The Modi government’s dream of doubling farmers’ income by 2022 is now closer to reality. In a big move aimed at protecting farmers’ interests, increasing their income and providing them right minimum support price for their produce, the government has drafted the Model Contract Farming Act, 2018. Not only does the Act emphasise protection of farmers’ interests, it also includes services contracts, including pre-production, production and post-production. The Centre has also appealed to states to enact such a law in the interest of farmers.
This Act will protect farmers from price risks and encourage food processing companies to invest more in infrastructure and farming technology. With 70 percent of farmers possessing only small or marginal land holdings, many agro-companies have been reluctant to engage with them due to lack of economies of scale in the past. Sometimes, despite a contract, companies set very high standards which farmers are not able to meet. This forces farmers to sell their produce at a low price. Such contracts often ignore market risks in the agriculture industry, which is riddled with price volatility and poor harvests, and which often leaves farmers vulnerable to exploitation. The model Act has tried to address this critical issue and will be beneficial to farmers.
Contract farming refers to pre-production season agreement between farmer(s) and sponsor(s) (marketing firms) for the production and supply of agricultural products and transfers the risk of post-harvest market unpredictability from the former to the latter. At the same time, it helps farmers develop new skills and opens new markets for them. In recent times agriculture has undergone a tremendous shift. An expanding urban middle class and increasing commercial investment in agricultural processing and retailing are creating demand for more standardised, higher-quality agricultural produce. But underdeveloped supply chains and small farm sizes make sourcing of such produce difficult. Contract farming is a viable solution as it offers organised agricultural production. In fact, it is a revolutionary step which promises a win-win situation for farmers and marketing firms.
The Contract Farming Act, 2018, provides establishment of ‘Contract Farming Authority” at the state level and setting up of “Registering and Agreement Recording Committee” at district/block/taluka level for registration of contract farming sponsor and recording of contract. This will ensure that the contract is documented beforehand with all specifications (quantity/ quality of produce), terms and conditions and is protected by law if breached by any party. Since the contracted produce will also be covered under crop/livestock insurance in operation; the farmer is not bound to any unforeseen post-production risk. Additionally, it also allows production support, including extension services to the contracting farmers through the supply of quality inputs, a scientific agronomic package of practices, technology, managerial skills and necessary credit by the buyer. Further, the Act also entails the creation of Contract Farming Facilitation Group (CFFG) at village/panchayat level. It will quicken need-based decisions relating to production and post-production activities of contracted agricultural produce, livestock and/or its product. At the same time, it will promote contract farming and services at village/panchayat level.
One key feature of the Act is that it has kept contract farming outside the ambit of the state APMCs (Agricultural Produce Market Committees). This implies that buyers will not pay market fee and commission charges to APMCs to undertake contract farming. This will save at least 5-10 percent of the transition cost and thus benefit buyers as well.
Provisions such as Farmer Producer Organisation (FPOs)/ Farmer Producer Companies (FPC) to mobilise small and marginal farmers; non-allowance of developing any permanent structure on farmers’ land/premises; no rights, title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc. will bring more transparency and simplify the process between farmers and buyers. This Act includes an accessible and simple dispute settlement mechanism at the lowest level possible for quick disposal of disputes.
In India, 86 percent of farmers fall into the small and marginal category. By integrating the small and marginal farmers, this Act will truly catapult Indian farming into the global arena while protecting the interests of the small and marginal farmers. The Government has taken a long-term step to provide economic support to farmers. The Contract Farming Act is a big step in the right direction which will take the country forward into a new era of global agriculture.
(Amit BK Khare is a senior official at Dhanuka Agritech. The views expressed in the article are author’s own.)