Hyderabad:Contract Farming plays a crucial role in the economic upliftment of small farmers. If the small farmers are economically good, the agriculture sector will improve, and the whole country will be on a path of the high rate of the economic development process.
Agronomic farming provides small farmers with the ability to compete effectively in the market by providing new technologies, corporate management techniques, loans, market information and facilities. This type of cultivation reduces the transaction cost of small farmers.
The corporations that contract with farmers provide them with advanced farming techniques, machinery, fertilizer, loans and investments that help to improve the quality of crops. Food contracting industries and agricultural exports can thrive when contract farming is successful. This increases the income of the villagers, thus advancing the villages economically.
Violation of the terms
There have been many instances where companies and farmers have violated contracts.
Farmers breach the contract if the market is priced higher than the price agreed in the contract. Companies violate if the market price falls too low than agreed to, on a contract.
Tomato farmers in Chittoor district face this bitter experience repeatedly. It has become a ritual that contract companies in Krishna, Prakasam and Khammam districts have been delaying payments to Subabul farmers, because of such reasons itself. Gherkin cucumber growers in Chittoor district are being paid cheaper than the market.
The companies here have repeatedly breached agreements with farmers when they felt that they cannot afford a good price in comparison with the market. Switching off the terms of the agreement is becoming a repeated option for companies.
In the case of Tamil Nadu, contract buyers of the Broiler Hens, the contract companies have rolled back on their prices in the last minute and have duped the poultry farmers in the state.
Companies resort to manipulative buying options, such as buying earlier than the time period or later than the harvesting timeline, taking into consideration the estimated fluctuation of the market prices. Either way, they are looking to stay aloft leaving the farmer to drown in crisis.
There are instances where the payments to the farmers have been delayed almost upto60 days. Farmers are unable to do anything because they have already received investments from the company. To prevent this from happening, there must be legal arrangements to make both parties accountable.
There should be an option to enforce the contract judicially. Contracts must first be legally registered. Lack of such things can cause companies to shy away from timely cargo, causing bogus companies to sprout farmers, delay payments, or cut back in the last hour of need.
Such an environment creates mistrust and a huge gap between the farmers and the contract companies.
To overcome these challenges, the Central Government drafted a Sample Contract Agreement of Promotion Act on December 24 , 2017 . The legislation aims to encourage food processing companies to invest in new technologies and infrastructure to protect farmers from price fluctuations.
On this basis, Tamil Nadu became the first state in the country to pass the Act on Contract Farming. The Act is being referred to as the Tamil Nadu Promotion of Agriculture, Dairying Contract Agriculture and Services Act.
This Act has recently got the approval of the President of India, Ramnath Kovind. The Tamil Nadu government said that the law was enacted to ensure that farmers get the price at which the companies have contracted, irrespective of market fluctuations. These contracts must be registered with the State Agri-Marketing and Agri-business Division.
The Tamil Nadu State Promotional Agriculture and Services Promotion Agency will be set up with six members to implement the agreement as an alliance and to recommend changes to suit the circumstances.
Dairy and crop production are contracted prior to starting till the completion of the contracted produce. Farmers have the flexibility to adopt productivity technologies and cultivation tools from companies that have agreed to buy such products.
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There are a few crops which have been banned by the Center, the States, or the Indian Agricultural Research Council (ICAR) that are not to be cultivated under contract farming. Tamil Nadu Chief Minister Palaniswamy has directed officials to finalize rules and regulations for speedy implementation of the contract farming legislation.
Overall, state law is based on a central framework. The centre has drafted the framework only after consultation with the state governments and related stakeholders. The Government of Tamil Nadu has announced the introduction of contract farming legislation in the Budget Session of 2018-19.
A Contracted Agricultural Promotion wing will be set up at the village level to implement the Act. Implementation of the Contract Farming Legislation can protect farmers from various irregularities in the Agricultural Commodities Marketing Committees (APMC) or Mandis.
It has long been heard that traders and middlemen have formed an alliance in these mandis and are together cheating the farmers. There are expectations that the new law will put an end to this sin.
Valuable principles
Some minimum precautions must be taken to ensure that the Agreement Laws give the desired result. A mechanism for grading of crops and dairy products at the farm, village and market level should be established. There should be fines, appeals and dispute resolution arrangements.
Arbitration consultations should establish mechanisms for resolving disputes. Officials appointed by the state government must resolve disputes within 15 days. For a faster dispute resolution, complaints submitted at lower level officials, can be escalated to higher level officials too.
Under the new law, the Contractual Agricultural Development and Promotion Authority set up by the Government has the powers to resolve the Act-related disputes. The verdict given by this Authority is equivalent to a civil court ruling.
However, no civil court has the authority to adjudicate on the disputes that arise in the implementation of this Act.
Contract farming has the advantage of APMC legislation currently being implemented by many states. The Center has drafted a new law in order to avoid intervention in contract farming. We need to raise awareness among farmers about this law. Establish an acceptable grading mechanism for all. Storage facilities should be established. Farmers need to be provided timely institutional loans to avoid falling victim to loan sharks by paying high interest rates.
Law should be able to cut back on the crop price collapse because of the selfish needs of a few merchants and middle-men. New laws of this kind can only succeed if implemented with perseverance and integrity.
Profits brought in by awareness
Of late, in India, crops such as flowers, fruits, vegetables, eggs, meat, dairy and fisheries have flourished under the process of contract farming. Farmers save money by being able to get better technology and agricultural extension services through contract companies.
Most of the farmers and corporations are already engaged in contract farming, and the lack of legally accountable parties is a big drawback. So far, all agreements are based on mutual trust. The extent of land under irrigated agriculture is increasing at a fast rate.
Farmers, corporations and joint ventures in agriculture are expanding. Small farmers in contract farming must take legal and judicial precautions to get protection against exploitation.
Generally corporate companies that go into contract farming want to partner with big farmers. The illiteracy of small farmers, lack of investment and lack of awareness of modern farming practices are causing corporations to turn to big farmers.
Many a single large company is buying agricultural products from hundreds and thousands of small farmers. There are many instances where small farmers are selling crops at low prices due to lack of economical viability and awareness on market conditions and fluctuations.
(Paritala Purushottam, Social Agricultural Analyst)
