Survey findings. Contract farming law: Stakeholder view

The dramatic repeal of the three controversial farm laws in November 2021 provided a unique opportunity for policymakers to critically examine the calls for reforming India’s agricultural marketing regulatory framework from a stakeholder point of view.

There have been no attempts to examine the provisions of the repealed farm laws through the lens of the stakeholders. Though the Supreme Court-appointed Committee on Farm Laws consulted with the stakeholders, most of its policy recommendations were based on its independent assessment rather than stakeholder feedback. An in-depth consultation with the stakeholders (https://bit.ly/3fKKGbi), including farmers and firms involved in the contract farming (CF) system, was conducted to gauge their views and suggestions on the Contract Farming Act, 2020.

The results are revealing. In the CF system, firms largely ignore smallholders to achieve economies of scale and reduce transaction costs. Therefore, the CF Act has opened the avenue for collective engagement among farmers with a provision to engage aggregators, including FPOs (farmer producer organisations), in CF. A predominant section of the stakeholders surveyed, including three-fourths of the farmers, believed that the collectivisation of farmers through FPOs would help smallholders adopt CF.

Firms may refuse to buy the contracted produce on quality grounds. To avoid this, the CF Act requires the inclusion of mutually acceptable or government-approved quality standards in the contract, which shall be monitored and certified by a third-party quality assayer. The firm must inspect the quality of the product, without which it cannot reject the product.

Three-fourths of the stakeholders supported the inclusion of these quality-related provisions in the CF legislation. However, farmers suggested arranging quality inspection in their presence and a scheme for educating them on quality standards. A clause requiring the firms to buy a fixed percentage of quality certified produce was also proposed.

There are fears that the firms will exploit farmers in many ways, such as denying a say in price fixation, grabbing farmers’ land, and treating farmers as bonded labourers. The CF Act stipulates that farmers can opt for a contract for one crop season or a mutually agreeable period. This provides freedom for farmers to change their choice of firms.

Shorter contract period

Over half of the respondents, including farmers, agreed that a shorter contract period would enable farmers to escape exploitation by the firms. The CF Act stipulates that the prices may be determined in advance and indicated in the contract. If prices fluctuate, the agreement must include a guaranteed and reference/benchmark price.

Though most respondents supported this provision, the approval rate was significantly lower among firms. They apprehended that a guaranteed price is risky as they sell in real-time. They believed in market forces for price discovery. Some of the additional measures suggested to protect farmers’ interests are signing open-ended written contracts, sharing the firm’s windfall price gains with farmers, and providing multiple selling platforms and advisory services.

The opportunities for disputes are high under CF. The CF Act has proposed a three-tier structure to settle disputes. First is an amicable settlement among contracting parties. If it fails, the second option is to approach Sub-Divisional Magistrates (SDM). Finally, the order of the SDM can be challenged before an Appellate Authority (AA) headed by the District or Additional Collector.

Only a tiny section of the stakeholders believed that the institution of SDM and AA would resolve the disputes. The reasons provided are lack of technical expertise in resolving CF-related disputes, red-tapism, and additional administrative burden.

This observation is in line with the demand of the protesting farmers to approach Civil Court to settle CF disputes.

Most respondents preferred a Dispute Settlement Authority at the district/block/taluk level to deal only with CF disputes. Also, it was suggested that the chances of disputes could be minimised if a provision to organise meetings and workshops involving farmers and firms is included in the CF Act. Verbal CF agreements lack clarity, increase the chances of contract breach, and make legal enforcement difficult. The CF Act proposes establishing a Registration Authority by the States for the electronic registration of contracts. However, registration is not made mandatory.

Compulsory registration would encourage written agreements and the entry of only serious players.

Three-fourths of respondents, including firms and farmers, supported compulsory registration of the contract due to traceability and legal validity of the contract, increased accountability and confidence among contracting parties, and quicker resolution of disputes.

Another suggestion supported by three-fourths of the stakeholders was the levy of a small facilitation fee on the firms and establishing a dedicated official agency to oversee and facilitate the working of the CF Act.

The agency was expected to handhold the farmers through training and capacity-building programmes using the fee proceeds and bridge the trust deficit between farmers and firms.

Nair and Prasad are Professor and Assistant Professor, respectively, at IIM Kozhikode. Jayanth is Assistant Professor of Practice at OP Jindal Global University

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