India, also known as the land of villages, is predominantly a rural economy. Around 70 percent of the total population lives in rural areas farming being their primary source of income. Agriculture and other related sectors presently employ almost half of the country’s population. That is that reason why socio-economic growth of the country is dependent on the development of the agricultural sector.
While efforts are on to increase the importance of the modernization of agriculture, the growth is still under stress at 3.5 percent. By Integrating farmers with agro-industries, the government wants to ensure that farmers are benefited with better prices for their products and are assured of job opportunities in rural areas.
Contract Farming Act announced by the government has come to be seen as a panacea. The contract farming model will increase the farmer’s income by creating an alternative market mechanism that links them to both national and international markets.
What is Contract Farming?
Contract farming refers to varied formal and informal agreements between the farmers and processors or buyers. It may include buying, purchase, and supervised production arrangements with input provision, with tied loans and risk coverage. The idea behind giving a push to this form of farming is to encourage private investments in the agricultural sector and to reduce price risks and post-harvest losses on high-value crops.
In India, contract farming is regulated under the Indian Contract Act. 1872. The Act provides the legal framework for contract farming. In addition to the Indian Contract Act, the Model APMC Act, 2003 provides specific provisions for contract farming. However, several states in India did not adopt it.
The Model Contract Farming Act, 2018 –
The Model Contract Farming Act, 2018 by the government came out with clear intent to boost the income of farmers by creating new opportunities in national and international markets. Some of the crucial proposals of the Model Contract Farming Act include setting up a state-level agency called Contract Farming (Development and Promotion) Authority.
The Authority would be responsible for implementing the Act. The Model Act requires both the investor and the farmers to register the contracts with a Registering and Agreement Recording Committee. The Model Contract Act puts contract farming outside the ambit of APMC. That means buyers would not have to pay market fees or commission charges to APMC. The Act also will give price protection to farmers by determining the pre-agreed price.
Established at the turn of the 21st century by my father Mr. Ranjit Shah in South India, India Agro Exports is one of the more reputable Agro exporters from Southern India. Today as the director of the group, IAE takes pride in providing high-quality agricultural products at competitive prices to customers around the world.
We have established relationships with farmers, agents, and food entrepreneurs not just in the Agri-rich states of Tamil Nadu and Karnataka, but also in Gujarat where the business hails from. I am sure that the recent efforts by the government in terms of The Model Contract Farming Act, 2018, we can establish a win-win model for all farmers, investors, and buyers.
Despite the recent tensions between the PepsiCo and a handful of potato farmers from Gujarat, it is a perfect example of contract farming in India. The PepsiCo works with 24,000 farmers and provides them with seeds, chemical fertilizers, and insurance facility to farmers, and in return, they buy back the harvest at predetermined prices. It is vertical coordination between farmers and buyers.
Advantages of contract farming to farmers –
- Inputs and production services are often supplied by the sponsor.
- Farmers’ price risk is often reduced as many contracts specify prices in advance.
- Contract farming provides exposure to world-class mechanized agro-technology and enables farmers to learn new skills.
- Contract farming can open up new markets which would otherwise be unavailable to small farmers.
- Uninterrupted & regular flow of raw material.
- Crop monitoring regularly, technical advice, free of cost at his doorstep.
- Supplies of the healthy disease-free nursery, agricultural implements, technical bulletins, etc., and remunerative returns.
Advantages of contract farming to Investors –
- Working with small farmers overcomes land constraints.
- Production is more reliable than open-market purchases, and the sponsoring company faces less risk by not being responsible for the production.
- More consistent quality can be obtained than if purchases were made on the open market.
- Protection from fluctuation in market pricing.
- Long term planning made possible.
- The concept can be extended to other crops, builds long term commitment.
- Generates goodwill for the organization.
Despite several challenges, contact farming holds the potential to help upgrade small and marginal farmers and integrate them into the agriculture value chain. Contract Framing by the Government can result in, assured food security, increased farm incomes, safeguarded our public distribution system, and increased employment opportunities for rural landless.
The Model Contract Farming Act, 2018, sounds promising by stating the intent to promote contract farming. I am hopeful that contract farming will improve the condition of farmers in India as it holds a bright future for the agricultural sectors in rural India.