Contract farming is a model in which agricultural products are produced as per the agreement between buyer and farmers. It is a pre-harvest arrangement. The farmers have to provide the particular agricultural product with promised quality to the buyers. In return, buyers promise to purchase the product and pay the agreed amount to the farmers. To meet the quality and quantity of the products on time, buyers can also provide some support like soil research, farm inputs, transport facility, loans and technical advice to the peasant. Mutual trust and confidence are very important clauses for the contract farming.
Problems Facing Agriculture
In India, majority of the population is engaged with the agriculture and farm related activities, it not only provides employment to the rural households but also works as life support system for most of the rural population. The condition of agriculture is very terrifying in India and the agriculture sector faces many serious problems. Most of the farmers face economic problems, as they do not have that amount of wealth that fulfils the demand of modern farming equipment and technology to support their crops. If somehow, farmers are able to get some loan either from government or from local money lenders, then the farm produce is unable to give good return due to involvement of middlemen. During the season of any particular crop, prices are dropped due to availability of produce in good quantity.
In this situation farmers are helpless to sell their crops more below the actual cost price.
To address the problems of peasants, the central government as well as the state governments launched various schemes like fertilizer subsidies, MSP, e-Mandi, diesel subsidy and many other programmes for the welfare of agriculture and the farmers. Despite many steps taken by the government, problems still remain unsolved due to loopholes in the schemes. The second problem other than economic is natural like uneven precipitation to cause monsoon and extreme weather conditions like flood and drought to name a few.
In India, contract farming is regulated under the Indian Contract Act of 1872. Along with this model, Agricultural Produce Market Committee Act (APMC) 2003 also framed some specific provision for the contract farming; for example, contract farming dispute settlement, farming sponsors and compulsory registration. The general provision like formation of contracts, consequences and obligations of parties are made under the 1872 act.
In May 2018, the department of agriculture & farmers welfare, government of India released the Model Contract Farming Act 2018, which focuses on protecting the interests of farmers of the country considering farmer as the weaker party among two, who is entering into a contract. The announcement for the creation of a Model Contract Farming Act was made in the Budget of 2017-18 by the Union Finance Minister. In a statement from the department said “The final Model Act –State/UT Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act 2018 has been approved by the Competent Authority”.
According to the Agriculture Ministry, this act is a promotional and facilitative act and its structure is not regulatory. In this act, along with contract farming services, contracts all along the value chain covering pre-production, during the production and post-production have been covered in the new Act. In addition to promotion of contract farming and services at village and Panchayat level, a Contract Farming Facilitation Group (CFFG) will be provided. The provision of act says that the contracted produce will be covered under crop and livestock insurance in operation and also APMC act will not cover the contract farming. The act restricts development of any permanent structure on the land and premises of the farmers, the act say that “No right of interest of the land shall vest in the sponsor. Promotion of Farmer Producer Organization (FPOs)/Farmer Producer Companies (FPCs) to mobilise small and marginal farmers has been provided”. It further added “No rights, title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc”. If farmers can authorise the FPO and FPC, then it can be a contracting party.
For a long time, the crops which were commercial in nature like tobacco, rubber, cotton, coffee, sugarcane cultivation along with dairy had some aspect of informal contract farming. Now, the concept of the contract farming has a very wider significance as it not only includes the bulk purchase and sale but also comprises the export, processing, trading and agro-based industries. This arrangement can better help both the parties of contract as it ensures the supply of agro raw material to the agro industries as per their demand and farmers can get good price for their agricultural produce without market’s price risk.
Issues and Limitations
Like every model, contract farming also has some limitations and negative aspects. Most of the crops cultivated under the contract farming are cash crops which generate more profit and at the same time food crops can be neglected because of their little use in the industries. Farmers can face the problem of both market failure and low production at the time of delivery of crops. Farmers cannot get the benefit of market when price is increased for the products. The use of fertilizer and other chemicals can be increased in order to maintain the quantity of the produce but in the long run, it damages the quality of soil and environment. The exploitation of water resources has been seen which resulted in both the contamination and lowering of ground water level.
In case of production exceeding the demand, the farmers will face problems related to the selling of the extra produce as well as storing it. Despite the various provisions, it is very difficult for small farmers to seek any legal protection against any firm or company because the procedure is very time-consumingand involves a lot of money which is not feasible for the farmers in case of violation of contract. In many cases, even farmers are unaware of regulations and laws made by the government and they have no idea as to how to approach the concerned authority to file a complaint against the firm.
As of now, the scenario is changing with steps being taken by the government for the contract farming as the conventional farming has not been so beneficial. The role of information technology cannot be neglected in the development of contract farming as it helps farmers in becoming aware of the government policies and it also provides them with an online platform to register their complaints. Though contract farming has its own limitations, yet with the coming up of FDI, FII in India and the increasing global demand of agro-farming, bio-fuel which are made from agricultural produce, the prospects of contract farming seem promising in near future.
Government is taking a number of progressive steps to introduce latest technologies and provide skill-training programmes to small and marginal farmers to upgrade their skills and help them become on par with the concurrent global practices. Through digital India, the farmers are targeted for direct benefits and also being brought in the mainstream to know their roles and be an effective partner in shaping the agriculture business of the country.