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Draft Contract Farming Agreement

CUTS International supports the separation of contract farming from the APMC regime and appreciates the draft Model Act for promoting a separate legal framework. However, they highlight deficiencies in the Act's objectives and definitions that limit farmers' ability to engage in value addition and processing, which are crucial for enhancing their income. CUTS suggests clarifying the role of Farmer Producer Organizations (FPOs) as potential sponsors and recommends including standard clauses in contracts to protect farmers' interests.

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Fredrick Miracle
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149 views4 pages

Draft Contract Farming Agreement

CUTS International supports the separation of contract farming from the APMC regime and appreciates the draft Model Act for promoting a separate legal framework. However, they highlight deficiencies in the Act's objectives and definitions that limit farmers' ability to engage in value addition and processing, which are crucial for enhancing their income. CUTS suggests clarifying the role of Farmer Producer Organizations (FPOs) as potential sponsors and recommends including standard clauses in contracts to protect farmers' interests.

Uploaded by

Fredrick Miracle
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CUTS COMMENTS ON

THE DRAFT MODEL AGRICULTURE PRODUCE & LIVESTOCK


CONTRACT FARMING AND SERVICES (PROMOTION AND
FACILITATION) ACT, 2018

At the outset, CUTS International appreciates de-linking of contract farming from the
APMC regime, which now is being advocated to be governed by a separate law. In this
regard the Model “The _____ State / Union Territory Agricultural Produce & Livestock
Contract Farming and Services (Promotion and Facilitation) Act, 2018” (i.e. Model Act)
is a welcome step.

In order to improve the draft Model Act, following are CUTS Comments for kind
consideration.

Objective of the Model Act deficient

In the narrative to the Model Act it is observed that:

‘The singular guiding factor that informed the Committee in formulating


this law has been protecting and promoting the interests (land
ownership, higher productivity, reduced cost, higher price returns) of the
farmers in general and small & marginal farmers in particular. Parallelly,
the Committee was guided by the necessity of incentivizing the sponsor, if
the latter was to find it attractive enough to buy the market risks of a
farmer. The provisions, therefore aim at building a win-win framework
for the two principal parties to the Agreement.” (emphasis added)

The objective in the text of the Model Act is:

“To provide for improved production and marketing of agricultural


produce and/or livestock and/or its product through holistic contract
farming and to facilitate the contracting parties to develop mutually
beneficial and efficient contract farming system, and also promote
services contract, by putting in place a friendly and effective institutional
mechanism and conducive regulatory and policy framework for contract

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farming and services contract or such other contracts and lay down
procedures and systems and the matters connected therewith and
incidental thereto.” (emphasis added)

It is submitted that while “promoting interests of farmers” features in the


narrative, it does not find place in the main text. Since, “objective” of an
enactment have interpretative value in case of disputes, adding phrases like
“promoting interests of farmers” suitably in the “objective” would be in farmers’
interest.

Several definitions restricts farmers to climb up in the value chain

It is well established that value addition at the farm gate is one of the most viable option
to enhance farmers’ income. However, like in the Model APLM Act, 2017 the draft Model
Contract Farming Act is also devoid of this vision. This can be gathered from cumulative
effect of various (following) definitions provided under the Model Act.

“Agreement” means the Contract Farming Agreement between the Contract


Farming Sponsor, who offers to purchase the agricultural produce and/ or
livestock and/ or its products and the Contract Farming Producer, who
agrees to produce the crop or rear the livestock, under which the
production/rearing and marketing of an agricultural produce or livestock or
its product is carried out as per the conditions laid down in the agreement.
The Contract Farming Sponsor has to purchase the agricultural produce or
livestock or its product as per predetermined price or price as in the
agreement made prior to sowing of the crop in case of agricultural produce
or at the time of making agreement for livestock or its product. The Contract
Farming Sponsor may support the production/rearing activity through
supply of inputs, feed, technical advice or any other activity related thereto,
as may be mentioned in the agreement;

“agricultural produce” includes all produce, whether minimally processed


or not, of agriculture, horticulture, apiculture, sericulture, or forest/ or any
other such activity identified for contract under this Act (emphasis added).

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(Definition of agriculture produce under Model APLM Act does include the
word “minimally”).

“processing” means any one or more of a series of treatment including


powdering, crushing, decorticating, de-husking, parboiling, aging, polishing,
ginning, pressing and curing or any other manual, mechanical, chemical or
physical treatment to which raw agricultural produce, livestock or its
product is subjected to and processing also includes post-harvest
management including cleaning, sorting, grading and such other value
additions;

“processor” means a person that undertakes processing of any agricultural


produce, livestock or its product on his own accord or on payment of a
charge; (emphasis added)

“marketing” means all activities involved in the flow of agricultural produce


or livestock or its product from production point commencing at the stage of
harvest or otherwise, as the case may be, till the same reaches the ultimate
consumers viz., grading, processing, storage, transport, channels of
distribution and all other functions involved in the process; (emphasis
added)

“services contract” means the agreement between the Farmer(s)/ FPOs


and Services Contract Sponsor wherein former supplies the produce and
latter provides the post-harvest management and marketing services to the
produce like storage, primary value addition and such other services in the
food value chain including marketing linkages to organized retailers,
processors, exporters, futures/option trading etc. (emphasis added)

Mere by plain reading of the definitions of ‘agreement’, ‘agriculture produce’,


‘processing’, ‘processor’, ‘marketing’ and ‘service contract’ and taking into the
emphasised phrases, it becomes very clear that farmers (or FPOs) are to be contracted
only till harvest of a crop, and rest all the post-harvest tasks are in the domain of
“service contract sponsor”. (Under the Model APLM Act also farmers are supposed to
involve themselves only till harvest. Any activities after harvest would technically be
“marketing” under the APLM Act and hence liable to be regulated as such.)
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There seems to be a lack of vision among policy makers in which farmers (as any other
producers) are visualised climbing up the agriculture value chain (basic processing,
packaging etc.). This is despite the fact that most policy documents recognise value
addition at farm level as a useful tool to enhance farmers’ income; many leaders are also
vocal about this. But when it comes to legal texts, the same is not reflected. Why?

Provisions in the model Contract Farming law should promote value addition at farm
gate by farmers, if both the parties decide so; where farmers can do basic agri-
processing and sponsors can use their brands to reach to the consumers. Can’t it be
contract for value added agriculture produce? The model law does seem to go against it,
where it should be promoting it in farmers’ interest.

The vision need to change first – farmers (whether individually or in group/FPOs) are
capable of carrying processing (rice, pulse, atta, mango pulp etc.) and sell them in their
own brand names. Unfortunately, both the model laws (APLM and Contract farming) are
restrictive to such a vision. In addition, it also kills marketing innovation that can
happen at farmers’ level.

FPOs as sponsors?

It is understood that FPOs are being viewed, apart from mere aggregators, as a
mechanism to add value to agricultural produce, which can also sell value added
products directly to consumers under their own brand names. From the draft Model
Act, it is not clear whether FPOs can also be contract farming sponsors? There may be a
situation where FPOs would like to expand their farming area, without including more
farmers as members. This would be particularly true for Farmer Producer Company –
can they be able to expand farming activities adhering to contract farming route? The
model law should clarify this.

Provision for standard clauses in the every agreement

Can the Model Act provide for certain standard clauses to be mandatory in the contract
farming agreements based on the safeguards provided for farmers (e.g. S.24, 27)? If yes,
it would useful in enforcement of such contracts even if there is no separate law for
contract farming.

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