REDEFINING FARMERS INTEREST
BANKING FINANCE|October 2021
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 was promulgated on June 5, 2020. It provides a framework for the protection and empowerment of farmers with reference to the sale and purchase of farm products.
Gajanan A. Patil
The provisions of the Ordinance will override all state APMC laws. National Agriculture Policy has recognized contract farming as an important aspect of agri-business and its significance for small farmers to allow accelerate technology transfer, capital inflow and assured market for crop production.

History of contract farming in India

Contract farming in India was introduced in India in late19th century where Indian farmers produced Indigo under British Government. Mahatma Gandhi's remarkable 'Champaran Satyagraha' had historical milestone in fair contract farming in India but the contract farming came to limelight in the late 1990s with the entry of PepsiCo. In 1997, it set up a tomato processing plant in Punjab and started tying up with local farmers to grow tomato varieties needed for ketchup. In India, contract farming was regulated under Indian contract Act, 1872. The model APMC Act, 2003 provides specific provision for contract farming. The Department of Agriculture and Farmers Welfare had released Model Contract Farming Act, 2018. The key proposals of model contract farming act includes setting up a state-level agency called Contract Farming (Development and Promotion) Authority.

Explanation of Model I: In this model the farmers are directly dealing with the buyer. This model can be implemented for small-scale of operations. The price of the commodity is fixed with the mutual agreement with the farmer and buyer. Generally buyer is not providing any services unless and until it is agreed upon in the agreement.

Explanation of Model II: In this model NGO or Government agency is involved as an intermediary between farmer and buyer. Extension services and other services are provided to the farmers at the discretion of the NGO/Government body or as agreed in the contract terms. There is no intention to make any profit hence this model is considered a transparent contract farming model.

Explanation of model III: In this model traditional channels like Arthiyas are working as an intermediaries. The scale of operations is comparatively large where arthiyas are providing extension services and other services like loans and other inputs as per the agreement terms. However there is lack transparency for price fixation and exploitation of farmers may be possible.

Explanation of Model IV: In this model the buyers are corporates and they appoint implementing agency to conduct the overall operations effectively. The operational cost is very high due to engagement of channel partner. Wide range of extension services and other inputs are being provided by the implementing agency to farmers as per the agreement terms. Farmers are availing financial services from the banks for creation of assets, getting asset insurance and life insurance (in case animal husbandry like dairy business). Contract farming practices followed by the corporates are quite standard however there is always a question of transparency as many times farmers interest is overlooked for earning the profit for corporate.

Current Ordinance

Farming Agreement: The Ordinance provides for a farming agreement prior to the production or rearing of any farm produce, aimed at facilitating farmers in selling farm produces to sponsors. A sponsor includes individuals, partnership firms, companies, limited liability groups and societies. Such agreement may be between: (i) a farmer and a sponsor, or (ii) a farmer, a sponsor, and a third party. The role and services of any third party, including aggregators (one who acts as an intermediary between farmer(s) and sponsor to provide aggregation-related services), involved will have to be explicitly mentioned in the agreement. State governments may establish a registration authority to provide for the electronic registry of farming agreements.

The farming agreement may stipulate the timely supply of inputs by the sponsor to the farmer before the start of cropping season to carry out farming operations, the farmer will supply the products at the farm gate or mutually agreed other place at agreed price.

Farming agreements can be agreements for purchase of future farming produce with risk of production remaining with the farmer or for payment of service charges to farmers where risk of production is borne by the sponsor/buyer. There can be a combination also. The sponsor may also agree to supply inputs or technology during the process of production.

Farming agreement usually specifies the price to be paid to the farmer, the quantity and quality of the product demanded by the Sponsor, and the date for delivery to buyers. The agreement may also include more detailed information on how the production will be carried out or if any inputs such as seeds, fertilizers and technical advice will be provided by the Sponsor to the farmer.

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