Anindya Sundar Pal , 05-02-2021
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 first two were passed by a majority voice
vote on Thursday in the Lok Sabha, while the third had already been passed on
Tuesday. They will now have to be passed by Rajya Sabha.
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 company.
