What are the Issues & Argument Farmers have against the 2020 Farm Act?

Picture Credits: The Hindu

85 % of farmers own less than 2 hectares of land. Most of the traders have upper hand over farmers and because of these farmers have no negotiating power in front of traders or Agri-firms. Large corporates can misuse their power and position to manipulate laws and can leave the farmer with no choice but to compromise with their crops.

In this article, Aman Degra, a penultimate year student pursuing B.A. LL.B from Institute of Law Nirma University will explain what is MSP (Minimum Support Price) and will further discuss the issues farmers are facing.

Minimum Support Price

MSP is essentially a form of market intervention undertaken by the govt. to provide safety to farmers when the price of certain crops drops in the market. Whenever the price of specific crop drops at a level at which if crops are sold, then it will lead to a loss in revenue to farmers. So before the sowing period, the government comes with certain fix rates and ensures farmers that if they are unable to get a good amount of price for their crops, then govt. will buy those crops at a rate not less than MSP.

The rate at which government buy crops is known as "Procurement Price" and it cannot be less than MSP. The centre currently fixes MSP for 23 farm commodities:

  • 7 Cereal,

  • 7 oilseeds,

  • 5 pulses and

  • 4 commercial crops

Its is to be noted that, there is no law for MSP but it is given by the govt. under its policy.

How MSP is decided?

The cabinet committee on economic affairs determines the MSP based on the recommendation of the Commission for Agriculture Cost and Price (CACP).

CACP consider various factors while recommending the MSP:

  • Cost of cultivation

  • Cost of production

  • Demand supply

  • Input-output price parity

  • Trends in the market price

  • International price situation

In 2018, the method of calculation was changed to 1.5 times the total cost of production. Also, the cost of production has three variables:

  • A2: it considers all cash and in-kind expenses incurred by the farmer on the purchase of seeds, fertilizers, equipment’s, etc.

  • FL: under this imputed value of unpaid family labourers are also considered.

  • C2: it is the cost of rents and interest that farmers are paying for their lands.

CACP recommendation was based on 1.5 times of A2+FL only.

Here I want to point out that farmer activists are continuously demanding that method must be of 1.5 times of C2 as it includes the rental cost too.

Present Mandi System

Farmers sell their crops to licenced middlemen in their nearest mandi’s, where the price is decided by the middlemen through the method of auction. Traders then approach to mandi’s to purchase the crops. (Here on this transaction, mandi tax is levied).

If any trader import crops from other states, then also he has to pay mandi tax in the state in which he is exporting.

Farm Act 2020

The Farm Act includes three Acts and they are as follows:

  1. The Farmer Produce, Trade and Commerce (promotion and facilitation), Act, 2020

  2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Act,2020

  3. The Essential Commodities Act (amendment) Act,2020

The Farmer Produce, Trade and Commerce (promotion and facilitation), Act, 2020

This act allows barrier-free Intra and interstate trade of farm produce. Now without taking permission from the mandi, farmers can directly sell their crops to any trader or corporates anywhere in the country. It will help to eliminate middlemen and exempt from Mandi tax. Also, big corporates may provide them with transporting facilities for their crops and cold storage to store their crops.

It is believed that elimination of middlemen will eventually lead to the reduction in corruption and farmers will get more price for their crops. Because of less intervention of government, It will also promote corporates to invest more in agriculture sectors.

Issues with this Act

  1. Farmers are worried that they will be exposed to big corporates and will be at a disadvantageous position in dealing with them.

  2. Alternative private mandi system will lead to the loss of revenue to APMCs which will further lead to the closure of APMCs. Closing down of APMCs will lead to the monopolization of private mandis and farmers will be left with no choice but to sell their crops at private mandis.

  3. As per the 10th agriculture census of 2015-16 released by the Ministry of Agriculture & Farmers Welfare Government of India: 86.2 % of all farmers in India owns less than 2 hectares of land. Which means that they are already at disadvantage position as big corporates have funds and other choices to purchase crops, but a small farmer does not have many choices and eventually will have no bargaining power which will lead to their exploitation.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Act,2020

This Act is also called the Contract Act.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Service Act, seeks to protect and empower farmers by giving them the power to enter into a legal contract before sowing season in which they have to decide the rate of procurement of crops and other requirements.

It will protect the farmers from the risk of market unpredictability as prices will be pre-decided. In the agreement, there must be provision for conciliation board and a dispute settlement conciliation process. The board must first look into all the issues and if not resolved within 30 days, then farmers can approach to the Sub-Divisional Magistrate.

The Parties shall have the right to lodge an appeal against the decisions of the Magistrate with the Appellate Authority (presided over by the collector or additional collector). Within thirty days of receipt of the appeal, the Magistrate and the Appellate Authority would then be required to dispose of the dispute.

Issues with this Act

  1. Most of the farmers are not that much educated to understand the legality of contracts. Whereas most of the traders have legal advisers, investment teams and advisory board to support them and due to this wide gap in understanding contracts, traders and corporates will always have the upper hand and they can misuse their position to manipulate farmers.

  2. Farmers are demanding that in the contract Act, MSP must be given as legal right so that they can be ensured of a minimum price for their crops.

The Essential Commodities Act (amendment) Act,2020

As per this Act, the traders will be allowed to stock crops freely without any fear of being prosecuted as before this Act was enforced stocking of certain crops was limited to a certain quantity and exceeding the quantity was illegal as per law.

However, with this new amendment, commodities like cereals, pulses, oilseeds, onion and potatoes are removed from the list of essential commodities and they can be stocked by anyone without any limit. Govt. can again add them in the list of essential commodities only in special circumstances like war, natural calamity, or in the situations of the extraordinary rise in the price.

Issues with this Act

Traders can do excessive stocking as they have all the resources and may affect the market price of the crops.

Demands of farmers

  • 1. Dispute resolution

Earlier farmers were allowed to directly go to the Civil Court in any dispute between trader and farmer but now as per this new bill, the executive body has given more power and previous experiences show that executive is more prone to get influence by money or by the power of the parties.

Farmers want to the aid of Higher Judiciary in deciding these cases so that there can be transparent proceedings and farmers can get free and fair judgements.

  • 2. Legality of MSP

MSP must be a legal right so that farmers can have an assurance of getting a decent price for their crops.

  • 3. Dominance

Agriculture is the largest employment generator in India. Such a big industry must not be given in the hands of private parties, as eventually some of the traders will dominate the market and will create a monopoly over the supply chain.

  • 4. Contract breach

If A is a trader and B is the farmer where A has contracted with B for a specific quality of onion at Rupees 2300 per quintal. Now after the harvesting if half of the produce of farmer does not meet the required quality due to some unseen reasons and because of this trader refuses to perform the contract.

Due to this, farmers will face loses and eventually have to sell their crop below the fixed price and have to compromise.


  1. There is a need to have separate Tribunals for dealing issues between farmers and traders so that fast and transparent justice can be ensured.

  2. Judiciary must have more power to deal with the dispute.

  3. MSP must be made legal right as by giving this right to farmers, private parties will not be able to have undue benefit from farmers.

  4. Strengthen the APMC system, so that it can help counter the monopoly of private players.

  5. Free legal assistance must be provided to farmers so that they can understand the contract and use the knowledge for their benefit.

  6. To have a legal guarantee from govt. that if any trader refuses to buy the whole crop, then govt. will buy the whole crop and will protect the interest of farmers.

  7. Instead of eliminating Mandi system, there is a need to re-shuffle the system and to remove the loopholes.

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