Contract farming

The Maharashtra government's decision to allow contract farming, involving purchase of farm produce by corporate houses directly from farmers, formalises what has already been taking place in this and several other states informally for years.

While many states, like Maharashtra, have been giving permission for contract farming on a case-by-case basis, some have amended their agricultural produce marketing committee (APMC) Acts to provide legal sanction for this practice.

In fact, all states have agreed in principle to amend their agricultural marketing laws on the lines of the model APMC Act circulated by the Centre, but progress has been patchy. The model law provides not only for contract farming but also for roping in the private sector for setting up and operating agricultural markets on modern lines.

Another development that, in many respects, is even more significant than the permission for contract farming is the lead Maharashtra is taking in electronically linking the major agricultural markets with the commodity exchanges.

The proposed electronic network will facilitate wider dissemination of spot and futures prices of farm commodities. What is noteworthy here is that this move, slated to be extended to other states, will pave the way for creating a national level spot market for agricultural products.

As far as contract farming is concerned, it has been tried out in several states and by several corporate houses, with mixed results. Taking an experience-based course of evolution, these contracts have moved from a company-farmer (two-party) system to tri- and quadrilateral systems involving companies, parastatals, banks or other agencies as participants or guarantors.

Problems often arise due to refusal by any of these parties to honour a contract at the time of marketing and firms' reluctance to share with growers the risk of crop failure even if it is caused by supply of faulty seeds or technology by them.

This apart, in the absence of any collective bargaining powers with participant farmers, contracts have tended to be biased in favour of the promoter companies.

The genesis of many of these ills can be traced to the difficulties in enforcing contracts and the absence of a satisfactory dispute settlement mechanism. If these aspects are taken care of, as the model APMC Act seeks to do, contract farming can prove beneficial for both farmers and promoter companies.

While the former benefit from access to new technology, inputs and assured marketing and returns, the latter get tacit access to free farm family labour and the state funds directed towards farmers by the development agencies, besides, of course, an assured supply of raw material of the desired quality.

What is needed is to put the new law in place and let farmers organise themselves into common interest groups or cooperatives, to be able to bargain contracts that are fair to both sides.