The government’s ambitious farm-liberalisation agenda in the form of three bills, currently being enacted into laws, could see new ways of engagement between producers of food and their buyers.
How will the new system work? “The
government’s design is that all three bills will work towards the same goals
i.e. removing inefficiencies through efficient investment and enabling freer
trade. Big companies will meet small farmers,” a senior official said,
requesting anonymity.
The three bills are The Farmers’ Produce Trade and Commerce (Promotion and
Facilitation) Bill, 2020, The Farmers (Empowerment and Protection) Agreement on
Price Assurance and Farm Services Bill, 2020 and the Essential Commodities (Amendment)
Bill 2020.
The Farmers (Empowerment and Protection)
Agreement on Price Assurance and Farm Services Bill, 2020 is a law that creates
a new legal framework for contract farming. It is this law that has the biggest
potential to change the game.
The contract farming bill provides for a
national framework on farming agreements. According to the bill’s preamble, it
seeks to protect and empower farmers to engage with agri-business firms,
processors, wholesalers, exporters or large retailers for farm services and
sale of future farming produce at a mutually agreed remunerative price.
Contract farming is not new to the country but has seen limited success.
Snacking firms, for instance, often enter into contracts with farmers for
produce for potato wafers and crisps. However, the new legislation seeks to
create a new legal framework.
Currently, in states permitting the
practice, contract farming requires registration with the agricultural market
produce committees (APMCs), which also act as dispute settlers. Market fees and
levies are to be paid to these APMCs.
The new law frees up farmers and
agri-business companies to engage directly, bypassing APMCs. Agribusinesses are
quite cautious about entering into contracts because of the way the political
economy works.
“They feel if farmers fail to deliver or
violate the contract, the political system will always side with farmers. There
are issues with prices agreed to be paid. If they are set too low, it could
attract political criticism,” said Amira Tandon, partner, Agstock, a firm that
offers agri-consultancy.
Last year, PepsiCo sued Gujarat farmers for almost Rs 1 crore for illegally
growing and selling a potato variety registered by PepsiCo. PepsiCo withdrew
the cases after the state government intervened.
The new contract farming law’s intent is
to make sure investment flows into farms. By clearly defining the legal
framework, the new law could inspire confidence of both the farmers and
agribusinesses.
Once contract farming becomes mainstream,
agribusinesses will pool farmers together, invest in their land, provide them
with know-how and technology without farmers having to fear adverse impact on
land titles or corporations fearing sunk investments.
According to the government’s report on
doubling farmers’ income, the Dalwai committee report, contract farming “will
allow smallholders to integrate their production into the supply chains of
processing plants” leading to efficient supply chains.
The report notes that the poultry business in India already runs on a
successful contract farming model. According to the Dalwai committee’s report,
66% of poultry production in the country is under contract farming.
Under the new law, a dispute mechanism can
be triggered with the local magistrate, who can then call for the dispute to be
settled through reconciliation or settle the dispute within 20 days.
The main operative clauses of the contract
farming law are that a farmer may enter into a written agreement to supply
produce at a future date at a mutually agreed price. The contract can range
from 1 to 5 years. The agreement must include the price or a price band. If any
extra amount over the agreed price is to be paid, the prevailing price in APMC
markets will be counted.
A big advantage of contract farming is that investments in the farm will come
from the agri-business companies.