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.
We wrote a piece for ibnlive.com on the major differences between the government’s Lok Pal Bill, 2011 and the Jan Lok Pal Bill drafted by Anna Hazare’s group. The note is reproduced below. The streets are witnessing a demand that the government’s Lok Pal Bill be replaced by the Jan Lok Pal Bill (JLP) as drafted by the team led by Anna Hazare. There are several significant differences between the two bills. In this note, we describe the some of these differences. (See here for more on the Lok Pal Bill). First, there is a divergence on the jurisdiction of the Lok Pal. Both bills include ministers, MPs for any action outside Parliament, and Group A officers (and equivalent) of the government. The government bill includes the prime minister after he demits office whereas the JLP includes a sitting prime minister. The JLP includes any act of an MP in respect of a speech or vote in Parliament (which is now protected by Article 105 of the Constitution). The JLP includes judges; the government bill excludes them. The JLP includes all government officials, while the government bill does not include junior (below Group A) officials. The government bill also includes officers of NGOs who receive government funds or any funds from the public; JLP does not cover NGOs. Second, the two Bills differ on the composition. The government bill has a chairperson and upto 8 members; at least half the members must have a judicial background. The JLP has a chairperson and 10 members, of which 4 have a judicial background. Third, the process of selecting the Lok Pal members is different. The JLP has a two stage process. A search committee will shortlist potential candidates. The search committee will have 10 members; five of these would have retired as Chief Justice of India, Chief Election Commissioner or Comptroller and Auditor General; they will select the other five from civil society. The Lok Pal chairperson and members will be selected from this shortlist by a selection committee. The selection committee consists of the prime minister, the leader of opposition in Lok Sabha, two supreme court judges, two high court chief justices, the chief election commissioner, the comptroller and auditor general, and all previous Lok Pal chairpersons. The government bill has a simpler process. The selection will be made by a committee consisting of the prime minister, the leaders of opposition in both Houses of Parliament, a supreme court judge, a high court chief justice, an eminent jurist, and an eminent person in public life. The selection committee may, at its discretion, appoint a search committee to shortlist candidates. Fourth, there are some differences in the qualifications of a member of the Lok Pal. The JLP requires a judicial member to have held judicial office for 10 years or been a high court or supreme court advocate for 15 years. The government bill requires the judicial member to be a supreme court judge or a high court chief justice. For other members, the government bill requires at least 25 years experience in anti-corruption policy, public administration, vigilance or finance. The JLP has a lower age limit of 45 years, and disqualifies anyone who has been in government service in the previous two years. Fifth, the process for removal of Lok Pal members is different. The government bill permits the president to make a reference to the Supreme Court for an inquiry, followed by removal if the member is found to be biased or corrupt. The reference may be made by the president (a) on his own, (a) on a petition signed by 100 MPs, or (c) on a petition by a citizen if the President is then satisfied that it should be referred. The President may also remove any member for insolvency, infirmity of mind or body, or engaging in paid employment. The JLP has a different process. The process starts with a complaint by any person to the Supreme Court. If the court finds misbehaviour, infirmity of mind or body, insolvency or paid employment, it may recommend his removal to the President. Sixth, the offences covered by the Bills vary. The government bill deals only with offences under the Prevention of Corruption Act. The JLP, in addition, includes offences by public servants under the Indian Penal Code, victimization of whistleblowers and repeated violation of citizen’s charter. Seventh, the government bill provides for an investigation wing under the Lok Pal. The JLP states that the CBI will be under the Lok Pal while investigating corruption cases. Eighth, the government bill provides for a prosecution wing of the Lok Pal. In the JLP, the CBI’s prosecution wing will conduct this function. Ninth, the process for prosecution is different. In the government bill, the Lok Pal may initiate prosecution in a special court. A copy of the report is to be sent to the competent authority. No prior sanction is required. In the JLP, prosecution of the prime minister, ministers, MPs and judges of supreme court and high courts may be initiated only with the permission of a 7-judge bench of the Lok Pal. Tenth, the JLP deals with grievance redressal of citizens, in addition to the process for prosecuting corruption cases. It requires every public authority to publish citizen’s charters listing its commitments to citizens. The government bill does not deal with grievance redressal. Given the widespread media coverage and public discussions, it is important that citizens understand the differences and nuances. This may be a good opportunity to enact a law which includes the better provisions of each of these two bills.
