Centre drafts model contract farming act to counter price risks

Centre drafts model contract farming act to counter price risks
The model contract farming act provides a framework for determining the pre-agreed quantity, quality and price of farm produce between farmer and sponsoring companies
To protect farmers from price risks and provide incentives to buyers to procure produce directly from farmers, the agriculture ministry has drafted a model contract farming act that states can adopt as per their needs.

The model act follows a budget proposal last year to help farmers integrate with food processing units for better price realisation and reducing post-harvest losses. A draft of the act is now available on the agriculture ministry’s website for public comments, following which rules under the act will be framed.

The model act provides a framework for determining the pre-agreed quantity, quality and price of farm produce between farmer and sponsoring companies and seeks to ‘transfer the risk of post-harvest market unpredictability from the former to the latter.’

Among other things, the act bars the transfer of ownership of the farmer’s land to companies under all circumstances. However, as an incentive, it allows these contracts to be governed outside the purview of state agriculture produce marketing committees (APMCs).

This essentially means companies can purchase produce directly from farmers and save the 5-10% usually spent in market fees. Under this act, all disputes relating to these contracts will be settled by a state-level contract farming development and promotion agency. Besides there will be local-level recording committees to register these contracts and implement them effectively.

“Past experiments with contract farming have not been successful as in times of unusual price movements, either the farmer or the buyer reneges on contracts,” said Ashok Dalwai, chief executive of the National Rainfed Area Authority, who chaired the committee which drafted the new law. “But with rules that will be framed under the model act, such situations can be avoided by sharing of windfall gains between parties,” he added.

“The basic aim of the act is to transfer the risk associated with price unpredictability from the farmers to buyers,” said Dalwai.

According to the draft act, contract farming arrangements will benefit growers with access to better inputs, scientific practices and credit facilities that may be provided by the buyer, while their produce will be insured under existing agriculture insurance schemes. Further, under the act provisions will be made to settle disputes at the local level when any party breaches the terms of contract.

“The centre had earlier drafted a model agriculture marketing act which states have been reluctant to adopt and the new model act on contract farming may see the same response,” said Ashok Gulati, agriculture chair professor at the Delhi-based Indian Council for Research on International Economic Relations.

“The model act allows for direct purchase from farmers and therefore states have to amend their APMC acts to make this happen,” Gulati said, adding, “if prices rise sharply compared to the contracted price, it will be difficult to force the farmer to sell the produce and such challenges will be difficult to resolve.”

The draft contract farming act follows months of agitations by farmer groups in several states protesting plunging crop prices and demands for loan waivers.