Contract Farming Law

Chander Mohan
Chander Mohan

To protect the interest of farmers entering into a contract farming agreement with food processing industry and Corporates, the Government  has come out with a new model contract farming Act, which would be circulated among State Governments for adoption, following wider consultation with various stakeholders.

The draft law suggests all contract farming agreements entered into between buyers and farmers in respective States should be registered with a State-level agency called Contract Farming (Development & Promotion) Authority.

Besides, all contract farming deals would be outside the purview of the Agricultural Produce Marketing Committee (APMC) Act, it observes.

The draft released recently on 23rd December says “Contract farming which in essence is a pre-production season agreement between farmers (either individually or collectively) and sponsor(s), transfers the risk of post-harvest market unpredictability from the former to the latter”. The proposed Act puts the onus of professionally managing inputs, technology and pre- and post-harvest infrastructure and services on the sponsor of the contract, according to mutually agreed terms.

It is the outcome of the  Finance Minister Arun Jaitley who had announced in his union budget speech that the NDA government would come out with a model contract farming law and circulate it among States for adoption. Consequently the high-powered committee headed by Dalwai was set up to draft the law.

Both the sponsor and producer are liable to pay damages or compensation in case of a breach of contract, as decided by the authority.

It also gives the authority limited powers to make legislation, with prior approval of respective State government or Union Territory administration. The role played by the authority would be that of a guide and an umpire, it said.

According to a high-powered committee headed by National Rainfed Area Authority CEO Ashok Dalwai, which drafted the Act, the singular guiding factor in formulating this law has been protecting and promoting the interests of farmers, particularly small and marginal farmers, who constitute of 86 percent of the Indian farming population.

It has also kept in mind the need for incentivizing sponsors of contract farming to the extend that they find it attractive enough to take over the market risks of farmers, who are entering into a contract.

The Act has provisions to ensure that a sponsor buys the produce – agricultural commodity or livestock – at a pre-agreed price and in pre-agreed quantity.

The Act allows the authority to collect the facilitation fee from the sponsor of up to 0.3 per cent ad valorem on the contracted produce.

Though APMC acts adopted by many States have provisions to allow contract farming, the centre wanted an altogether new act because it wanted to ensure that APMCs themselves do not become arbitrators on contract farming.

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