By Vritika Mathur
In a bid to introduce reforms in the agricultural sector, the Center released a revised draft of the Model Act on Contract Farming, which was originally released late last year. The model has been framed by the Ministry of Agriculture in collaboration with NITI Aayog and aims to protect farmers from price volatility and distress sales. The revised draft also includes proposals for marketing products and farm services.
What is Contract Farming?
Contract farming is a form of agricultural production that comprises of an agreement between the producers (farmers or farmer organisations) and the buyers (exporters or food processing units). This agreement is made pre-harvest and involves buyers specifying their requirements such as the preferred quality, quantity, price and the delivery date to the producer. It helps reduce price and supply risk, ensuring stability in the market.
What is the Model Contract Farming Act?
In December 2017, the Ministry of Agriculture released a preliminary draft of the Act. The main goal of this was to help integrate farmers with agro-industries in order to enable them to obtain better prices, reduce losses and create jobs in rural areas.
An important feature of the Act is the provision of a Contract Farming Facilitation Group (CFFG) at the village or panchayat level to help ensure quick and need-based decision-making. The Act protects farmers by ensuring the buyer purchases the entire pre-agreed quantity of one or more of agricultural produce, livestock as per contract. The Act will also include the setting up of an appropriate and unbiased state-level agency that will carry out any tasks or mandates pertaining to contract farming.
The Union Cabinet will review the Act by the end of this month. Following its clearance, states will be urged to implement respective legislations making the Model Act their guide.
Implications of the Act
With 70% 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. This has been a major issue in contract farming in India and leaves farmers vulnerable to exploitation by huge corporations.
Agricultural laws are restricted to state boundaries, and often farmers are forced to produce the same crop every year, leading to monoculture and depletion of land.
The main aim of the Act is to bring down market risk in the agricultural industry, which is riddled with price volatility and poor harvests. In addition to this, the Model Act has set up a provision that allows the setting up of Farmer Producer Organisations (FPO). This will help smaller farmers overcome disadvantages they face in negotiation.
Challenges and limitations
Although agricultural laws are a state subject, the Model Act aims to reduce their role. Under the Act, powers of the state will be limited to protecting the interests of the farmers or contract holders. State governments will not be allowed to call for notification of commodities and stakeholders will be free to choose commodities according to their own interests-provided it comes under the insurance cover. However, states do hold the power to de-notify any commodity in case of an emergency.
However, to ensure effective implementation, states will have to amend the Agricultural Produce Marketing Committees (APMC) Act, which is the current regulatory structure. Under this system, committees record contractual agreements and resolve any disputes that arise. However, market fees or levies are paid to undertake contract farming. The new proposed structure will eliminate this fee. It also aims to address and change the poor publicity among farmers about the benefits of contract farming.
With the implementation of the APMC Act still pending in many states, a further amendment to include the propositions of the new Act seems unlikely. Moreover, the earlier APMC model also included a provision involving the setting up of FPOs. However, little progress was made on the same. While the benefits of the new model seem endless, the limitations of state implementation, standardised quality and quantity control all seem to be in the way of farmers and corporations enjoying the system.
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