Union government is taking efforts to ensure farmers that they get better prices for their produce.
For achieving this goal emphasis is made on contract farming act.
What is contract farming?
Contract farming refers to an agreement between farmers and marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices.
The contract between farmers and buyers insulates farmers from price risk, helps them develop new skills, and opens new markets.
Under Monopsony contract firms enter into an agreement with farmers to grow differentiated crops.
This turns the firm into a sole buyer and farmers into price-takers.
What are the concerns with Contract farming?
Contracting firms can exploit monopsony situation to their advantage by offering lower prices to farmers.
Contracting firms do not have complete information on productivity and land quality.
This can lead to a situation where farmers produce below-quality crops.
Farmers sometimes do not understand contract specifications like the quantity and quality to be produced, or the effect of price change.
In some cases buyers may penalize farmers and farmers may indulge in side-selling or leak the technology provided by the contracting firm.
What were the measures taken by India in this regard?
In India, contract farming is regulated under the Indian Contract Act, 1872.
The Act has many general provisions that are relevant to contract farming, including the formation of contracts, obligations of parties, and consequences in case of breach of contract.
In addition, the model APMC (agricultural produce market committee) Act, 2003 provides specific provisions for contract farming, like compulsory registration of contract farming sponsors and dispute settlement.
The department of agriculture and farmers welfare has now come out with a draft model contract farming Act, 2018.
It intends to establish a win-win framework for both farmers and sponsors. Instead, some of the clauses do the opposite.
What is the significance of contract farming Act 2018?
The model contract farming Act proposes a state-level agency, the Contract Farming (Development and Facilitation) Authority, which would put contract farming outside the ambit of the APMC.
The model Act requires the sponsor and the farmers to register the contracts with a registering and agreement recording committee.
Registration imposes additional procedures and costs on the parties, and small and medium farmers cannot easily afford these costs.
The Act also proposes price protection for farmers by determining a pre-agreed price.
