Contract farming. The long history of contract farming law

As the farmers’ protest entered its sixth month, the opposition parties have appealed to the Centre to resume talks with them.

One major criticism against the farm laws is that they were introduced hurriedly and without adequate consultation with stakeholders. How far is this criticism valid for the contract farming (CF) Act named The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020?

Contract farming is not new to India. During British rule, cash crops such as indigo, opium, tobacco, and cotton were sourced through the CF system. Post-independence, CF was practised in the commercial production of seed and sugarcane (from the 1960s), milk (from the 1970s), tomatoes, and poplar (in the 1980s). In 1988, despite opposition, India allowed PepsiCo to procure and process some horticulture crops in Punjab through a joint venture with a state-owned Punjab Agro Industries Corporation. This venture was later extended to the production of tomatoes under the CF system.

After PepsiCo’s entry, several business houses forayed into CF in some States to produce chili, basmati rice, groundnut, gherkin, oil palm, potato, and marigold. This sporadic expansion of CF practice was in response to structural changes occurring in India’s food economy after the 1991 reforms.

The changes include rising domestic demand for high-value agriculture products, the entry of more private-sector firms in the food processing sector, and the rapid growth of supermarkets and modern retail chains. These developments necessitated a steady and timely supply of fresh and quality agricultural produce. CF slowly emerged as a possible solution to meet this requirement. Within this context, India’s first-ever National Agricultural Policy released in 2000 advocated greater private sector participation in agriculture through CF.

Roadblocks

However, the regulatory framework prevailing at the state-level came in the way of faster adoption of CF. Intra-State trading of agricultural produce has been governed under the Agricultural Produce Market Committee (APMC) Acts of State governments. The APMC regulates the sale of agricultural produce in mandis through its licensed traders and commission agents. The buyers, including agri-business firms, are prohibited from buying the farm produce outside the mandis. Therefore, agri-business firms sought legal backing for the direct procurement of farm produce from the farmers.

The Centre addressed this concern by drafting a model APMC Act in 2003 (MAA 2003) and circulated it to the States for implementation. The Act provided a provision for direct selling by farmers to CF firms registered with APMC. However, due to resistance from commission agents, States were lukewarm towards promoting CF.

In 2004, the MS Swaminathan-headed National Commission on Farmers (NCF) recommended the design and implementation of a comprehensive code of conduct on CF(https://bit.ly/3lQ1D2T). The National Policy for Farmers 2007, based on the recommendations of NCF, also encouraged CF practice and promised to prepare a code of conduct for CF (https://bit.ly/3fbz8v4).

After the circulation of MAA 2003, there were no further policy moves until 2013, when the Empowered Committee (EC) of State Ministers in-charge of Agricultural Marketing emphasised further reforms in the agricultural marketing system for promoting CF (https://bit.ly/3sqqrRB).

They include setting up a district-level authority for registration of CF, delinking all aspects of CF practice from APMCs, promoting private markets at par with mandis, and allowing farmers to sell their produce in the market of their choice. In 2017, the Centre drafted a new Model APMC Act for governing the mandis (https://bit.ly/39ecyyi).

Model CF Act

In February 2017, the Centre constituted a committee consisting of officials from central and state governments to formulate a Model CF Act. The Committee held extensive consultations with multiple stakeholders such as state governments, farmers, farmers’ organisations, trade, industry, economists, and policymakers, referred global best practices, and conducted field visits. The Centre approved the final draft of the Model CF Act in May 2018 after two rounds of revisions based on the critique and comments received from the stakeholders. Except for Tamil Nadu, no other State has enacted CF legislation based on the Model Act.

Subsequently, in June 2020, the Centre promulgated an Ordinance to facilitate CF, which Parliament passed as an Act in September 2020. Interestingly, most of the provisions contained in the CF Act are derived from the Model CF Act.

This brief history about the CF Act reveals that the law was an outcome of policy actions initiated by various central governments over a long period of time. Closer scrutiny of all official documents revealed that almost all policy actors – central and state governments, political parties, farmers, farmers’ organisations, industry, bureaucracy, expert committee, academic experts, think-tanks, informed citizens, non-governmental organisations, and media were involved in the long-drawn policy process leading to the passage of the CF Act.

Yet, the fact that the final version of the CF legislation passed in Parliament was not subject to broader consultation among stakeholders cannot be denied. Had it been done, the continuing protests against the legislation could have been avoided.

The writers are Professor of Economics and Doctoral scholar in Economics respectively at IIM-Kozhikode