What is contract farming?

Model Contract Agriculture Act, 2018

This article will help you understand Contract Farming. What is contract farming? What are the benefits to the farmer brothers by adopting this type of agriculture, and what problems can come with adopting this agriculture? We will also discuss the Model Contract Farming Act 2018 (Model Contract Farming Act, 2018).

CONTRACT FARMING

Contract agriculture refers to an agreement between farmers and marketing firms to produce and supply agricultural products at pre-determined prices, often under advance agreements. In simple words, in agriculture, for there is a contract between the farmer and the marketing establishment, in which all the necessary elements, like the price of the crop and the payment to the farmer, etc., are mentioned.

Benefits:-

Benefits of contract farming –

The price is pre-determined in the contract, so the farmer remains free from the risk of its fluctuations.
The farmer gets a big market.
Farming work is done better, due to which the farmer gets an opportunity to learn.
Buying establishments benefit from contract farming in that there is no uncertainty about the availability of agricultural products.

Challenges Of Contract Farming

It promotes the monopoly of the agricultural buyer, so he can exploit the farmers by offering low prices.
The contract process is difficult for the common farmer to understand, so it will not be convenient.
The taxes imposed by the Agricultural Produce Marketing Committee (APMC) on the products arising out of contract farming are exploitative.

Solution

The government can take the following measures to solve the problems related to contract farming:-
There is a need for the government to provide market-based incentives for both parties. E-NAM is a positive step in this direction.
The government should maintain an information repository that will help farmers and sponsors to evaluate each other before entering into contracts.
The government can facilitate the establishment and enforcement of standards for crops.
The government can educate the farmers and make them more aware of contract farming and model contracting.
Contract farming can be excluded from the purview of APMC, as the Committee of Provincial Ministers on Agricultural Reforms has recommended in this regard.

MODEL ACT ON CONTRACT FARMING, 2018

Contract farming in India is regulated under the Indian Contract Act 1872. In addition, the Model AMPC Act 2003 makes specific provisions for contract farming.
The Government of India has recently passed the Model Contract Farming Act, 2018 – Model Agricultural Products and Cattle Contract-Agriculture and Services (Incentive and Facilitation) Act, 2018.
This act is not regulatory in nature but has been made to provide incentives and convenience.
In the budget 2017-18, the Finance Minister of India had assured that he would soon bring a Model Contract Farming Bill regarding contract farming, and this act has been passed in this light.
The contract mentioned in the Act concerns the agreement between the farmer and the wholesale buyers/buyers.

The question that comes up is, who would be the potential buyers?

These buyers can be agro-processing factories, exporters, trading firms etc.
Special care has been taken for the interests of the farmers in the Model Contract, and if there is a dispute, a system has been developed for that also. It aims at arranging a dispute settlement mechanism at the lower level to settle disputes.
However, some issues in the Model Act still need to be reconsidered. The act would require sponsors and farmers to register the contract with the settlement registration committee, for which a fee would be required to be paid. Small and medium farmers will not be able to pay these charges easily.
The Act also proposes price protection by a price determined at the time of pre-agreement, which may be prejudicial to production. It also uses community agriculture, which is not relevant in the Indian context, as 86% are small or marginal farmers.
Thus, we see that contract farming is a new concept that may take time to realise and be meaningful, and initially, both farmers and establishments may face difficulties. It is hoped that through continuous improvement, this agriculture will be accessible and profitable.