Draft law on Contract farming

Why in news?

Union government has proposed a law on contract farming.

What is contract farming?

• Contract farming can be defined as agricultural production carried out according to an agreement between a buyer and farmers.
• It establishes conditions for the production and marketing of a farm product or products.
• Typically, the farmer agrees to provide agreed quantities of agricultural product with required quality standards at pre-determined time.
• In turn, the buyer commits to purchase the product and, in some cases, to support production through, for example, the supply of farm inputs, land preparation and the provision of technical advice.

What is government recent move on contract farming?

• Union agriculture ministry has drafted a model contract farming act that states can adopt as per their needs.
• It aims to protect farmers from price risks and provide incentives to buyers to procure produce directly from farmers.
• The act bars the transfer of ownership of the farmer’s land to companies under all circumstances.
• It allows these contracts to be governed outside the purview of state agriculture produce marketing committees (APMCs).
• This essentially means companies can purchase produce directly from farmers and save the 5-10% usually spent in market fees.
• The contracts are meant to be registered with a State-level agency called Contract Farming (Development and Promotion) Authority.
• It can levy a fee of no more than 0.3 per cent on the contracted produce and it acts as a dispute resolution body.
• Besides there will be local-level recording committees to register these contracts and implement them effectively.

What are the prospects of contract farming?

• It can potentially link Indian farmers to global supply chains, particularly in high-value horticulture produce where wastage can be significantly reduced.
• Food-processing will get a boost as an employment generator.
• It lays the foundation for the entry of large players in food retail, upping the gains for both the producer and the consumer.
• It also gives farmers an alternative in cases where the procurement mechanism is ineffective.
• This large-scale shift from subsistence to contractual farming is likely to improve yields and incomes.

What challenges need to be addressed?

• The centre had earlier drafted a model agriculture marketing act which states have been reluctant to adopt and the new model act on contract farming may see the same response.
• The model act allows for direct purchase from farmers and therefore states have to amend their APMC acts to make this happen.
• If prices rise sharply compared to the contracted price, it will be difficult to force the farmer to sell the produce and such challenges needs a proper solution.
• The tendency of sponsors to opt for middle and large farmers with a large asset base needs to be addressed, as it may create socio-economic distortions.
• In order to create a level playing field between small farmers and sponsors, the former should enter into ‘group contracts’ with the latter.

Source: Business Line, Live Mint