February 17, 2021 8:18:51 am
Despite having three sets of contract farming laws being enacted in the past less than two decades, including the 2020 Act, the basic fear among the farmers is that their land will be snatched by companies with whom they enter into contract. Government, however, claims that farmers’ land is protected under provisions of the new Act.
An expert on contract farming, Dr Sukhpal Singh, Professor, Centre for Management in Agriculture (CMA), Indian Institute of Management (IIM), Ahmedabad, having an experience around 3-decade on CF, shares his views on the farmers’ fear, why contract farming is needed but not a successful operation and how a small farmer can use it to enhance his income. Excerpts from his interview with The Indian Express.
Why is contract farming needed?
For contracting agencies, contract farming (CF) is the only alternative to buying from APMC mandi or private wholesale market, or buying directly from farmers without contract, as corporate farming (wherein corporate agencies undertake farming operations on owned or leased land for their consumptive use or for commercial purpose) option is not available in India. This is so because under the Ceiling on Land Holdings Act, non-agriculturists can’t own agricultural land, and under the Land Leasing Act, can’t even lease in agricultural land, both Acts being at the state level.
So, if a company wants to procure desired quality raw material or farm produce in adequate quantity at reasonable cost which may not be available in the open market or sometimes not even grown by farmers e.g. processing variety (chips grade) potatoes in India before the Pepsi came in, then CF was the only option in India which Pepsi used.
But, many times, corporate farming even if allowed, is not a viable option given that we are in the age of vertical coordination (buying from others) rather than vertical integration (making in-house). For farmers, CF can bring benefits of not only assured market and price but also new technology, seeds, extension, diversification and such other non-price benefits.
When was contract farming started in India, Punjab?
Contract Farming has been in practice in India since the 1960s in the seed sector wherein both public and private entities have been using this mechanism to get certified seed produced, and in other farm produce in many states like Punjab and Haryana since the 1990s with the PepsiCo undertaking tomato, chilly and potato contract farming. Pepsi was brought in for attempting crop diversification when contract farming was not even legal in India.
When were the first rules governing CF framed?
CF has been permitted in most states as per the model APMC Act 2003 of the Ministry of Agriculture and Farmer Welfare (MoAFW) wherein three new channels of farm produce buying and selling i.e. direct purchase, contract farming and private wholesale market were made legal, which most states adopted in a few years, with the exception of one or two states, and later, under the separate model Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation, APLCF&S (P&F)) Act, 2018. Punjab was the only state which, in 2013, framed a separate Act on contract farming instead of providing for it under the APMC Act which it had not amended adequately until 2017. However, a separate Contract Farming Act was never operationalised, and it was also not needed as all other states had provided for CF under the APMC Act itself.
How has been the experience of CF so far?
There is a widespread practice of contract farming across crops, states and agencies (public, private and multinational) in India covering dozens of crops and livestock products with hundreds of contract farming projects or schemes, for domestic processing or for export, and there have been dozens of studies over the last 20 years on its performance and experience.
Default by both sides (companies and farmers) has been an issue and contract farmers in various parts of India have faced many problems like undue quality cut on produce or no procurement of produce, delayed deliveries at the factory, delayed payments, low price, poor quality inputs, no compensation for crop failure and even stagnation of contract prices over time, besides contract agreements being in favour of the contracting agencies. Also, the exclusion of small holders remains a key challenge as contracting agencies prefer larger farmers to reduce their transaction costs. Further, contract production of the same crop is generally higher cost than open market production as certain recommended practices have to be followed as far as input use and crop management is concerned which also leads to resource constrained small producers being excluded. The companies also put minimum land and other resources as the criteria for farmers being eligible to produce under contract.
If contract farming has not been successful in areas, what have been the reasons?
Poor regulation and lack of an enabling policy are the major reasons. There is no policy to support smallholder inclusion e.g. lower cost credit or encouragement to group contracts. Thailand had used CF as a mechanism to achieve agricultural development by including it in their 5-year plans and then bringing state support like extension and credit for making it spread across crops and farmers besides promoting group, not individual, contracts.
Now that there have been three sets of Acts including two independent Acts on it (the central Act 2020, Model CF Act 2018 and APMC Act 2003), why are farmers still worried about their land being snatched by the sponsors. Is their fear genuine?
It is land leasing under CF laws which worries farmers the most. The model APMC Act 2003 had protected farmer land clearly. Even if famer committed default, the contracting agency could not lay claims to farmer land or other assets. But, since the model ALPCF&S (P&F) Act, 2018, the land leasing has been made part of the contract farming definition which is not correct as contract farming can never include land leasing. This is one of the reasons for fear among farmers.
The 2020 Act protects farmer’s land when it states in Section 14: “No farming agreement shall be entered into for the purpose of (a) any transfer, including sale, lease or mortgage of the land or premises of the farmer”. But, some other provisions are at a departure from this provision. For example, the dispute resolution section clause 14(7) states: “The amount payable under any order passed by the Sub-Divisional Authority or the Appellant Authority, as the case may be, may be recovered as arrears of land revenue”. However, then again, it states in the next clause (15), “Notwithstanding anything contained in Section 14, no action for recovery of any amount in pursuance of an order passed under this section, shall be initiated against the agricultural land of the farmer”.
But, still it means it can be recovered from other assets and properties of the farmer.
The biggest problem is that in the 2020 CF Act, contract farming has been mixed up with corporate farming. Land Leasing Acts at the state level are still intact though may not remain for long going by what Karnataka, Rajasthan and Punjab are planning in terms of opening up land lease markets. The way production agreement is defined also raises doubts whether land leasing is also a part of contract farming. The mix up between contract and corporate farming in the Act is so significant that the Rajasthan Amendment Bill, 2020 assumes that leasing is a part of contract farming.
How can farmers’ land remain safe under CF?
For safety of farmer land ownership under CF, it is important to exclude land leasing from the definition of contract and it should be written clearly in the Act that no recoveries other than from farm produce can be made from famers even if they default.
How can a farm friendly CF model be achieved which can help small farmers in an effective manner to enhance their income?
Better and more effective regulation is the first step to protect famer interest and to ensure that they benefit from contract farming engagement. Further, since Indian farmers are mostly marginal or small, they can’t deal with large buyers on their own even if they are brought under contract farming by some companies. Therefore, group contracts should be encouraged by policy incentives to make the mechanism inclusive and effective for farmers. The government can facilitate such contracts through credit and extension support to such small farmer groups like in Thailand. Also, we have thousands of Farmer Producer Companies (FPCs) now which are very business-like entities of farmers and they can play a role in making contract farming deliver the objectives of farmer income enhancement by facilitating contract farming with smallholders, and also undertaking contract farming on their own. But, these entities have been treated as farmers in the Act despite the fact that no FPC undertakes production. They should have been defined as sponsors in the agreement as they do buy from their members and non-members and also undertake or facilitate contract farming. They should have been given better treatment in the new Acts.
Finally, the 2020 CF Act has left the very basic aspects of CF like acreage, quantity and quality, timing and place of delivery besides price for the contracting parties to decide for inclusion into the CF agreement. But, these should have been mandatory aspects of the contract agreement like in the model CF under the model APMC Act of 2003.
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