What is the issue?
- The government recently came out with a Model Contract Farming Act, 2018.
- Better Centre-State co-operation on land lease will ensure that both farmers and sponsors gain.
How is the growth scenario?
- Agriculture growth is under stress at 3.4% in 2017-18 compared with 6.3% in 2016-17.
- This is largely attributed to
- declining soil fertility
- fragmentation of landholdings
- increasing restrictions to commercialisation and modernisation of farming and farm-related activities
What is contract farming?
- It refers to a system in which bulk purchasers enter into contracts with farmers.
- It includes agro-processing, exporting and trading units.
- They purchase a specified quantity of any agricultural commodity at a pre-agreed price.
- The contracting firm/company is also known as the sponsor.
- As, it provides all production support to the contacted farmers.
- This includes the extension services with full protection of land rights.
What are the benefits?
- Income - The idea is to increase farmers’ income by creating an alternative market mechanism.
- It would provide linkages between national and international markets.
- Prior to this, several States have been hesitant to allow contract farming.
- With the Act being notified, the focus has shifted to the operational aspects.
- Middlemen - Agricultural markets invariably remain in the clutches of the middlemen.
- The Act allows farmers and farmer producer organisations (FPOs) to directly link with companies.
- It thus enhances market linkage and removes dependence on middlemen.
- Price - 86% of total landholdings in the country belong to the small and marginal category.
- The Act will have an indirect effect on farmers forming FPOs.
- It helps pooling their land for a better say in determining the prices of their produce.
- Cost - Farmers no longer have to transport their produce to the mandis.
- As, sponsors usually collect the produce from the farm gate.
- It thus reduces farmers’ cost and thereby translates into increased incomes.
- Land - Fear of losing land has always inhibited farmers from embracing new policy.
- The Act does well to insulate land ownership rights of the farmers.
- It prevents them from any potential infringement from the sponsors or the buyers.
- Market - Contract farming creates new markets for farmers’ produce.
- It facilitates better access to technology, crop diversification, and extension services.
- It can thus positively impact the production process.
- Financing - Lack of formal financing mechanism and lower penetration of crop insurance are prime causes of farmer distress.
- Contract farming facilitates financing and crop insurance as well.
What are the shortcomings?
- Board - The Act mandates the formulation of a contract farming board.
- This is to guide several aspects of the contract, including pricing of produce.
- The intent is to provide a cushion against possible exploitation of the farmers.
- However, if not exercised judiciously, the board may set high price, deterring sponsors.
- Quality - The sponsor is mandated to buy the entire contracted amount of produce.
- This is even if the quality parameters are not met, though at a lower price.
- This affects the sponsors, as, they enter into agreement to procure a specific grade of produce.
- Insurance - The spirit of providing insurance support to the farmer is good.
- But the sponsor is burdened with this additional cost.
- The government can instead consider covering this cost.
What lies ahead?
- Cooperation - Being a State subject, operationalising agriculture reforms needs State cooperation.
- Most often, these reforms fall victim to Centre-States political differences.
- The need is for proactive support and guidance of the sponsors at the State level.
- Leasing - The Model Agricultural Land Leasing Act, 2016, has not seen much uptake at the State level.
- None of the States has adopted the Act in its entirety.
- The Contract Farming Act has to be supplemented by well-balanced leasing laws at the State level.
- This is essential to tap the full potential of contract farming.
- Allowing leasing of land will help address the issue of fragmented landholdings.
- It would encourage the private sector for bigger commitments in terms of technology and capital.
- This will boost productivity, by benefiting from economies of scale.
Source: BusinessLine
