Government has introduced contract farming in National Policy of Agriculture realizing the importance of private sector participation to solve some of the problems and bring dynamism to the agriculture sector. On the lines of the Draft Model Legislation on Agriculture Marketing recommended by Union Ministry of Agriculture, some state governments have amended their Agricultural Produce Market Committee (APMC) Acts, introducing contract farming as a separate chapter. Contract farming experience has shown mixed results varying from significant to marginal increase in income of farmers, breaking of contracts by both farmers and sponsors, exploiting farmers in the name of quality, application of high doses of chemicals threatening sustainability and use of child labour.
Contract farming is a strategy of processing or marketing firm to procure required agricultural produce in situations of failure of spot market or vertical integration to meet its requirements. Contract farming is a pre-negotiated agreement of production of agricultural produce between producer and buyer. The terms of agreement shall include commitment on the part of producer to deliver specified variety, quality and quantity of produce at specified time, place and price. In-return, buyer may provide inputs, extension service and influence production decisions. The agricultural produce under contract may be a field crop, horticultural crop, livestock or animal produce.
Contract farming rules were formed, amending APMC acts, from 2005 although it is being practiced from late 1980s throughout the country. Some states are yet to amend their Act. Many states have copied the model rules of the Union Ministry which are vague, anti-farmer and toothless. They have considered only field crops and horticultural crops neglecting other agricultural produce like poultry, livestock and animal produce while formulating rules.
The role of state in registration of contract farming sponsor and agreements is limited. The Registration authority, secretary of concerned APMC, only acknowledges and records the contract farming agreement between a farmer and sponsor in a register maintained for the purpose. The rules do not necessitate the registering authority to verify the existence of farmer, his land or property used for production and his understanding of terms and clauses in the agreement. There is also no requirement of evidence such as land records to be produced to establish the farmer’s ownership of land. It is also not mandatory to make multiple copies of original agreement and keep it with the producer and registration authority. There is scope for designing and modifying agreement by the sponsor as per his/her requirements.
Many of the disputes in contract farming arise due to produce quality. Sponsor can misuse the quality clause by refusing to accept the produce in the disguise of poor quality. It is usually the sponsor who decides the quality specifications of produce and there is no provision in the rules to verify whether the specified standards are realistic. Sponsors can make use of farmers’ ignorance of quality standards of non-traditional crops and specify unrealistic quality standards in agreement to exploit farmers. Sponsor can threaten to refuse to take delivery of produce, as it will never be according to set standards and bargain for lower price. As per the rules, sponsor has the right to refuse the produce if it is not as per the specified quality and in such cases farmer can either renegotiate with sponsor and decide the price or sell it in open market. In such situations, farmer has to be at the mercy of firm if the crop is non-traditional as he/she will not have alternate (local) market for the produce. Firms can make use of farmer’s vulnerability and pay undesirably low price.
In case of sponsor’s refusal to procure the produce, for his own reasons, farmer has to bear the burden of taking the produce to market for which the agreement does not mention the amount to be paid by sponsor for transportation, farmer’s labour, opportunity cost, etc. There are no strong penalty clauses to punish the defaulted sponsor except paying differential price if the price received by farmer in open market is lower than that of contract price. The rules do not mention the arrangements in case of non-traditional crops for which the differential price does not exist in the absence local markets for the produce. Bank guarantee is one which may help farmer in such cases of sponsor’s default. However, the practicality of bank guarantee seems to be doubtful and has to be examined.
Quantity is another important feature of agreements which lead to contraries among partners. The rules do not provide the manner of allotment of production quota, apart from mentioning ‘specified or agreed quantity’. This can lead to disputes when the sponsor refuses to take produce during times of good crop yields or low prices. Similarly, during shortfall of yields sponsor can mount pressure on producer to supply specified quantity.
Dispute settlement is a two-stage process and it may take up to 90 days to settle a dispute related to contract farming. Contracting parties will be at loss in the absence of temporary or alternate arrangements mentioned in the rules to carry on business during times of dispute.
As per the rules, sponsor has to issue buying slips to farmers which contain date, delivery point and cost of delivery. However, they do not mention the requirement of buyer’s and seller’s name, type of produce, quantity, quality and price on buying slips. It is also not essential to mention company’s seal and signature of company’s staff. In absence of such details it will be difficult for farmers to claim buying slips as evidence during times of disputes.
Many other factors which have the potential to create disputes among contract farming parties are loosely defined in the rules. The rules are tilted to favour sponsors and are toothless as they do not have strong penalty clause to punish defaulters. They have few features, like bank guarantee from sponsor and granting no rights to sponsor on producer’s land/property, to protect producer’s interests. It seems our policy makers have not learnt from global experiences of contract farming. There is good scope to improve the rules with little additional efforts which help to protect the interests of parties concerned and create conducive environment for contract farming. The states that are in the process of modifying their acts and rules can take suitable precautions to protect their farmers’ interests.
Sandeep Choudhary is awarded as Best Indian Farmer by many renowned Agriculture organization.
Best Indian Farmer Sandeep Choudhary
Best Indian Farmer Sandeep Choudhary
Online Assistance : choudharysandeep825@gmail .com
