Rethink contract farming
Making it happen doesn’t require a new law
The draft of the model Bill on contract farming, circulated by the agriculture ministry for public comments, leaves most stakeholders, including farmers and the agri-processing industry, displeased — and for good reasons. The Bill seeks to create an elaborate infrastructure at the state, district and panchayat levels for registering and regulating agricultural contracts and settling disputes regarding breach of agreed terms. The moot point is whether a separate law, and an extensive legal framework, is needed to deal with just contract farming. This assumes significance as the existing Indian Contract Act, 1872, enacted by the British rulers on the lines of the English Common Law, covers all forms of contracts, even verbal agreements. Moreover, the model Agricultural Produce Marketing Committee (APMC) Act, brought out by the Centre to serve as a guide for states to amend their agricultural marketing laws, also provides legal sanctity to contract farming outside the purview of the APMC laws. Many states, such as Karnataka, Gujarat, Maharashtra, Madhya Pradesh, and Haryana, have provided for contract farming in their amended APMC Acts but only for select crops. There is, therefore, no guarantee that exclusive legislation on contract farming, even if passed by the states on the lines of the Centre’s model Act, will be implemented.
The real danger is that the involvement of the law enforcement bureaucracy at every stage, as envisaged in the Centre’s model Bill, might actually prove counterproductive. It may deter, rather than boost, this mode of agriculture as a means of linking farmers directly with agri-businesses. The bane of contract farming as it is practised today is the tendency among the contracting parties, farmers as well as the processing industry, to renege on the commitment in case the prevailing prices at the time of the harvest are significantly different from the ones in the contract. This issue can be tackled in several ways, other than the intimidatory legal means, such as through renegotiating the pledged prices or sharing unforeseen gains or losses. Farmers believe that the proposed legislation, regardless of being touted as pro-cultivator, is tilted in favour of the industry. It allows companies to enforce price cuts or reject the produce on the plea of inferior quality. They also feel that the companies often stipulate quality parameters, which are hard to meet.
Many of these issues might, indeed, tend to resolve automatically if the contract farming system is allowed to evolve on its own. The need is to scrap the restrictive APMC laws and let the agri-businesses themselves approach the growers to secure their raw material. Direct transactions offer an upfront cost advantage of 10 to 15 per cent by doing away with market levies and middlemen’s commissions. The farmers, too, would benefit from assured marketing at the farm gates. Over a period, lasting relations can develop between the commodity producers and bulk users of the kind now exist between farmers and commission agents-cum-moneylenders. This has been observed in the case of direct marketing systems operating in some plantation crops, marine fisheries, and milk. The agriculture ministry would, therefore, do well to revisit its move for a new law on contract farming.