• The government recently came out with a Model Contract Farming Act, 2018.
• Better Centre-State co-operation on land lease will ensure that both farmers and sponsors gain.

How is the growth scenario?

• Agriculture growth is under stress at 3.4% in 2017-18 compared with 6.3% in 2016-17.
• This is largely attributed to

1. declining soil fertility
2. fragmentation of landholdings
3. increasing restrictions to commercialisation and modernisation of farming and farm-related activities

What is contract farming?

• It refers to a system in which bulk purchasers enter into contracts with farmers.
• It includes agro-processing, exporting and trading units.
• They purchase a specified quantity of any agricultural commodity at a pre-agreed price.
• The contracting firm/company is also known as the sponsor.
• As, it provides all production support to the contacted farmers.
• This includes the extension services with full protection of land rights.

What are the benefits?

• Income - The idea is to increase farmers’ income by creating an alternative market mechanism.
• It would provide linkages between national and international markets.
• Prior to this, several States have been hesitant to allow contract farming.
• With the Act being notified, the focus has shifted to the operational aspects.

• Middlemen - Agricultural markets invariably remain in the clutches of the middlemen.
• The Act allows farmers and farmer producer organisations (FPOs) to directly link with companies.
• It thus enhances market linkage and removes dependence on middlemen.
• Price - 86% of total landholdings in the country belong to the small and marginal category.

• The Act will have an indirect effect on farmers forming FPOs.
• It helps pooling their land for a better say in determining the prices of their produce.
• Cost - Farmers no longer have to transport their produce to the mandis.
• As, sponsors usually collect the produce from the farm gate.
• It thus reduces farmers’ cost and thereby translates into increased incomes.
• Land - Fear of losing land has always inhibited farmers from embracing new policy.
• The Act does well to insulate land ownership rights of the farmers.
• It prevents them from any potential infringement from the sponsors or the buyers.
• Market - Contract farming creates new markets for farmers’ produce.
• It facilitates better access to technology, crop diversification, and extension services.
• It can thus positively impact the production process.
• Financing - Lack of formal financing mechanism and lower penetration of crop insurance are prime causes of farmer distress.
• Contract farming facilitates financing and crop insurance as well.

What are the shortcomings?

• Board - The Act mandates the formulation of a contract farming board.
• This is to guide several aspects of the contract, including pricing of produce.
• The intent is to provide a cushion against possible exploitation of the farmers.
• However, if not exercised judiciously, the board may set high price, deterring sponsors.
• Quality - The sponsor is mandated to buy the entire contracted amount of produce.
• This is even if the quality parameters are not met, though at a lower price.
• This affects the sponsors, as, they enter into agreement to procure a specific grade of produce.
• Insurance - The spirit of providing insurance support to the farmer is good.
• But the sponsor is burdened with this additional cost.
• The government can instead consider covering this cost.

What lies ahead?

• Cooperation - Being a State subject, operationalising agriculture reforms needs State cooperation.
• Most often, these reforms fall victim to Centre-States political differences.
• The need is for proactive support and guidance of the sponsors at the State level.
• Leasing - The Model Agricultural Land Leasing Act, 2016, has not seen much uptake at the State level.
• None of the States has adopted the Act in its entirety.
• The Contract Farming Act has to be supplemented by well-balanced leasing laws at the State level.
• This is essential to tap the full potential of contract farming.
• Allowing leasing of land will help address the issue of fragmented landholdings.
• It would encourage the private sector for bigger commitments in terms of technology and capital.
• This will boost productivity, by benefiting from economies of scale.