By Ajeet Kumar
Agriculture must be integral to reform and planning in order to make a significant dent in poverty and malnutrition as well as to ensure food security in the long run. In reality, while the Indian economy has been growing at over 7 per cent annually, growth in agriculture has been dismal – around 2 per cent in the last 10 years. This is in sharp contrast to the average annual growth rate of more than 4 per cent during the 1980s and early 1990s. Agricultural growth slipped from 3.9 per cent per annum during 1981-91 to 2.8 per cent during 1991-2001. These developments have adversely affected small and marginal farmers. The crisis is reflected through the rise in suicides by farmers.
The challenges are multifarious. First, small and marginal farmers account for more than 65 per cent of land holdings but they possess only 30 per cent of cultivable lands. This leads to low productivity, which, in turn, leads to low levels of marketed surplus. Second, irrigation is yet to reach a considerable number of farmers. This increases their vulnerability by making them dependent on rainfalls. Poor irrigation facilities, coupled with inadequate rural road connectivity and other supporting infrastructure – cold storage networks, for example – result in considerable wastage every year. Finally, private markets in rural areas were not allowed until 2003, forcing transactions to take place through regulated markets.
Various policy measures have been implemented by the central and state governments to increase agricultural growth. These include agricultural market sector reforms, research and development, investments, the formulation of integrated food laws, incentives for corporate investment in agribusiness and so on. Among these measures, the participation of the private sector in agriculture has emerged as an interesting alternative. Contract farming, an example of private sector participation, can be defined as an agreement between farmers and processing or marketing firms for the production and supply of agricultural products under forward agreements and at predetermined prices. This forward agreement basically involves four things; pre-agreed price, quality, quantity and time.
In India, contract farming is regulated under the Indian Contract Act, 1872. The legislation has numerous provisions that are relevant to contract farming, including the framing of contracts, obligations of parties, and consequences in case of a breach of contract. Additionally, the model APMC Act, 2003 provides specific provisions for contract farming, such as compulsory registration of contract farming sponsors and dispute settlement. The department of agriculture and farmers welfare has now come out with a draft Model Contract Farming Act, 2018, which intends to establish a lucrative framework for both farmers and sponsors.
At present, significant losses occur due to poor marketing channels and pedestrian farm-firm linkages. A World Bank report shows that for a typical horticulture product for the export market, farmers receive about 12 to 15 per cent of the price paid by the end consumer. Efficient supply chains, including greater direct linkages among retailers, processors and producers, can minimize losses and reduce marketing costs.
The first contract farming initiative in India was taken by Pepsi Foods Ltd, which set up a tomato processing plant in Punjab. Ever since the economy was liberalized in the early 1990s, there has been a spurt in contract farming in India. Today, contract farming is practised by domestic and multinational corporations in foodgrains, spices, oilseeds, fruits, vegetables, cotton, tea, coffee and so on. What must be remembered is that contract farming is not only about providing assured markets, reducing risk and ensuring ‘remunerative’ prices, but also extending such services as credit, insurance, grading and inspection, technology extension and market information.
Source: The Telegraph India