Fertile ground for contract farming

Dr. Bharat

There's been a lot of furore about farm laws passed recently. Let's learn about these this week:

One of the three farm laws passed recently offers ‘contract farming’ to strengthen the agriculture sector and to create an ecosystem for helping India to emerge as an economic power. Called the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020; it aims to provide for a uniform national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner.

 What is contract farming

Contract farming is an agreement between farmer (seller) and buyer for the sale-purchase of a predetermined quality of any future farming produce (including poultry and livestock intended for human consumption) for a price under which the production/rearing is carried out by the farmer and the buyer agrees to provide farm services as per mutual accord.

 Contract farming leads to economies of scale.

Highlighting its potential benefits for national economies, Paul Collier and Stefan Dercon (University of Oxford) argue that contract farming is ‘bound to provide for a more dynamic agricultural sector’.

Drawing up blueprint for reforms in farming sector, even the NITI Aayog proposed liberalising contract farming as it will minimise the number of intermediaries resulting in higher fraction of the price.

 Attributes of Contract Farming Law

 The fundamental attributes of the law regulating contract farming are as under:

 Written agreement: It provides for a direct written farming agreement by farmers with buyers of farm produce, cutting short the supply-chain, stating the time of supply, quality, grade, standards, price and related terms/conditions, as agreed; with proper monitoring/certification of farming produce and option for alternating/terminating agreement by mutual consent. The Central Government undertakes to come up with necessary guidelines and ‘model farming agreement’ to facilitate farmers.

Support of farm services: The agreement may also provide for the support production through the supply of farm inputs, land preparation and the provision of technical advice. It also includes seed, feed, fodder, agro-chemicals, machinery, technology, non-chemical agro-inputs and other inputs for farming besides advice.

Time-lined electronic trade: It offers time-lined electronic trading and transaction platform stating that minimum period of an agreement will be one crop season, or one production cycle of livestock and maximum as five years, unless the production cycle is more. The State Governments are required to establish authority for registration of such agreements.

Pre-determined price and payment schedule: The pre-determined price (along with the process of determination) is to be reflected in the agreement.  For prices of farm produce which are subject to upswing/downswing variation, a guaranteed price for the produce and a clear reference for any additional amount above the guaranteed price need to be pre-specified in the agreement. Further, minimum 2/3rd of agreed price of seed produce is to be paid at delivery and remaining within 30 days there-from.

Risk mitigation and protection of land: It provides an option for linking the agreement with insurance or credit instrument of Central/State Government to ensure mitigation of risk and flow of credit. Further, due protection to farmer’s land/premises from sale, lease or mortgage is ensured besides protection against any recovery of any dues. Also, there is restriction on erecting permanent structure / making modification on land/premises.

Effective dispute resolution: Agreement must provide for a conciliation process and Board with fair/balanced representation of contracting parties for amicable settlement of disputes within 30 days. If the dispute remains unresolved by the Board after 30 days, then Sub-Divisional Magistrate will resolve within 30 days from the receipt of application. Aggrieved party has a right to appeal to Collector/Additional Collector.  

Unforeseen external event: In case of any unavoidable event, beyond the human control, like flood, drought, bad weather, earthquake, epidemic, insect-pests etc. no order for recovery of amount can be passed against the farmer.

 Effects

 It is not that contract farming is new to India or it did not have any legal backing earlier. Even prior to 2020 enactment, it was permitted by state laws and there were relatively successful models at small scale but it could not come in mainstream due to the absence of uniform national legislation endorsing an ecosystem.

This law endeavors to integrate the farmers with the buyers. With level playing field, without any fear of exploitation, farmers can get farm services including technical know-how and credit facility besides better price through mitigation of market. And buyers can go for long term planning as they are sure of smooth and timely supply of quality farming produce. Both the parties will be protected from the risk of price-fluctuating in the market.  It can attract investment for building agricultural infrastructure and supply chains at global markets.

Join Whatsapp Channel of The Tribune for latest updates.