Contract Farming: Reaping What You Sow

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A new law is in the offing which will provide farmers assured prices for their crops even before they are sown, reduce post-harvest losses and create job opportunities in rural areas

By PV Saravanaraja

Finance Minister Nirmala Sitharaman has proposed a central law to help farmers. It will not bind them to sell their crop only to licensed traders in the Agricultural Produce Market Committee mandis of their respective talukas or districts and will remove all barriers to inter-state trade in farm produce. This will help in free trade and movement of agri-produce within the country.

But which List does this proposed law fall under? It falls under Entry 14 of the State List. In such cases, the central government has no power to enact a law on the subject. When Sitharaman was asked by journalists how the centre could enact a law on agricultural marketing, which is on the State List, she said that inter-state trade falls in the Central List, more particularly under Entry 42 which reads as “Inter-State trade and commerce”.

The government in 2017-2018, had tried to integrate farmers with agro-industries so as to ensure better prices for their produce, reduce post-harvest losses and create job opportunities in rural areas. The agriculture ministry constituted a committee under the chairmanship of Dr Ashok Dalwai, CEO, National Rainfed Area Authority, which drafted the Model Contract Farming (Promotion and Facilitation) Act, 2018.

Sitharaman further stated that the new law for contract farming would provide farmers assured prices even before the crop was sown and allow private players to invest in inputs and technology in the agricultural sector. The announcement of a Rs 1-lakh crore agri-infrastructure fund will help mitigate post-harvest losses amid Covid-19.

Tamil Nadu is the first state to get a law on contract farming. It is based on the lines of model legislation put out by the ministry of agriculture in May 2018. The Act is called the Tamil Nadu Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act of 2019.  It provides legal protection to farmers, producer companies and purchasers of agricultural produce for their business transactions.

Many farmers in Tamil Nadu sell their agricultural produce to companies that make plant-based or crop-based products. These deals generally are pre-determined by a verbal assurance between the producer and the purchaser regarding the quantity that will be sold and the rate per unit (pieces, kilograms or tonnes). This is called “contract farming”.

However, the most common problem farmers face at the time of sale of the produce is that the prices fall in the open market, resulting in companies choosing to buy from there without honouring their promise. This leaves farmers with huge amounts of unsold inventory and losses due to high input costs.

This Act aims to put an end to last-minute disappointment for the farmers. It also provides for the establishment of a Contract Farming and Services (Promotion and Facilitation) Authority, which will oversee the implementation of the Act. It will have ten members led by a chairman and include representatives from agro-industries and farmers and a domain expert in agricultural economics.

The Act covers the output from agriculture, horticulture, apiculture, sericulture, animal husbandry and forest activities. It, however, does not include those products that are illegal, banned or prohibited by law. As per the provisions in the Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, producers of crop and purchasers are supposed to enter into an agreement with the terms of transaction on a stamp paper of Rs 100. They have to document it with the designated officer at the district level. The agreement will mention the sale price of the produce and the quantity that will be bought by the purchaser at the end of the crop cycle. In addition, it will  specify the quality grade of the produce. In case of a dispute, the parties can settle it by mutual negotiation or by asking a third party to mediate between them.

The Act also provides for the setting up of a Dispute Settlement Committee chaired by a revenue officer of the sub-division of the district and three other members who are representatives of farmers or farmer producer organisations, the agro-industry and a domain expert. When mediation and negotiations fail between the contracting parties, the aggrieved party can approach the Dispute Settlement Committee for resolution. The Committee is mandated to resolve the matter within 30 days. In case the parties want to appeal, they can approach the district collector. If the contract is violated by either party, apart from compensation and damages that will be paid by the one who violates the contract, the two are also liable to pay a fine to the government. While the fine for purchaser will be up to Rs 15,000, the farmer/producer will be liable to pay Rs 1,500 for contravention of the agreement.

Agriculture is a way of life and farmers live and breathe farming. And such a law will help protect them.

—The writer is Advocate-on-Record, Supreme Court

Lead picture: UNI

The post Contract Farming: Reaping What You Sow appeared first on India Legal.

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