Recently, the Ministry of Agriculture released a draft Model Contract Farming Act, 2018. The draft Model Act seeks to create a regulatory and policy framework for contract farming. Based on this draft Model Act, legislatures of states can enact a law on contract farming as contracts fall under the Concurrent List of the Constitution.
What is contract farming?
- Under contract farming, agricultural production (including livestock and poultry) can be carried out based on a pre-harvest agreement between buyers (such as food processing units and exporters), and producers (farmers or farmer organisations).
- The producer can sell the agricultural produce at a specific price in the future to the buyer as per the agreement.
- Under contract farming, the producer can reduce the risk of fluctuating market price and demand.
- The buyer can reduce the risk of non-availability of quality produce.
What is the existing regulatory structure and issues with it?
- Currently, contract farming requires registration with the Agricultural Produce Marketing Committee (APMC) in few states.
- Contractual agreements are recorded with the APMCs which can also resolve disputes arising out of these contracts.
- Further, market fees and levies are paid to the APMC to undertake contract farming.
- The Model APMC Act, 2003 provided for contract farming, 20 states have amended their APMC Acts to provide for contract farming, while Punjab has a separate law on contract farming.
- Role of APMCs which are designated as an authority for registration and dispute settlement in most states.
- The NITI Aayog observed that market fees and other levies are paid to the APMC for contract framing when no services such as market facilities and infrastructure are rendered by them.
- Therefore contract farming should be out of the ambit of APMCs. Instead, an independent regulatory authority must be brought in to disengage contract farming stakeholders from the existing APMCs.
- Provisions of stock holding limits on produce under contract farming.
- Poor publicity of contract farming among the farmers about its benefits.
Model Contract Farming Act 2018:
- Farmer Protection: The Act lays special emphasis on protecting the interests of the farmers, considering them as weaker of the two parties entering into a contract.
- Contract Farming: Contract framing to be outside the ambit of APMC Act.
- In addition to contract farming, services contracts all along the value chain including pre-production, production and post-production have been included.
- FPOs: Promotion of Farmer Producer Organization (FPOs) / Farmer Producer Companies (FPCs) to mobilize small and marginal farmers has been provided
- Protecting Farmland: No rights, title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc.No permanent structure can be developed on farmers’ land/premises
- Contract Farming Facilitation Group (CFFG) for promoting contract farming and services at village/panchayat.
- Accessible and simple dispute settlement mechanism at the lowest level possible provided for quick disposal of disputes.
Issues with the Act:
- Many industrialists and farmers have rejected the act on various counts like – the core problem of Indian agriculture is the nature of its marketing structure, such as APMC monopoly and restrictions on direct buying from farmers, etc.
- Removing the restrictions would automatically encourage contract farming but this has not been done.
- For example dairy sector where private dairies are willing to go directly to farmers as the sector is following a decentralised model, and there is no restrictions on procurement.
- Contract farming cannot be the driver. It has to be marketing reforms, which will generate a huge amount of backward integration.
- Farmer unions are also unhappy with the proposed Act. Rather than incentivising farmers with subsidized inputs and procurement at remunerative prices, it talks of incentivising companies.
- It also has a provision to allow companies to buy produce at lower than contracted prices citing inferior quality
- Experience has shown that companies keep their quality parameters at such a high level that farmers engaged in contract farming are never able to meet. As a result, farmers lose out in such contracts.
- If prices rise sharply compared to the contracted price, it will be difficult to force the farmer to sell the produce and such challenges will be difficult to resolve.
- Market based incentive scheme can be used since price is determined previously farmers cannot avail the profit benefits in markets.
- Connectivity must be improved between farmers and mandis, markets. E NAM scheme is a leader in this path.
- Competitiveness between firms must grow which incentives farmers as well as sponsors.
- Registration of contracts cost cannot be barred by small and marginal farmers; it can be simplified for farmer convenience.
- Allowing direct sale of produce by farmers.
- Removing fruits and vegetables out of the ambit of APMCs.
- Setting-up of farmer-consumer markets.
- National commission on farmers – Swaminathan report establishes there is a need for sustainable quality and cost effective agriculture. Contract farming moves the Indian agriculture society towards the reports finding. The need of hour is removal of loopholes and implementing a farmer friendly law and contracts to ensure The policy addresses agrarian crisis and contribute to government’s vision to double farmers income by 2022.