Model contract farming Act to counter price risks: Experts

New Delhi: The government has come out with a draft model contract farming act, which industry insiders said will protect farmers from price risks and encourage food processing companies to invest more in infrastructure and farming technology once states adopt it.

The agriculture ministry has put up the model act on its website for various stakeholders, including contract farming and value chain promoting companies, producers’ organisations and farmers, to submit their comments latest by January 6. Final rules under the act will be framed after considering the feedbacks, and states can adopt them as per their needs.

The draft law follows a Union budget announcement that a contract farming act would be drafted to integrate farmers with agro-industries to ensure better price realisation for their produce as part of an initiative to double the incomes of farmers in the country. Industry insiders have welcomed the model act that seeks to ensure that farmers and buyers abide by pre-agreed price and quantity to protect farmers from post-harvest market unpredictability and bars the transfer of ownership of farmers’ land to companies among other things (see graphic).

“While protecting interest of small farmers, the act will ensure smooth flow of raw material to industry bypassing mandis or APMCs (agriculture produce marketing committees),” said Anil Jain, managing director at agri-business firm Jain Irrigation Systems.

“However, we need to carefully review some of the conditions in the draft act to ensure balanced protection of all stakeholders and to avoid any red-tapism in proposed structure,” he said.

Jain said the dispute resolution mechanism needs to be practical and swift in contracts.

Yogesh Bellani, CEO at packaged foods company FieldFresh Foods, said the proposed act would boost investments in agriculture which is the primary source of livelihood for about 58% of the country’s population.

“An Act on contract farming would encourage the private sector to take progressive steps in terms of investments and the broader use of technology in the sector, both of which will lead to greater productivity and efficiency, leading to increased farmer incomes and food security at large,” he said.

According to the agriculture ministry, more than 86% of close to 120 million agricultural households in the country are small (less than or equal to 2 hectare of cultivable land) and marginal (less than or equal to 1 hectare of cultivable land). As per census 2011, the average size of landholdings in India was 1.1hectare.

Ashwani Arora, CEO at food processing and exporting firm LT Foods, said the model act would make farming a more organised activity and help improve quality and quantity of production. The model act has provided for a contract farming facilitation group at the village or Panchayat level to coordinate all arrangements between the companies and the farmers.

Jasmeet Singh, head of the agriculture division at industry body Ficci, said the proposed rules are necessary to derisk producers from the vagaries of market fluctuations as contract farming is practiced across the country in various forms for a number of crops including sugarcane, plantation crops and potato.

However, “we don’t think that a separate legal structure is required for contract farming as the provisions of the Indian Contract Act are sufficient to cover the necessary requirements”, Singh said.