Agriculture

KEY POINTS

Contract farming

·        It refers to a system in which bulk purchasers enter into contracts with farmers. It includes agro-processing, exporting and trading units.

·        They purchase a specified quantity of any agricultural commodity at a pre-agreed price.

·        The contracting company (also known as the sponsor) provides all production support to the contacted farmers. This includes the extension services with full protection of land rights.

Benefits

·        Middlemen – The Act allows farmers and farmer producer organisations (FPOs) to directly link with companies.

·        It thus enhances market linkage and removes dependence on middlemen.

·        Financing – Lack of formal financing mechanism and lower penetration of crop insurance are prime causes of farmer distress.

·        Contract farming facilitates financing and crop insurance as well.

·        Cost – Farmers no longer have to transport their produce to the mandis.

·        As, sponsors usually collect the produce from the farm gate, reduces farmers’ cost and thereby translates into increased incomes.

·        Land – Fear of losing land has always inhibited farmers from embracing new policy.

·        The Act does well to insulate land ownership rights of the farmers. It prevents them from any potential infringement from the sponsors or the buyers.

·        Price - 86% of total landholdings in the country belong to the small and marginal category.

·        The Act will have an indirect effect on farmers forming FPOs and helps pooling their land for a better say in determining the prices of their produce.

·        Market – Contract farming creates new markets for farmers’ produce.

·        It facilitates better access to technology, crop diversification, and extension services. It can thus positively impact the production process.

·        Income – The idea is to increase farmers’ income by creating an alternative market mechanism.

·        It would provide linkages between national and international markets.

Shortcomings

·        Board – The Act mandates the formulation of a contract farming board to guide several aspects of the contract, including pricing of produce.

·        The intent is to provide a cushion against possible exploitation of the farmers. However, if not exercised judiciously, the board may set high price, deterring sponsors.

·        Quality – The sponsor is mandated to buy the entire contracted amount of produce. This is even if the quality parameters are not met, though at a lower price.

·        This affects the sponsors, as they enter into agreement to procure a specific grade of produce.

·        Insurance – The spirit of providing insurance support to the farmer is good.

·        But the sponsor is burdened with this additional cost. The government can instead consider covering this cost.

• Contract farming is a system in which a company enters into an agreement with the farmers to purchase their produce at a price previously agreed between them. The company also provides all the necessary inputs and technology for production and also collects the produce at the farm gates.
• Model Contract Farming Act, 2018 addresses many of the challenges faced by the farmers due to the shortcomings of the agriculture markets all over India.
• Some of the shortcomings of agriculture markets include:
• Dominance of Middlemen and Commission agents who eat up a substantial amount of farmers' income
• Poor transport and storage facilities
• Prices affected by various factors including vagaries of the market
• Smaller landholdings and high input cost
• Poor application of technology in the production process
• The Act provides for a purchase price safeguard mechanism by setting up a body to determine the minimum prices for each commodity under contract farming. Thus it ensures that farmers get a secure income through the predetermined price for their produce irrespective of market factors.
• As per the Act, Contract farming companies are tasked with providing insurance for the crop.
• The Act also mandates that the Contract farming companies have to purchase all of the produce (at a lower rate) even if they do not meet the quality standards. Thereby ensuring that the farmers get at least a minimum income even at worst case.
• Contract farming companies collect the produce at the farm gates thereby minimizing the post harvest losses for the farmers and also increasing their revenue by cutting back on transport costs.
• The Act addresses the concern of ownership of land by ensuring that the ownership lies with the farmers.
• Technology transferred by the Contract Farming companies to the farmers would help improve the production process.
• Thus the Model Contract Farming Act 2018, would revitalize Indian agriculture if it is implemented with excellent cooperation from the States. The Government must also ensure that the checks and balances put forth by the Act maximizes the benefit of the farmers also at the same time encourages increased participation of sponsors for contract farming.