The Tamil Nadu way

Other states should also enable contract farming

By enacting the contract farming law on the lines suggested by the Centre in the model Bill on this subject, circulated last year, Tamil Nadu has become the first state to show urgency in undertaking this critical reform. The Agricultural Produce and Livestock Contract Farming Bill, 2019, passed by the Tamil Nadu legislature earlier this year, became a law last week after getting the President’s approval. It is expected to facilitate linking farmers with the agro-processing industry and other stakeholders, such as traders and exporters, for mutual benefit. While the farmers would gain from guaranteed marketing at the pre-agreed prices, the buyers would be assured of adequate availability of the needed products of desired quality.   

Unlike in many other countries where corporate houses can access large chunks of land for in-house production of  agricultural raw material — also called corporate farming — the circumstances in land-stressed India do not permit this. The best option for industry and trade is to enter into contracts with farmers — or contract farming — to get them to produce the stuff needed. In fact, various kinds of contract farming arrangements, based mostly on oral or informal agreements, are already operating in the production of crops such as sugarcane, cotton, tobacco, coffee, and rubber, and dairy products. But in the absence of any legal sanctity, these contracts mostly undermine the interests of the growers. The buyers often renege on their commitments at the harvest time if the prevailing prices do not suit them. The new law seeks to address this issue by laying special emphasis on protecting the farmers’ interests, considering them as the weaker of the two parties. 

Among the pending farm-sector reforms needed to enhance farmers’ income, legalisation of contract farming is the least controversial and, therefore, easiest to carry out. In fact, most of the states that have amended their Agricultural Produce Marketing Committees (APMC) Acts, even if not strictly according to the Centre’s model APMC Act, 2003, have incorporated provisions for contract farming. But this move has not served the desired purpose because of the involvement of the APMCs in its implementation. The model contract farming statute, therefore, proposes to take contract farming out of the ambit of the APMCs. 

Several other well-advised features of the model contract farming Act also merit attention from the state governments. For one, this legislation is designed to act more as a facilitator and promoter of contract farming rather than its regulator. For this, it envisages setting up contract farming facilitation groups and service providers at the panchayat level. Besides, it seeks to encourage the formation of farmers’ producer organisations , which have already won the confidence of cultivators and are growing in number. Moreover, to allay fears among farmers about losing the ownership of land to the sponsoring industry, this legislation explicitly bars constructing any permanent structure on the land or premises under such contracts. And most importantly, this law seeks to bring all services in the agricultural and its allied fields’ value chain, including pre-production, production, and post-production services, under the umbrella of contract farming. Considering these merits of the model contract farming Bill, there seems little reason why more states should not emulate Tamil Nadu’s example of passing such a law to boost agricultural incomes.