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 organisations). 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.
What are the issues with the current structure, and how does the draft Model Act seek to address them?
Over the years, expert bodies have identified issues related to the implementation of contract farming. These include: (i) role of APMCs which are designated as an authority for registration and dispute settlement in most states, (ii) provisions of stockholding limits on produce under contract farming, and (iii) poor publicity of contract farming among the farmers about its benefits.
Role of Agricultural Produce Marketing Committees/Marketing Boards
The NITI Aayog observed that market fees and other levies are paid to the APMC for contract framing when no services such as market facilities and infrastructure are rendered by them. In this context, the Committee of State Ministers on Agricultural Reforms recommended that contract farming should be out of the ambit of APMCs. Instead, an independent regulatory authority must be brought in to disengage contract farming stakeholders from the existing APMCs.
In this regard, as per the draft Model Act, contract farming will be outside the ambit of the state APMCs. This implies that buyers need not pay market fee and commission charges to these APMCs to undertake contract farming. Further, the draft Model Act provides for establishing a state-level Contract Farming (Promotion and Facilitation) Authority to ensure implementation of the draft Model Act. Functions of the Authority include (i) levying and collecting facilitation fees, (ii) disposing appeals related to disputes under the draft Model Act, and (iii) publicising contract farming. Further, the sale and purchase of contracted produce is out of the ambit of regulation of the respective state/UT Agricultural Marketing Act.
Registration and agreement recording
The Model APMC Act, 2003 released to the states provides for the registration of contract farming agreements by an APMC. This was done to safeguard the interests of the producer and the buyerthrough legal support, including dispute resolution. The procedures for registration and recording of agreements vary across states. Currently, registration for contract farming has been provided with the APMC in few states, and with a state-level nodal agency in others. Further, market fee on purchases under contract agreements is completely exempted in few states and partially exempted in others. The Committee of State Ministers on Agricultural Reforms recommended that a instead of a APMC, district-level authorities can be set-up for registration of contract farming agreements. Further, any registering authority should verify the details such as the financial status of the buyer.
Under the draft Model Act, every agreement should be registered with a Registering and Agreement Recording Committee, which will be set up consisting of officials from departments such as agriculture, animal husbandry, marketing, and rural development. Such a Committee can be set up at the district, taluka or block levels.
Disputes between the producer and the buyer
The Ministry of Agriculture and Farmers Welfare observed certain risks related to upholding the contract farming agreement. For example, producers may sell their produce to a buyer other than the one with whom they hold a contract. On the other side, a buyer may fail to buy products at the agreed prices or in the agreed quantities, or arbitrarily downgrade produce quality. The Committee of State Ministers on Agricultural Reforms recommended that dispute redressal mechanism should be at block, district or regional-level state authorities and not with an APMC.
Under the draft Model Act, in case of disputes between a producer and a buyer, they can: (i) reach a mutually acceptable solution through negotiation or conciliation, (ii) refer the dispute to a dispute settlement officer designated by the state government, and (iii) appeal to the Contract Farming (Promotion and Facilitation) Authority (to be established in each state) in case they are not satisfied by the decision of the dispute settlement officer.
Stockholdings limits on contracted produce
Stockholding limits are imposed through control orders as per the Essential Commodities Act, 1955. Such provisions of stockholding limits can be restrictive and discourage buyers to enter into contracts. It was recommended that the buyers can be exempted from stock limits up to six months of their requirement in the interest of trade. Under the draft Model Act, limits of stockholding of agricultural produce will not be applicable on produce purchased under contract farming.
Other recommendations
While contract farming seeks to provide alternative marketing channels and better price realisation to farmers, several other marketing reforms have been suggested by experts in this regard. These include: (i) allowing direct sale of produce by farmers, (ii) removing fruits and vegetables out of the ambit of APMCs, and (iii) setting-up of farmer-consumer markets, (iv) electronic trading, and (v) joining electronic National Agricultural Market for the sale of produce.
In light of recent debates surrounding the implementation of the Mid Day Meal Scheme (MDMS) in certain states, it is useful to understand the basic features of the scheme. The MDMS is the world’s largest school meal programme and reaches an estimated 12 crore children across 12 lakh schools in India. A brief introduction follows, outlining the key objectives and provisions of the scheme; modes of financing; monitoring and evaluation mechanisms and issues with implementation of the scheme. Examples of 'best practices' and major recommendations made by the Planning Commission to improve the implementation of the scheme are also mentioned. Provisions: The MDMS emerged out of the National Programme of Nutritional Support to Primary Education (NP – NSPE), a centrally sponsored scheme formulated in 1995 to improve enrollment, attendance and retention by providing free food grains to government run primary schools. In 2002, the Supreme Court directed the government to provide cooked mid day meals (as opposed to providing dry rations) in all government and government aided primary schools.[1] Calorie norms for the meals have been regularly revised starting from 300 calories in 2004, when the scheme was relaunched as the Mid Day Meal Scheme. At present the MDMS provides children in government aided schools and education centres a cooked meal for a minimum of 200 days.[2] Table 1 outlines the prescribed nutritional content of the meals. Table 1: Prescribed nutritional content for mid day meals
| Item | Primary (grade 1-5) | Upper Primary(grade 6-8) |
| Calories | 450 | 700 |
| Protein (in grams) | 12 | 20 |
Source: Annual Report, 2011 – 12, Ministry of Human Resource Development, Government of India; PRS. Objectives: The key objectives of the MDMS are to address the issues of hunger and education in schools by serving hot cooked meals; improve the nutritional status of children and improve enrollment, attendance and retention rates in schools and other education centres. Finances: The cost of the MDMS is shared between the central and state governments. The central government provides free food grains to the states. The cost of cooking, infrastructure development, transportation of food grains and payment of honorarium to cooks and helpers is shared by the centre with the state governments. The central government provides a greater share of funds. The contribution of state governments differs from state to state. Table 2 outlines the key areas of expenditure incurred by the central government under the MDMS for the year 2012 – 2013. Table 2: Key areas of expenditure in the MDMS (2012 - 2013)
| Area of expenditure | Percentage of total cost allocated |
| Cooking cost | 53 |
| Cook / helper | 20 |
| Cost of food grain | 14 |
| Transportation assistance | 2 |
| Management monitoring and evaluation | 2 |
| Non recurring costs | 10 |
Source: Ministry of Human Resource Development; Fourth NSCM Committee meeting, August 24, 2012; PRS. Monitoring and Evaluation: There are some inter state variations in the monitoring and evaluation mechanisms of the MDMS. A National Steering cum Monitoring Committee and a Programme Approval Board have been established at the national level, to monitor the programme, conduct impact assessments, coordinate between state governments and provide policy advice to central and state governments. Review Missions consisting of representatives from central and state governments and non governmental agencies have been established. In addition, independent monitoring institutions such as state universities and research institutions monitor the implementation of the scheme. At the state level, a three tier monitoring mechanism exists in the form of state, district and block level steering cum monitoring committees. Gram panchayats and municipalities are responsible for day to day supervision and may assign the supervision of the programme at the school level to the Village Education Committee, School Management and Development Committee or Parent Teacher Association. Key issues with implementation: While there is significant inter-state variation in the implementation of the MDSM, there are some common concerns with the implementation of the scheme. Some of the concerns highlighted by the Ministry for Human Resource Development based on progress reports submitted by the states in 2012 are detailed in Table 3. Table 3: Key implementation issues in the MDMS
| Issue | State(s) where these problems have been reported |
| Irregularity in serving meals | Karnataka, Madhya Pradesh, Orissa, Rajasthan, Maharashtra, Arunachal Pradesh |
| Irregularity in supply of food grains to schools | Orissa, Maharashtra, Tripura, Karnataka, Arunachal Pradesh, Meghalaya, Delhi, Andhra Pradesh |
| Caste based discrimination in serving of food | Orissa, Rajasthan, Madhya Pradesh |
| Poor quality of food | Rajasthan, Tamil Nadu, Delhi, Chhattisgarh |
| Poor coverage under School Health Programme | Orissa, Jharkhand, Madhya Pradesh, Rajasthan, Uttar Pradesh, Manipur, Arunachal Pradesh, Himachal Pradesh, Chhattisgarh |
| Poor infrastructure (kitchen sheds in particular) | Andhra Pradesh, Tamil Nadu, Puducherry, Gujarat, Chandigarh, Himachal Pradesh, Jammu and Kashmir, Orissa |
| Poor hygiene | Delhi, Rajasthan, Puducherry, |
| Poor community participation | Most states – Delhi, Jharkhand, Manipur, Andhra Pradesh in particular |
Source: Ministry of Human Resource Development; PRS. Best practices: Several state governments have evolved practices to improve the implementation of the MDMS in their states. These include involving mothers of students in implementation of the scheme in Uttarakhand and Jharkhand; creation of kitchen gardens, i.e., food is grown in the premises of the school, in Andhra Pradesh, Karnataka, Punjab and West Bengal; construction of dining halls in Tamil Nadu; and increased community participation in the implementation of the scheme Gujarat. More information is available here. Planning Commission evaluation of MDMS: In 2010, a Planning Commission evaluation of the MDMS made the following recommendations to improve implementation of the scheme: i. Steering cum monitoring committees at the district and block levels should be made more effective. ii. Food grains must be delivered directly to the school by the PDS dealer. iii. The key implementation authority must be made responsible for cooking, serving food and cleaning utensils, and school staff should have a supervisory role. The authority should consist of local women’s self help groups or mothers of children studying in the schools. iv. Given the fluctuating cost of food grains, a review of the funds allocated to the key implementation authority must be done at least once in 6 months. v. Services might be delivered through private providers under a public private partnership model, as has been done in Andhra Pradesh.
[1] PUCL vs. Union of India, Writ Petition (Civil) 196 of 2001. [2] The following institutions are covered: Government and government aided schools, National Child Labour Project (NCLP) schools, Education Guarantee Scheme (EGS) and Alternative and Innovative Education (AIE) centres including Madrasas and Maqtabs supported under the SSA
