Collective bargaining for better deals could make contract farming tick

A lot of questions are being raised on contract farming and if the laws have necessary safeguards
In April last year, PepsiCo India had sued around 11 farmers of Gujarat for damages of over Rs 1 crore. This was for alleged illegal cultivation of a potato variety registered by the company under the Protection of Plant Varieties and Farmers Rights Act, 2001.

The company claimed that the potato variety, called FL-2027, which it grows exclusively for its Lay’s potato chips, is being cultivated by a few Gujarat farmers without permission. This, it says, is a gross infringement of intellectual property rights under the Plant protection Act. The company’s action led to massive protests by farmers.

PepsiCo India, according to reports, later withdraw the suit after the state government intervened.

The case and its fallout have been repeatedly cited by farmer groups and others opposed to the contract farming law as examples of how large corporations first lure farmers to grow certain crops and later start abusing their powers.

PepsiCo, according to reports, had introduced the potato seed variety among Gujarat farmers a few years ago to get raw material for its processed food. Another example, which is also frequently cited, is the 2005 agreement between farmers and textile mills in Coimbatore. In that year, three Coimbatore-based textile mills agreed to have a contract with cotton farmers of the region.

According to the contract, farmers were to produce extra-long staple cotton in around 42,500 acres of land. The Tamil Nadu government was the third party in the agreement.

This programme at first looked promising but later ran into huge problems, reports said. The buyers didn’t specify the type of cotton they need at first and later reject to buy the produce of farmers. Textile mills told the growers to sell the cotton to whoever they want. Unconfirmed reports reveal that farmers asked for higher prices as the market rates were higher than what textile mills offered.

Thus, despite being around for quite some time, contract farming hasn’t taken off in India. According to the Ashok Dalwai Committee report on doubling farmers’ income (submitted in September 2018), around 15 companies were engaged in contract farming activities in India and around 14 states had framed rules to govern contract farming till then.

The agriculture ministry had, in 2003, suggested that states promote contract farming and till a few years back, 20 states had provided contract farming provision in their APMC Acts. Punjab had a separate Contract Farming Act, which was legislated in 2013.

One key example of successful contract farming is in the poultry industry, and according to some reports, around 60 per cent of egg produced in India is through contract farming.

The Dalwai committee noted that in states such as Tamil Nadu, Kerala, Karnataka and Andhra Pradesh, poultry farmers for both eggs and broilers function under large enterprises, through contract farming.

A bulk of the seed production in India is through contract farming itself, but most of it is informal oral contracts.

A lot of questions are being raised on contract farming and if the laws have necessary safeguards to prevent a repeat of the 2005 Coimbatore experience or the PepsiCo incident.

Experts are divided on the matter. The present law smoothens a lot of concerns on pricing, evaluation of produce and creation of separate authority for registration of contracts in states. They also include strict prohibition of any encumbrance on land of the farmers and other problems that prevented contract farming from taking off.

Some critics say the law itself isn’t perfect and is riddled with several inconsistencies. One big criticism of the Act is that it only applies to written contracts and does nothing to make oral agreements illegitimate.

Secondly, critics say many of the present contract agreements have to be registered with the agricultural produce market committees or APMCs, which also act as an arbitrator in case of disputes.

The new Act says contracts will have to be registered with the authority as notified by the state government. Also, all disputes have to be resolved through a conciliation board formed by the sub-divisional magistrate (SDM) or an appellate authority.

The Act also debars a civil court to have jurisdiction on any order passed by the SDM or the appellate authority constituted by him, which is being widely contested by some.

“The Act has lot of inconsistencies and raises several questions on some of the provisions, which should have been thoroughly debated before passage,” Sukhpal Singh, chairperson of the Centre for Management in Agriculture at IIM-Ahmedabad, said.
The Dalwai Committee said contract farming can very well be leveraged in certain regions and for specific crops for increasing farmers’ income.

“I feel that benefits of the legislations won’t pass on to farmers unless individual farmers form collectives and bargain for a better deal from government or companies. Just as Amul does for millions to milk farmers,” said G V Ramanjaneyulu, executive director of the Centre for Sustainable Agriculture. 


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