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Union Agriculture Minister releases Model Agriculture Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act, 2018 (Relevant for GS Prelims, GS Mains Paper III; Economics)

With a view to integrate farmers with bulk purchasers including exporters, agro- industries etc. for better price realization through mitigation of market and price risks to the farmers and ensuring smooth agro raw material supply to the agro industries, Union Finance Minister in the budget for 2017-18 announced preparation of a “Model Contract Farming Act” and circulation of the same to the States for its adoption. Farmer’s producer organizations (FPO’s) have a major role in promoting Contract Farming and Services Contract. On behalf of famers they can enter into agreement with the sponsor.

The final Model Act “The ….State/UT Agricultural Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act 2018” was released by Shri Radha Mohan Singh, Union Agriculture Minister.

Salient features of Model Contract Farming Act, 2018 are:

  • The Act lays special emphasis on protecting the interests of the farmers, considering them as weaker of the two parties entering into a contract.
  • In addition to contract farming, services contracts all along the value chain including pre-production, production and post-production have been included.
  • “Registering and Agreement Recording Committee” or an “Officer” for the purpose at district/block/ taluka level for online registration of sponsor and recording of agreement provided.
  • Contracted produce is to be covered under crop / livestock insurance in operation.
  • Contract framing to be outside the ambit of APMC Act.
  • No permanent structure can be developed on farmers’ land/premises
  • No right, title of interest of the land shall vest in the sponsor.
  • Promotion of Farmer Producer Organization (FPOs) / Farmer Producer Companies (FPCs) to mobilize small and marginal farmers has been provided
  • FPO/FPC can be a contracting party if so authorized by the farmers.
  • No rights, title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc.
  • Ensuring buying of entire pre-agreed quantity of one or more of agricultural produce, livestock or its product of contract farming producer as per contract.
  • Contract Farming Facilitation Group (CFFG) for promoting contract farming and services at village / panchayat at level provided.
  • Accessible and simple dispute settlement mechanism at the lowest level possible provided for quick disposal of disputes.
  • It is a promotional and facilitative Act and not regulatory in its structure.

Background
Recently, the Ministry of Agriculture released a draft Model Contract Farming Act, 2018.  The draft Model Act seeks to create a regulatory and policy framework for contract farming.  Based on this draft Model Act, legislatures of states can enact a law on contract farming as contracts fall under the Concurrent List of the Constitution.  In this context, we discuss contract farming, issues related to it, and progress so far.

What is contract farming?
Under contract farming, agricultural production (including livestock and poultry) can be carried out based on a pre-harvest agreement between buyers (such as food processing units and exporters), and producers (farmers or farmer organizations).  The producer can sell the agricultural produce at a specific price in the future to the buyer as per the agreement.  Under contract farming, the producer can reduce the risk of fluctuating market price and demand.  The buyer can reduce the risk of non-availability of quality produce.

Under the draft Model Act, the producer can get support from the buyer for improving production through inputs (such as technology, pre-harvest and post-harvest infrastructure) as per the agreement.  However, the buyer cannot raise a permanent structure on the producer’s land.  Rights or title ownership of the producer’s land cannot be transferred to the buyer.

What is the existing regulatory structure?
Currently, contract farming requires registration with the Agricultural Produce Marketing Committee (APMC) in few states.  This means that contractual agreements are recorded with the APMCs which can also resolve disputes arising out of these contracts.  Further, market fees and levies are paid to the APMC to undertake contract farming.  The Model APMC Act, 2003 provided for contract farming and was released to the states for them to use this as reference while enacting their respective laws.  Consequently, 20 states have amended their APMC Acts to provide for contract farming, while Punjab has a separate law on contract farming.  However, only 14 states notified rules related to contract farming, as of October 2016.

(Adapted from PIB and prsindia.org)



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