjab. The average size of land-holding in the state is a meagre 3.62 acres. To add to it, the average amount of farming debt in Punjab is Rs 276,000 for each marginal farmer and Rs 557,000 for a small farmer.

It is not advisable to wean away the farmers from an assured minimum price and push them towards the complexities of e-trade and commercial technicalities.

The rabi season 2020-21 coincided with a full blown COVID-19 crisis in April-May. Despite that, Punjab displayed exemplary management skills by procuring 100 per cent of the produce, as per MSP.

In times like these, farmers did not have to worry about their produce going to waste, or not getting assured minimum price. If a similar crisis occurs again, what is the guarantee that the private companies / MNCs will step in to purchase the grain from the farmers? Will they allow motive of profit maximisation to take a back seat during such times?

Of 127.45 lakh tonnes of wheat purchased in Punjab’s mandis in 2020, private traders bought just 0.58 per cent of the total. The rest was purchased by FCI and other state agencies.

Moreover, Punjab has already amended its APMC Act — most recently in 201 — which provides for a single unified license and setting up of private market yards for direct purchase from farmers. Further, the state APMC Act deals only with the first transaction between the farmers and the buyer and does not interfere with trade in any manner.

What should be done?

Instead of paving the way for a slow death of APMCs and MSP regime and putting Punjab farmers at the mercy of big corporates and private players, there is a need for strengthening the existing infrastructure.

APMCs should be reformed as they are the only hope for small and marginal farmers who lack capability of trading with big players. Central government introduced the concept of electronic National Agricultural Market (e-NAM), under which state APMCs were required to create e-NAM infrastructure to link APMC markets with digital trading platform.

It is too early to junk the idea of e-NAM. Efforts should be made to improve the e-NAM facilities and state participation in e-trading must be encouraged. There is no wisdom in tampering with the existing APMC and MSP regime or to disturb the delicate balance of federalism.

The time is now ripe to implement the recommendations of Swaminathan Committee which advocated for raising the MSP at 50 per cent higher than the cost of production.

‘In the long run we are all dead’

India has long adopted the Keynesian model of development, which focuses on increasing the aggregate demand to revive a dwindling economy. Post-World War II crisis, Keynes presented a different model of capitalism. He advocated that apart from market forces, government intervention is also necessary to inject money and higher demand in the economy.

In India as well, the government must not let the farmers be at the mercy of private companies, big MNCs and corporations during this hour of crisis. While keeping the core principles of ‘welfare state’ in focus, the government must actively intervene to ensure survival of farmers.

Otherwise, in a state like Punjab rife with farmer suicides, Keynes’ prophecy ‘in the long run we are all dead’ may sadly come true.

The author is a lawyer and can be reached at

Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth

Subscribe to Daily Newsletter :

Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.