The government announced some agricultural marketing reforms as part of the Atmanirbhar Bharat Abhiyan.
The three legal reforms in agricultural marketing announced as part of the Rs 20-trillion package for the economy are:
amending the outmoded Essential Commodities Act (ECA), 1955 enacting a new Central statute (bypassing the APMC regime) to enable farmers to get remunerative prices by selling their produce anywhere in the country passing a contract farming law to legalise agreements between producers and end-users of farm products.

What is the long pending reform with APMCs:-

Agricultural Produce Marketing Committee (APMC) is a marketing board established by a state government to regulate prices and protect farmers' interests.
Agricultural marketing is basically a state subject. So, efforts have for long been afoot to push reforms with the cooperation of states. But the response from states has been poor.
Most states have amended their marketing laws. But they were not as strict as suggested in the model APMC law circulated by the Centre.

Why are States not cooperating in this:-

States, obviously, do not wish to give up control over agricultural markets. Notably, agricultural markets are a key source of revenue. Moreover, the market committees that run the APMC mandis enjoy considerable political status. They can therefore influence the rural vote bank, which is valued by political parties in the states. So, most states have only trimmed the monopoly of the APMCs over agricultural trade but without erasing it completely. Nor did they allow adequate privatisation of farm mandis. But, notably, this is vital in expanding the marketing infrastructure that has failed to keep pace with growth in agricultural output. Even the setting up of the electronic National Agriculture Market (e-NAM) could not serve the desired purpose in the initial years. This was because the business had to be transacted through the APMCs.

What is the Centre's move now:-

Given the above reality, the only option left for the Centre to carry out the unfinished reforms agenda is to go in for Central legislation. This would override the state statutes. It would, hopefully, help realise the longstanding goal of having a barrier-free single national market for the agricultural produce.

What is the case with contract farming:-

Similar hurdles have been impeding legalisation on contract farming too. These reforms are deemed essential to link farmers directly with the processors, exporters, retailers, and consumers of agricultural products.Such a network allows the farmers to produce the products conforming to the quality standards required by the end-users. Only some states have imparted legal sanctity to the pre-production contracts between seller and buyer under their amended APMC laws. This allows any party to retract from honouring the contract if the prices at the time of delivery do not suit them. Most other states are reluctant in bringing this reform. The NITI Aayog has already drafted a model contract farming legislation, but without much progress thereafter. All that the Centre needs to do now is to turn it into a Central statute.

What is Essential Commodities Act:-

Enacted in 1955.

Used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.

The list of items under the Act include drugs, fertilisers, petroleum and petroleum products.

The Centre can include new commodities as and when the need arises, and take them off the list once the situation improves.

Under the Act, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.

How it works:-

If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
The States act on this notification to specify limits and take steps to ensure that these are adhered to.
Anybody trading or dealing in a commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
But, the recent Economic Survey said that this act is outdated and must go.

Case study:

In September 2019, the Centre invoked the ECA Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the kharif crop and led to a sustained spike in prices.

Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
This is due to the fact that ECA act fails to differentiate between hoarding and Storage.
Thus in the long term, the Act disincentivises development of storage infrastructure, thereby leading to increased volatility in prices following production/ consumption shocks — the opposite of what it is intended for.
The report finds that the ECA has been enacted in the year 1955, when the economy was ravaged by famine and food shortages. The government should note that today’s scenario is much more different.

Why is it important:-

The ECA gives consumers protection against irrational spikes in prices of essential commodities.
The Government has invoked the Act umpteen times to ensure adequate supplies.
It cracks down on hoarders and black-marketeers of such commodities.
State agencies conduct raids to get everyone to toe the line and the errant are punished.