Corporate farming, a term commonly heard in the context of today’s farmer agitation, has negative connotations and rightly so in some cases. It evokes a vision of agriculture held hostage by large agrifood companies, integrated vertically and horizontally from “farm” to “fork”. In this scenario, farmers are either dispossessed or cruelly exploited by giant corporations.
Will India’s Farmers Empowerment and Protection Agreement on Price Assurance and Farm Services Act, 2020 lead to such a scenario? Will it allow companies undue influence over agriculture? Like most initiatives, if properly implemented they have great potential for good, but if mistreated they can lead to oppressive practices and environmental degradation.
As the term implies, contract farming involves an agreement between the farmer and the buyer, whereby the latter buys the products of the former at a predetermined price. Typically, in order to ensure a particular variety or consistent quality of products, the buyer will also provide “agricultural services” such as seeds and other inputs, under the terms set out in the agreement.
India’s experience with contract farming, starting with PepsiCo in the Punjab in 1988, has been mixed. For some, this has been positive, but others complain about buyers’ waivers of contracts. Usually, this happens when the agreement is verbal or the buyer invokes non-compliance with agreed terms, such as quality standards. Farmers also reported that contracts worked well for the first few years, but embezzlement set in afterwards. The farmer then finds himself unable to enforce the contract, the mechanism for doing so being cumbersome and costly.
The point is that the farmer and the buyer or the “sponsor” are not on an equal footing, because the former does not have the bandwidth, in terms of money, time, legal resources or of “connections”, to assume the second.
It is therefore vital to ensure an infallible written contract, weighted in favor of the farmer and an equally infallible redress mechanism. The 2020 law mentions “qualified third party testers to ensure impartiality and fairness” in determining product quality. Thus, the Center and the States must draft a model agreement and the latter must provide for free electronic registration, a neutral dosing system and immediate resolution of farmer complaints.
The fact that disputes have been placed outside the jurisdiction of civil courts is a flaw, but the Center has already said it will amend the law to remove the offending provision.
In any case, the farmer does not risk losing his land property to the benefit of the buyer. Expropriation in any form – sale, rental or mortgage – is prohibited, even if the buyer has made significant investments in the farmer’s land. Likewise, no action can be taken to collect royalties, such as prepayment or the cost of inputs, against the land itself. The 2020 law also protects the farmer from a force majeure clause and provides for a penalty of 1.5 times the disputed amount payable by the buyer, while the farmer can only be asked to pay the actual cost incurred by the buyer.
From a farmer’s perspective, a contract protects him against price volatility, thereby reducing risk. The method of determining this price should be annexed to the agreement, in order to ensure that buyers do not take unfair advantage of the farmer. In this regard, it would certainly be useful to include a provision whereby the government of the state concerned is involved in price discovery. However, setting mandatory and enforceable minimum prices is a slippery slope, as these determinations may be made for political reasons. This is sure to scare away potential “sponsors”.
There are possibilities of abuse when large areas of land are contracted to farm by a single entity for an extended period of time. Farmers become dependent on the entity, to the point where they have less room to negotiate prices when a new contract expires. A provision for annual surveys in which such cases are flagged up and – if a certain percentage of farmers complain – investigated, can help control the operation.
From an environmental perspective, contract farming can encourage crop diversification, as better prices divert farmers from some crops to others. On the other hand, it can also lead to monocultures in villages, making the crop more vulnerable to pests and diseases.
Contract farming was suggested in the 2000 National Agricultural Policy as a way to minimize risk and maximize income for the farmer. The National Farmers Commission has also proposed contracts, subject to regulation, to ensure assured and remunerative commercial outlets. Somehow it didn’t take off in a big way.
Maharashtra formally defined a framework for contract farming in 2006. Farmers who have benefited from it on the whole have found it beneficial, but they are numerically few in number. The main reason given is that retailers are reluctant to enter into long-term contracts with farmers. In addition, fragmented farms do not lend themselves to bulk purchasing. It is easier to ensure quality standards when it comes to a large plot of land.
So while contract farming, properly regulated, is unlikely to have a negative effect, its intention – to ensure better price realization for farmers – will require support programs, such as those for aggregators and organizations. of agricultural producers. OPFs also level the playing field to some extent, using collective bargaining and resources.
The writer is a seasoned journalist with 35 years of experience working with major newspapers and magazines. She is now a freelance writer and author
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Posted on: Thursday October 07, 2021, 2:30 AM IST