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Industry, farmers reject draft contract farming Act 

Different stakeholders, including industry and farmers, have given a cold shoulder, with some even openly rejecting the draft model contract farming Act, which the Union Agriculture Ministry has framed recently, and circulated for comments.

“I don’t think very highly of it. I don’t think this was the missing link that that would incentivise market players to work directly with farmers. The problem lies in not giving farmers direct access to the market,” said Pravesh Sharma, former Madhya Pradesh Agriculture Secretary and visiting senior fellow at the Indian Council for Research on International Economic Relations.

The draft Act, which the Ministry posted on its website, has set among its goals, giving price protection to farmers, constituting an authority at the State-level, and penalising breach of contract from both sides. The Act needs to be passed by State Assemblies to become law in respective States.

“We don’t think that a separate legal structure is required for contract farming as the provisions of the Indian Contract Act are sufficient to cover the necessary requirements,” said Jasmeet Singh, head of agriculture and food processing at FICCI. Contract farming has already been practised across the country in various forms for a number of crops such as sugarcane, plantation crops, potato and several others, he said.

Sharma agreed with Singh, and said that the Indian Contract Act was such an omnibus Act that makes even verbal agreement valid under the law.

According to him, the core problem of Indian agriculture is the nature of its marketing structure, such as APMC monopoly and restrictions on direct buying from farmers, etc. “If you remove these restrictions, contract farming will emerge as a consequence. Contract farming cannot be the driver. It has to be marketing reforms, which will generate a huge amount of backward integration,” Sharma said.

Direct approach

Citing the example of the dairy sector, the ICRIER Fellow said even private dairies are willing to go directly to farmers as the sector is following a decentralised model, and there is no restrictions on procurement. So is the case with marine fisheries, which is topmost export commodity from India.

Once the restrictive marketing structure is removed, producers and market players will start talking to each other.

Farmer unions are also unhappy with the proposed Act. “The Act is aimed at helping agribusinesses to rake in profits. It promotes an unequal arrangement where farmers' products would be available cheaply to these companies,” said Vijoo Krishnan of All India Kisan Sabha.

“Rather than incentivising farmers with subsidised inputs and procurement at remunerative prices, it talks of incentivising companies. It also has a provision to allow companies to buy produce at lower than contracted prices citing inferior quality,” he said.

Yudhvir Singh of Bharatiya Kisan Union said farmers benefit very little from contract farming, as the experience has shown. “These companies keep their parameters at such a high level that farmers engaged in contract farming are never able to meet. As a result, farmers lose out in such contracts,” he said.

According to Sharma, some kind of contract farming provision existed in the APMC Act of many States. But nobody took recourse to that because they do not want to open yet another avenue for rent seeking.

Ramesh Chand, Member, Niti Aayog said these provisions in the APMC Act were not invoked in the States where they existed because there were no guidelines. “Most states allow contract farming only for selective crops, barring Punjab which permits contract farming in seven or eight crops. Others allow it only in one or two crops,” Chand said.

According to him, many private companies have said that they face a lot of difficulties when they approach the State for contract farming licence.

This Act attempts to smoothen this process.

“This is the best way of de-risking the farmer. Minimum support prices are some sort of assurance at the bottom level. Contract farming, on other hand, will help farmers to get better prices for their produce.