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India’s Contract Farming Act
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 is an important legislative landmark in the context of Indian agricultural policy. The major concerns relating to the adoption of the contract farming system in the Indian context are proposed to be resolved through the enabling legislative measures proposed in the act. This paper critically examines the various provisions contained in the act to assess its potential in mitigating the key concerns of adopting the CF practice in India.
The authors are thankful for valuable comments and suggestions from an anonymous referee of this journal. Thanks are also due to Jainendran, Ravichandran, Krishna Kumar, Babu Gopalakrishnan, P S Pradeep, Siva Prasad and O S K Reddy for helping the authors reach out to the stakeholders for conducting the interviews. The competent research assistance provided by Issabella Jose, Mohammed Shahdab, and Anshi T in writing this paper is acknowledged. The usual disclaimer applies.
As part of the economic stimulus package to fight COVID-19 under Atmanirbhar Bharat Abhiyan, the union government promulgated an ordinance named the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 aimed at providing a legal and regulatory framework for protecting and empowering the farmers engaged in the contract farming (CF) model of farming. The ordinance was recently replaced by an act (hereafter the CF Act) passed in Parliament amid protest from farmers groups, opposition parties and an ally of the ruling government. The CF model involves linking farmers with a known buyer (for example, an agribusiness firm, an exporter or a retail chain) through a forward contract in which the former promises to supply a certain quantity of an agricultural product to the latter within a pre-agreed time frame subject to certain conditions mutually agreed upon by the contracting parties (Eaton and Shepherd 2001; Narayanan 2011; Singh 2002).
The adoption of CF practices across the world has proven that the model has several advantages and disadvantages (Dev and Rao 2005; Glover 1987; Wang et al 2014; Minot and Sawyer 2016; Barrett et al 2012; Bellemare 2012). The key advantages are the crop diversification; higher crop yield; reduction in price uncertainty; better price and assured market for farmers; increase in profit and income of farmers; supply of quality farm inputs, including farm credit technology and scientific know-how to farmers; reduction in transportation costs; growth of food processing industry; and integration of farmers into the industry and global market. Some of the key disadvantages of CF practice are neglect of small and marginal (S&M) farmers by firms,1 dominant role by firms in price fixation, delay in making payments to farmers, non-purchase of contracted produce on quality and other grounds, manipulation of grading standards, breaking away from contracts by either party, difficulty of legal enforcement of contracts and lower long-term commitment among corporates for rural development.
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