CONTRACT farming has immense potential in India, provided it inspires confidence among farmers of assured marketing of products on a par with the state procurement of wheat and paddy. Though the new farm laws are interlinked, scepticism is mainly regarding assured marketing. In India, most of the farmers have landholdings of less than one hectare. They are involved in subsistence farming to meet their daily needs through the sale of the produce. They can never venture to take any marketing risk.
Developed countries such as Canada, Australia and the US had adopted contract farming for optimal use of their sources and to overcome price volatility in any season. This type of contract farming is needed more in India, where the sources are meagre and the country cannot afford wastage.
There are two main reasons for the breakdown of contracts in the past. Most of the contracts were made by the agro processing units for the supply of raw material to their new installed units, but once the prevailing price in that market happened to be higher than the contracted price, the farmers used to sell to other traders rather than to the contractor. When the price happened to be low, the contractor purchased from farmers who were not contracted. In the second case, sometimes the contractors had declined to purchase on the plea that the quality of the product was not good enough for the market for which the contract was made. Apart from farmers and contractors, workers also suffered when contracts fell through. The consumers suffered because of the price hike due to suspension of the production. Such a situation must be addressed by the new legislation for contract farming.
In the case of contract farming in developed countries, the company concerned monitors the production process right from sowing to harvesting. Company officials focus on quality control. If there is a deficiency in the product, it is not because of the farmer but due to the weather or a lapse on the company’s part.
India was compelled to import food till the Green Revolution happened. The government made the provision of better seeds, fertilisers, irrigation, easy credit and minimum support price (MSP). But only wheat and paddy are procured by the government. Other crops are not procured despite the provision of MSP. The production of wheat and paddy has been staggering because of assured marketing.
Recently, the Union government announced to encourage the cultivation of herbs to tap their export potential. There are other high-value crops that also have such potential, but only if it is assumed that a subsistence farmer can identify such products and get foreign orders. It is the job of the export house to do the needful. The subsistence farmer can enhance his income with such products, but only with the same assurance he was provided with the state procurement. APEDA (Agricultural Products Export and Development Agency) works at the Central level. It is playing a significant role in promoting the export of farm products. There are agro export corporations at the state level also, but hardly any of them has secured foreign orders in the past decade.
Crop diversification is the most desirable imperative now, but area under new crops is not rising because of the lack of assured marketing. That gap can be filled by contract farming between agro-processing and export companies in collaboration with state agro export corporations. Ostensibly, contract farming is going to be launched for crops that have high potential but are not being grown because of unsure marketing. The challenge before the government is to make contract farming sustainable.
The author is Senior Fellow, Institute of Social Sciences, Delhi
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