Contract Farming: A welcome reform

Several studies conducted on the process of contract farming in various countries show that contract farmers earn considerably more than non-contract farmers.

The Covid-19 crisis has woken us up to several realities, one of which is the importance of our food chains and elevating the agrarian sector to newer, loftier heights. India, mainly relies on its villages for its food production, with the growing population and lessening of the available farm lands, it has become imperative to employ, newer, faster and efficient technology for growing our food.

The need of the hour was a shift from the traditional methods of farming, and we have done that with our shift to contract farming! Ever since we went to school, there has been a phrase we were constantly taught, “India is an agrarian economy”! What that means is that India, lives in its villages, and is supported by village farm activities.

Even today, in the age of globalisation, around 60-70% of the Indian population depends on the agricultural sector whether directly or indirectly contributing roughly around 16-17% of the GDP. We are a country of 135.26 crore today; and with the decline in farming, we are looking at a bigger pandemic than the Covid-19, the hunger pandemic.

At the time of Independence, the agrarians’ share to the GDP of India was around 50%. Today it has declined to 16- 17%, which means that India is utilising its resources in aspects other than growing food, which will lead to a definite food shortage in a vastly growing population. Farming, has been practiced in India successfully for thousands of years, from father to son as a popular enterprise, but today, its decline indicates such systemic failures of the past regimes which if not remedied can lead us towards collapse.

A sector once considered the backbone of our economy has been plagued with issues like non-performing assets, bad loans and, most heartbreakingly, farmer suicides. The plight of farmers, one of the most essential backbones of our nation, has taken on an almost anecdotal face, with their miseries being immortalised in plays and movies. The saddest part is, that it is not their failures, it is a systemic failure that has made, our food growers and providers, our poorest and weakest members.

Today, the debate of essential service has been raised like in no other time in human history, and one of the biggest lessons we have learnt is how the scarcity of resources affect our workforce. It is today that we need to strengthen our supply chains and empower the root of those supply chains, the farmer, so we may as a country ensure food security. India’s farmers live in villages and use traditional farming methods, we still see the farmer dhoti clad, in the burning sun, tending to his crops with his hands or with old, traditional tools.

That is one of the biggest systemic failures that we are in urgent need to address. We need the farmers and the farms to grow more, to produce more and we, as a country, need to be able to feed our populace. Our farmers need machines and newer technologies and manpower and finance, unfortunately, they don’t either have the resources or the knowledge to acquire that. Our mandis have grain, sometimes in shortage, sometimes rotting in the rain, but the farmer is not able to sell that.

We, as a country, need to bring in immediate policies to remedy that. With this priority, our Prime Minister announced a major economic package for all sectors of approximately Rs 20 lakh crore (estimated at about 10% of the GDP), of which a significant portion will help address the lack of infrastructure in the agrarian sector. It is clear that only by strengthening our basic infrastructure we can reach the dream of self-reliance and resilience.

The Union Finance Minister, Nirmala Sitaraman, has in her third tranche of the economic stimulus package on 15 May, 2020 announced tripartite reforms, to significantly change the face of Indian agriculture. These reforms include contract farming, amendments to the Essential Commodities Act, 1955 and a central law facilitating farmers to sell their produce anywhere in the country, without paying any heed to local licensed buyers in designated mandis. One of the major reforms of the century is “contract farming”.

Contract farming is a system, where a buyer contracts the farm to grow what he needs. It is the buyer who will, under these agreements, provide the necessary infrastructure. One of the biggest reliefs that it will give our farmers is that it will reduce the amount of economic pressure or the investment to be made by farms on growing these crops. Today, our farmers, put in the investments, which when not recovered due to various factors translate into bad loans, or financial ruin, in many cases leading to depression and suicide.

Several experts, well known in the field of agricultural economics have appreciated and hailed this reform, Ashok Gulati (Infosys Chair Professor for Agriculture at ICRIER, former Chairman CACP, GoI) through a recent column for a reputed newspaper stated that this reform in the agro-marketing system will go a long way in building an efficient value chain, ensuring better returns for farmers. He even highlighted that consumers will also receive better products without an inkling of any burden on their pockets.

A major advantage of this system is that it makes small-scale farming competitive with advanced access to input, information, pre- and post-harvest infrastructure and services, technology, credit, and marketing channels. As per the Census of 2011, the average size of landholdings in India was only 1.1 hectares, which presumably today would have reduced even further due to the prevailing laws of inheritance and steadily increasing population.

Thus, leading to many handkerchief-size farms with operational inefficiencies, keeping farmers poor with a meagre source of income. But sooner, with encouragement of the practice of contract farming, everything would change as agriculture would combine itself with corporate efficiency, ensuring greater rights and market freedom to farmers concerned.

This boom will also boost better wages for farm labourers. Several studies conducted on the process of contract farming in various countries show that contract farmers earn considerably more than non-contract farmers. The Government’s intention of promoting farmers rights through contract farming was reflected well in advance, in the budget of 2017-18, where a drafting committee was constituted for the same.

Soon, a Draft Model Act was created as a soft law for regulatory and policy framework. The guiding factor in formulating this law has been to protect and promote the interests of the farmers in general, and small and marginal farmers in particular. Based on the Draft Model Act, it was left open for legislature of each State to enact their separate law on contract farming. Earlier, contract farming required registration with the Agricultural Produce Marketing Committee (APMC), independently regulated by each state.

Market fees and levies were to be paid to APMCs to undertake contract farming. With the coming of the NITI Aayog, it was observed that market fees and other levies being paid to APMCs for contractual farming were of no use as no market facilities and infrastructure were being provided by them. The Draft Model Act, 2018, removed contract farming from the purview of the APMC, and puts the power to contract directly in the hands of the contracting parties.

The Draft Model Act, 2018 lays emphasis on protection and interests of farmers, considering them weaker of the two parties entering into a contract. No rights, title, ownership and possession are allowed to be transferred or alienated or vested in the buyer at any point of time in the contract. Today, with the advent of this new law, we are looking at reforms in the agrarian sector, at the scale of the Green Revolution.

Bad policies, fluctuating markets, climate change, have all wreaked havoc on our extremely delicate and ancient farming methods. Contract farming will take away this burden from their lives; they will no longer have to inject finance or infrastructure into their farms and then wait for it to be returned, which frequently doesn’t happen. The dire need of the hour was to remove the obstacles and to remove maximum loopholes and ensure greater productivity and prosperity for farmers and farm labourers.

One thing for sure, that this fundamental change will completely transform the approach and outlook towards the agricultural sector, creating many job opportunities for the young and the poor. With this vision, we aspire for the transformation of the agrarian sector to a new glory.

Senior advocate Pinky Anand is the Additional Solicitor General of India.