What is the issue?
- Union government is taking efforts to ensure farmers that they get better prices for their produce.
- For achieving this goal emphasis is made on contract farming act.
What is contract farming?
- Contract farming refers to an agreement between farmers and marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices.
- The contract between farmers and buyers insulates farmers from price risk, helps them develop new skills, and opens new markets.
- Under Monopsony contract firms enter into an agreement with farmers to grow differentiated crops.
- This turns the firm into a sole buyer and farmers into price-takers.
What are the concerns with Contract farming?
- Contracting firms can exploit monopsony situation to their advantage by offering lower prices to farmers.
- Contracting firms do not have complete information on productivity and land quality.
- This can lead to a situation where farmers produce below-quality crops.
- Farmers sometimes do not understand contract specifications like the quantity and quality to be produced, or the effect of price change.
- In some cases buyers may penalize farmers and farmers may indulge in side-selling or leak the technology provided by the contracting firm.
What were the measures taken by India in this regard?
- In India, contract farming is regulated under the Indian Contract Act, 1872.
- The Act has many general provisions that are relevant to contract farming, including the formation of contracts, obligations of parties, and consequences in case of breach of contract.
- In addition, the model APMC (agricultural produce market committee) Act, 2003 provides specific provisions for contract farming, like compulsory registration of contract farming sponsors and dispute settlement.
- The department of agriculture and farmers welfare has now come out with a draft model contract farming Act, 2018.
- It intends to establish a win-win framework for both farmers and sponsors. Instead, some of the clauses do the opposite.
What is the significance of contract farming Act 2018?
- The model contract farming Act proposes a state-level agency, the Contract Farming (Development and Facilitation) Authority, which would put contract farming outside the ambit of the APMC.
- The model Act requires the sponsor and the farmers to register the contracts with a registering and agreement recording committee.
- Registration imposes additional procedures and costs on the parties, and small and medium farmers cannot easily afford these costs.
- The Act also proposes price protection for farmers by determining a pre-agreed price.
Source: Live Mint
