This is Part 3 of a series of articles by the author on the implications of new laws governing agricultural marketing in India. Access Part 1 here, and Part 2 here

The Farmers (Empowerment and Protection) Agreement on price assurance and farm services Ordinance 2020 was passed by the Parliament in Sep 2020. Here farmer can get price insurance through contract farming where his / her price interests are protected. This encourages small farmers who may not have adequate resources other than labor and land, to enter into contract with any agribusiness firm, which can provide tractor and machinery services and other inputs, and sell the produce at predetermined price. This price is also subject to review, if there is price rise after entering into contract and farmer will not be put to disadvantage and will reckon the current price. The processor also can enter into contract with farmer to supply him/her a quality produce for processing and this can lead to large economic activity in rural areas. 

Producers like farmers and buyers like food processing units can enter into a written contract prior to production. The advantage for the farmer is to reduce the risk of fluctuating market price and demand. Simultaneously, buyers can reduce the risk of non-availability of quality produce through contract farming. A sponsor is anyone who has entered into an agreement with a farmer for buying farm produce and may be individuals, companies, partnership firms, limited liability groups or Societies. Contracts are to be recognized by a Registration authority set up by States. Exemption from stock limit obligations, exemption from essential commodities act 1955, and exemption from all State Acts are available. However exempting from all Acts of the State may pose an issue in future. The agreement will specify the guaranteed price and quality of the produce and the agreed amount must be paid at the time of delivery. The agreement can include terms and conditions of supply, quality, standards, monitoring and certification. The agreement can also be linked with crop insurance and crop loan to allow for risk mitigation. Sponsors cannot acquire ownership rights or make permanent modifications to farmer’s land under any circumstances. The contract farming agreement must be for at least one crop season or one production cycle for livestock, up to a maximum period of 5 years. For settlement of disputes, the ordinance requires agreement to include a conciliation process, a conciliatory board with representation for both parties. If the parties fail to reach a settlement, they can approach the Deputy Commissioner who can order recovery of dues with interest. No action can be taken on the farmer’s land to recover the dues. 

Currently farmers in Karnataka have entered into contract farming agreements with different firms. One such example is the Namdharis in Bidadi where farmers are supplying vegetable gourds following good agricultural practices for exports to Europe. Studies on contract farming have indicated benefits to contract farmers¹ over non-contract farmers. It is reported that more than 50 per cent of small and medium contract farmers derived 74% of their total income from contract farming of baby corn. For large farmers, about 54% of their total income was from contract farming. Income from contract crop per acre was the highest for small farmers (Rs 14,625), followed by large (Rs 13,131) and medium (Rs 10,287) farmers. The factors facilitating farmers into contract were low initial expenditure, better and assured price and assured market, regular technical consultation provided through package of practices, access to inputs as also transportation facilities. 

 

Essential Commodities Act

 

The Essential commodities Act, 1955 (ESA), was enacted during food scarcity in order that prices should not be artificially high affecting consumers to prevent price rise due to likely hoarding. Since green revolution and support to agriculture, India now surplus in food. India which was producing 1kg food per capita per day is now producing 1.74 kgs food per capita per day. Thus, the concept of hoarding is no longer appropriate. And the provisions of the law can be detrimental to new investors in processing, storing, trading and exporting, as they need to handle large volumes of commodities. Thus, entrepreneurs need to be facilitated to trade, process, integrate and perform other large-scale marketing functions for the benefit of the economy. With one nation, one market farmers, traders from one State Karnataka can buy produce from farmers, traders in another State if prices are conducive and remunerative for further marketing activities. These endeavours would not be possible with the Essential Commodities Act of 1955. Thus, the Act required an amendment towards deregulating cereals, edible oils, oilseeds, pulses, onions and potatoes. With the new Amendment to ESA, unless there is an extraordinary situation such as national calamity, huge surge in prices, the ESA is not invoked. Therefore, if an entrepreneur keeps stocks, for processing, or for trade or for exports, s/he will be facilitated towards trade allowed for exports without any violation. Due to the Amendment, the stock can be regulated only if there is a 100% increase in the retail price of horticultural produce, or 50% rise in the price of non-perishable agricultural food stuffs over the price prevailing immediately preceding 12 months or average retail price of last 5 years, whichever is lower. 

 

Conclusion

 

With the provisions of the new Act, farmers will now be getting adequate choice to sell their produce at attractive price, without barriers to interstate trade, including e-trading of produce since at present farmers are selling only to those traders with license. As no other entrepreneur or firm in manufacturing / service sector is compelled to sell only to certain license holders, no farmer should be compelled to sell only to APMC traders. Thus, farmers can now interact with APMC mandi merchants that due to unnecessary illegal deductions made in the produce and low prices offered through informal cartels, they have alternatives gateways to sell their produce outside APMCs where efficiency prevails. This will also create competition for APMC merchants who can then compete to attract farmers towards efficiency. Through the Contract Farming Ordinance Farmers can get a predictable price, predictable sale of produce even before sowing. Farmers can enter into agreement with food processors, aggregators, exporters, and benefit from better technology, better markets and better economics. Because of Essential Commodities Act, there was no incentive for entrepreneurs to make investments in post harvest economic activities by stocking / transporting, processing benefiting from scale economies. However, the Amendment to the ESA Act redefining the scarcity in terms of price rise, provides opportunities for entrepreneurs to invest and benefit from trade of agricultural commodities.  

M G Chandrakanth is Director (Retired), Institute for Social and Economic Change, and Professor (Retd), Dept of Agricultural Economics, University of Agricultural Sciences, Bengaluru

Footnotes:

¹ Nagaraj, N., MG Chandrakanth, PG Chengappa, HS Roopa and PM Chandakavate, 2008, Contract Farming and its Implications for Input-supply, Linkages between Markets and Farmers in Karnataka, Agricultural Economics Research Review, Vol. 21 (Conf No.), pp 307-316. http://www.toenre.com/downloads/2008_Contract_farming_NN&MGC.pdf

 

Tags :

• Reform Stories65
• Impact Projects65
• India's Elections65

• Share on Social Media

• Follow us on Social Media