Contract Farming Act is not a reform, here is why.

Central government enacted three farm laws last year in September leading to mass mobilisation of farmers starting from Punjab. The protests against the three laws have been going on since last 6 months now. With the commencement of procurement season, it becomes easy to analyse that the one of the laws on contract farming is not a reform as it has been advertised to the masses.

The fact that contract farming has been going on in Punjab is important in this context. The experiments of Punjab with contract farming barring those with involvement of government have been disappointing.

In a broader sense, the procurement by FCI is a form of contract farming. The contract is between farmers and the Food Corporation of India (FCI) on behalf of the government, and it has worked with the highest degree of effectiveness. Of the total production of around 365 lakh tonnes of paddy and wheat, almost 80 per cent is procured at the pre-determined Minimum Support Price (MSP) without any discrimination among farm-size categories. There is a similar mechanism in cotton, wherein the Cotton Corporation of India (CCI), on behalf of the government, enters the market as a buyer whenever the prices fall below the MSP. The procurement by the CCI helps to restore the prices and thereby checks to a large extent farmers’ exploitation by private players.

Similarly in case of Sugarcane the support price also called as SAP ( State Advised Price) is announced and sugar mills cannot pay less than this price. The contracts of these sorts have been in operation flawlessly making things easy for farmers.

The new claims or the advertisement of Contract farming is hollow because Punjab has experimented with PepsiCo India Ltd for potato and chilli. Other contract farming experiments have been with private players like Nijjer Agro Food Ltd, United Breweries Ltd, Satnam Overseas, Amira India Food Ltd and Sukhjit Starch dealing with crops like tomato, chilli, barley and basmati.

The claim that contract farming will lead to diversification is hollow as well. Now diversification is definitely the need of hour and no one runs away from it. But contract farming experiences tell us that Private Players are not interested in diversification at all. Private companies have never reached such a scale of contracting in any crop or commodity. Farmers are initially lured by the high prices of the produce. But once they opt for an expansion of area under the contracted crop leading to enhanced production, the farmers are offered, on many occasions, lower than the agreed prices by raising quality concerns without realising that not only quality but also the yield of agricultural produce are dependent on unpredictable environmental factors over which the farmer has no control. Often, the promise of higher profitability to the farmer falls flat, discouraging him from continuing the partnership with the contracting companies. Contract farming by the private sector is also accused of mostly favouring the medium and large farmers and being far from being inclusive.

While government is shifting its accountability for diversification to the private players, the experience of farmers tells us that private players are not interested in that long battle as well. This has led to increasing pressure on small landholders in the past resulting in ‘big getting bigger’. The small farmers eventually lose out in this battle even if they compete with all their credit and resources available to them.

It is widely understood by all that if at all diversification has to take place it will only take place once farmers are aided by large-scale involvement of farmers’ aggregators like farmer producer organisations or companies. There is also a need to legally ward off the apprehensions of the farming community that big corporates may demolish the established input and output market channels in the long run and start dictating terms to the poor farmers who have little bargaining power in the market. Thus, while attracting private capital investments in production, processing and marketing of high-value agriculture, the associated adverse socio-economic implications must be avoided.

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