Contract farming is a procedure where agricultural production is being carried out based on the agreement between the buyer and the farm producers.
The scenario in India
The concept of contract farming is not new to India. Under the model APMC act, 2003 contract farming was legalized and the Agricultural Produce Marketing Committee (APMC) with given the responsibility to record the contracts. Presently,contract farming requires registration with APMC in few states. This means that the contractual agreements are recorded with the APMCs, which can also help in resolving the disputes arising out of these contracts.
The centre's new ordinance, i.e."The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance" is an endeavour to provide a national framework for contract farming by bringing uniformity in the provisions of contract farming under the various state regulations enacted under APMC acts. It provides for a three-level dispute settlement mechanism: The Conciliation Board, Sub-divisional magistrate and Appellate Authority
The ordinance has three significant features:
- Farmers may get into a written agreement, which may specify the terms and conditions of the quality, grade, and time of supply price and extension of services.
- The agreement can be from a period ranging from 1 to 5 years.
- If there is any price variation that takes place, it has to be a part of the agreement. If there is any additional amount over the agreed price, the prevailing price in the APMC portal will be the benchmark.
Advantages of Contract Farming
To the farmers
- It helps in skilling of farmers as they learn to use a spread of resources efficiently like fertilizer, pesticides and find involved with new technology in some cases.
- Farmers get the chance for diversification of crops.
- Price risk is considerably reduced as many contracts specify prices ahead.
- Contract farming can open up new markets, which might otherwise are out of stock to small farmers. The farmers may also get easy credit from the Bank under contractual agreements.
- In the case of agri-processing level, it ensures a regular supply of agricultural produce with quality, at the proper time and lesser cost.
To the Client
- They get uninterrupted & regular flow of stuff of top quality, which helps, in protection from fluctuation in market pricing.
- Long term planning of business is feasible, as they need an infatuated supplier base of stuff.
- Concept of contract farming will be extended to other crops also, which helps to get goodwill for the organization.
- Contract farming actions are often criticized for being biased in favour of firms or large farmers while exploiting the low bargaining power of small farmers.
- Problems faced by growers like an unwarranted quality cut on produce by firms delayed deliveries at the factory, postponed payments, low price and pest attack on the contract crop, which raised the value of production.
- Contracting agreements are often unwritten or informal in nature, and even written contracts often do not provide legal protection in India that will be observed in other countries. Lack of enforceability of contractual provisions may end up in a very breach of contracts by either party.
- Single Buyer – Multiple Sellers
- Adverse gender effects: Women have less access to contract farming than men do.
The new ordinance of June 2020 makes a good move in that course by stating the intention to promote contract farming.
Understanding The New Reforms For Farmers
Around three months ago, the Government of India had issued three ordinances, all these three ordinances are in relation to agriculture, farming, and it has the spirit of reforms to create ease for the farmers.
Usually, ordinances are issued only as emergency laws and later on, they have to be converted into proper legislation. Recently the Lok Sabha has passed one such ordinance, and the other two is in the pipeline.
This has led to protest by farmers in states like Punjab and Haryana, and the agitation might soon spread to Rajasthan, Madhya Pradesh and Uttar Pradesh too. Withstanding the pushback PM Modi has created that the farmers will eventually benefit from these ordinances.
Understanding the Ordinance
The first ordinance is the"Farmers Produce trade and commerce ordinance". This ordinance attempts that the farmers are able to sell their produce at other places except the APMC (Agricultural Produce Market Committee) regulatedMandis. The whole idea behind this is to expand the choice given to farmers, and if a farmer gets a better deal somewhere with a private buyer, he can opt-out from the APMC Mandi and sell it there.
The other two bills have not yet been passed, but this article will throw some light on it.
The second bill, i.e."The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance".provides a regulated framework so that farmers could enter into contract farming.
The third bill, i.e."The Essential Commodities (Amendment) Ordinance" allows the economic agents to get the food article stocked freely without the fear of being prosecuted for hoarding.
Therefore, what we observe is the idea of all these three bills was mainly to liberalize the market for farmers and to make the whole system more efficient for or better price realizations for all the concerned people, especially the farmers.
Why are the Farmers agitated?
The first ordinance in effect is the existing Mandi that is established under APMC have been excluded from the definition of trade area under the new legislation. Government has the defence that the creation of an additional trade area outside the Mandi will provide farmers with the freedom of choice to conduct trade in their produce.
The protesters say that this legislation will confine APMC Mandi to the physical boundaries and give a free hand to big corporate buyers.
The farmers are mainly concerned about the future of the minimum support price (MSP).
Every year the government gets into a huge procurement program to buy massive quantities of wheat and rice at MSP, cause of which the farmers got an assured price per quintal, which was good income. The Mandi and APMC system is diluted or dismantled, and then there is no guarantee that the farmer will get the assured minimum price. Therefore, the government procurement system acts as a safety question and asked to the bargaining power of the farmers. The second point is that the new legislation has broadened the definition of traders; it defines traders as 'any person with a pan card can buy from the farmers who have to produce in the trade area.'
Secondly, in the present Mandi system, arhatiyas(commission agents) have to get a licence to trade in Mandi, protestors say that are arhatiyas half credibility as a financial status is verified using the licence approval process, but in the present law there is no press verification process as such for the farmer to trust the trader.
Interpreting the impactsof the legislation
We can look at the changes through two diametrically opposite ways.
- It was believed that the plan on paper would come into existence perfectly in real life, which would mean that the farmers will be able to get out of the clutches of the monopoly of APMC Mandi. A farmer will be able to choose and pick whom he wants to sell his product and at what price, after making an informed and well-researched decision. The farmers will not only make more money, but they will also be able to escape the exploitation by Arhatiyas and APMC Mandis.
- The second scenario that is possible is that the protesting farmers see this legislation as a law by the government to get away from its traditional role of being the guarantor of minimum support price (MSP). This is because minimum support price functions only in the APMC Mondays and not in private deals with other traders.
On the other hand, one can understand that why the farmers are so sceptical about these markets, a good example of this is a ban on onion exports; the government prioritized the interest of the consumers over the interest of the farmers. This has not happened for the first time; there are many incidents wherein the decision of the government to protect the consumer from high prices has resulted in farmers being robbed. It can be argued that MSP is the embodiment of this distrust.
Government has assured and said that these provisions would be beneficial for everyone, be it, farmers, consumers or traders as almost all the agricultural experts were struggling for these reforms in the agricultural sector for a long time. It will lead the farmers to realize a better price as this is forward-looking legislation, and it is a win-win situation for everyone.
As we are unable to get a clear picture of what impact this legislation will have on the farmers, traders and consumers, the only thing we can do is to wait and watch the implementation of these legislations. At present, the government shall try to devise a mechanism to convince the farmers that this legislation eventually will benefit them, and sort out the distress over the minimum support price, which the farmers possess, as it gave them a fixed income.
The author of this blog/Article is Kishan Dutt Kalaskar, a Retired Judge and practising advocate having an experience of 35+ years in handling different legal matters. He has prepared and got published Head Notes for more than 10,000 Judgments of the Supreme Court and High Courts in different Law Journals. From his experience, he wants to share this beneficial information for the individuals having any issues with respect to their related matters.