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Government takes a shot at liberalising agri markets, revises model contract law

The revised model allows firms to sign advance contracts with farmers to grow a chosen crop or its specific variety with a buy-back assurance at an agreed price, giving cultivators a ready market without the oversight of the APMC system.

india Updated: Mar 04, 2018 20:24 IST
Zia Haq
Zia Haq
Hindustan Times, New Delhi
Agri markets,Agri farmers,agricultural produce market committees
The revised provisions of the model contract farming law state that businesses and farmers can enter into contracts for any crop, livestock breed or poultry of their choice farmer. (S Raja/HT File Photo)

In another shot at liberalising agricultural markets, the Centre has reworked the model contract farming law that seeks to free direct deals between businesses and farmers from the oversight of agricultural produce market committees, or APMCs.

This is the second model law dealing with farm trade this year aimed at dismantling, sidestepping or reforming the decades-old, state-monitored network of markets. The model contract law, a copy of which has been reviewed by Hindustan Times, follows the Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2018.

Conceived in the 1960s, APMC regulations require farmers to sell to licenced middlemen only in notified markets, usually in the same area as the farmer, rather than directly to buyers elsewhere.

These rules were meant to protect farmers from being forced into distress selling. Over time, they have spawned layers of intermediaries, stretching the farm-to-fork supply chain. This results in a large price spread, meaning fragmentation of profit share because of the presence of too many middlemen.

Usually, farmers get the lowest share of profit. APMCs have also become hubs for cartels that rig the system to offer lower prices to farmers while driving up prices for consumers. India has about 6,800 such public-sector markets.

The revised Model Agricultural Produce and Livestock Contract Farming (Promotion & Facilitation) Act, 2018, now set to be released to states, allows firms to sign advance contracts with farmers to grow a chosen crop or its specific variety with a buy-back assurance at an agreed price, giving cultivators a ready market without the oversight of the APMC system.

A model law isn’t presented in Parliament, but is instead sent to states for passage since the Centre cannot bring laws to regulate agriculture marketing, which falls in the states’ domain.

To work around APMC markets, the budget for fiscal 2019 has also proposed to develop 22,000 new or existing private rural markets.

The revised provisions of the model contract law state that businesses and farmers can enter into contracts for any crop, livestock breed or poultry of their choice. The earlier version, released for public scrutiny on January 23, restricted contract farming to only those crops that are allowed by states.

The model law provides for dispute settlement at the level of the tehsil, or local administrative unit. It does away with an earlier provision that disputes could be taken for appeal to a decree court. Instead, the parties can escalate it to a three-member local authority, comprising an independent farmer, a corporate representative and a domain expert, all unrelated to the contracting parties. The law seeks to protect the farmers’ lands and their title. No business can build permanent structures on a farmer’s land or seize land. Registrations of contracts will be completely online, the model law says. The earlier version provided for physical contracts.

“Technological advancement with better agricultural practices makes contract farmers more technically and economically efficient,” according to a 2016 post-doctoral study on contract farming in Punjab by Nivedita Sharma of the New Delhi-based Jawaharlal Nehru University.

In most cases of contract farming, the sponsor, or the contracting firm, also directly provides most inputs, such as seeds and fertilizer, as well as credit and technical skills to the farmers with whom it enters into a deal. This lowers the market risk for farmers.

“Several states did reform markets and gave direct marketing licences to various kinds of corporate buyers like Tata, Mahindra and Godrej,” said R Ravikanth, an analyst with commodity trading firm Comtrade.

“We don’t support contract farming because it is another form of exploitation. Why isn’t there a provision that all produce will be contracted above minimum support prices?” said Pema Ram, a leader of the All India Kisan Sabha.

Most of these licences are not in use, Ravikanth added, because it is difficult to coordinate with a large number of small farmers. Current examples of contract farming include PepsiCo Inc. for tomato in Punjab, SABMiller Plc. for barley and McCain Foods Ltd for potato in Gujarat.

First Published: Mar 04, 2018 20:23 IST