Model Contract Farming

The Union Agriculture Ministry has released a Model Contract Farming Act in the hope to double farmers income in the country.

The Background

• Budget of 2017-18, had promised to bring out a model law on contract farming.
• Aim is to have a regulatory mechanism & policy framework on contract farming.

What is Contract Farming?

• Under this, the producer (farmer) comes into a contract with the buyers (exporters, food processors etc.) to sell the produce before the actual harvest of the produce.
• The buyer will pay the farmer on the basis of the pre determined price agreed upon by the farmer while signing the contract.

What are the benefits?

• By pre-agreement, the farmer is assured of a return on his produce as he has an assured buyer.
• For the buyer, he will be worry free and assured of a quality produce.
• Also, if the contracting party is a big company, the small and marginal farmers are set to benefit from the expertise of these companies. They might get some advance payment for starting the farm, technological inputs, land improvement, suggestions on high yielding seeds, fertilizer utilization etc.

Scenario of Contract Farming in the country so far

• Under the Model Agricultural Produce Marketing (Regulation) Act, 2003, contract farming agreements were allowed and are to be recorded by the Agriculture Produce Marketing Committee (APMC).
• Rights of farmers over their lands were protected under the 2003 act.
• The major drawback was the breaching of contract by either of the parties.
• During the periods of price decrease owing to market conditions, the companies avoided purchasing the produce from the farmer sighting bogus quality claims.
• This and many such instances on part of both the contract farming sponsor and the farmers, very few success stories have been registered.

The New Model Act

• Model Agriculture Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act, 2018 released by the Ministry of Agriculture, looks to make contract farming profitable for both the farmers and the sponsor companies.
• The new Model Act puts emphasis on the protection of farmers as it considers farmers to be weaker among the two contracting parties.

Highlights

• The new Act includes all the services contracts from pre-production to production and post-production.
• For online registration of the sponsor and recording of agreement, the Act provides for an “Officer” or “Registering and Agreement Recording Committee” at district/block/taluka level.
• The produce under the contract will be covered under an insurance policy related to crop or livestock
• One of the major feature of the new Act is that, it sidesteps Contract farming form APMC Act. This will allow the sponsor companies to reduce costs as they are no longer required to pay commission to the APMC.
• In order to protect farmer’s land, the Act disallows sponsors from erecting any permanent structure on the land/premises of the farmer.
• In the same way, it does not allow the sponsor to take up any right, title of interest of the land.
• It provides for promotion of Farmer Producer Organization (FPOs)/Farmer Producer Companies (FPCs).
• If authorized by the farmers, FPO/FPC can be a contracting party.
• Unlike the previous act, the buyer has to buy the pre-agreed quantity of the contracted farmer compulsorily.
•  It allows for redressing the disputes at the lowest levels possible. This is for disposing the disputes quickly.

Conclusion

Now it is upon the State governments to how fast they adopt the new Model Act into their statues and provide the much-needed succour to the farmers.

The need for a Model Act is because, under the ambit of Schedule 7 of the Constitution, agriculture comes under the State List. The Union government cannot frame a law on the subjects of a State List. Hence the Model Act, to be adopted by the State governments by passing a law in their respective state legislatures.