CONTRACT FARMING

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 Contract Farming
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 Introduction + Other names

 Contract Farming – How it functions?
 General Pros (point of farmers and government)
 Kinds
 Problems faced by Contract Growers
 The Model Contract Farming Act, 2018
 Aim
 Contract Farming – meaning
 Advantages
 Specific Problems
 Salient Features of the Model Contract Farming Act, 2018
 Pepsico (Lays Chips) v. Farmers – Experience
 The Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
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 Contract Farming
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 Introduction

 Traditional agricultural marketing involves Farmer – Wholesaler – Retailer set up

 No specific policy on Contract Farming until passing of the APMC Act, 2003

 The Model Act, 2003 – introduced Contract Farming by way of changing land leasing laws to facilitate renting of
the operational land by private companies.

 New chapter – added to the Model Act – on Contract Farming

 Other names

 Out-grower Scheme

 Satellite Farming

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 Contract Farming – How it functions?
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 Basically it’s a contract between

 Buyer/sponsor (processing or marketing firms) AND farmer

 Cos(or bulk purchaser, exporting and trading units etc)  Farmers (primary producer)

 (where the co agrees to purchase a specific quantity of agricultural

commodity/livestock at pre-agreed price and quality)
 Mutual benefit both to farmers and company (win-win situation)

 Contract Farming refers to

 A system wherein a farmer/primary producer agrees to supply a pre-agreed
quantity/acreage of certain quality or variety produce at a pre-agreed price and time

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 General Advantages
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 Point of farmer –
 Access to additional source of capital

 Price certainty

 Access to new technology & inputs

 Point of government –
 Supports economic liberalisation –

 scope for national and MNCs to enter into contract for agricultural
produce
 Risk undertaking by cos (production/price risks)

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 Kinds
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 Bi-partite or Tri-partite or Quad-partite system

 Also Group contracting

 Contract of Procurement (Buyback – buyer & supplier)

 Partial Contract (supply of inputs)

 Total Contract (other than land and labour)

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 Problems faced by Contract Growers
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 Undue quality cut by firms

 Delayed delivery at the factory

 Delayed payments

 Low price

 Pest attack (denial of compensation)

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 The Model Contract Farming Act, 2018
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 The State/UT Agricultural Produce and Livestock Contract Farming and Services
(Promotion and Facilitation) Act, 2018 by GOI – MoA&FW
 Aim –
 to increase famers income by creating an alternative market mechanism that links them to
national and international markets
 Contract Farming – meaning
 Refers to a system in which bulk purchasers including agro-processing, exporting and trading
units enter into contracts with farmers to purchase a specified quantity of any agricultural
commodity at pre-agreed price
 Contracting firm(SPONSOR)(provide all production support, extension service, protection of
land right etc) to FARMERS

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 The Model Contract Farming Act, 2018
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Which includes
 Major advantages of Contract 

 Farm inputs (seeds etc)

Farming  Enhances market linkages –bulk purchasers, exporters etc
 Better pricing
I. Research and Development
 Increases farmers income
II. Technology Transfer  Access to technology

III. Commercialisation  Crop diversification

 Alternate mode to farmers when procurement mechanism is ineffective
 Crop insurance
 Increase in farm production
 Harvesting and packaging
 Grading and sorting
 Storage
 Transport facility
 Processing centre
 Risk analysis – risk mitigation
 International quality requirements

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 The Model Contract Farming Act, 2018
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 Which includes
 Farm inputs (seeds etc)
 Enhances market linkages
purchasers, exporters etc
 Better pricing
 Increases farmers income
 Access to technology
 Crop diversification
 Alternate mode to farmers when
procurement mechanism is ineffective
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 Crop insurance
 Increase in farm production
–bulk  Harvesting and packaging
 Grading and sorting
 Storage
 Transport facility
 Processing centre
 Risk analysis – risk mitigation
 International quality requirements
 The Model Contract Farming Act, 2018
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 Specific Problem (The Model Act, 2018)

 No homogeneity in Act

 Small and marginal farmers are left out

 Exploitation

 Monoculture

 Breach of contract

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 Salient features of the Model Contract Farming Act, 2018
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1. Provides framework for contract farming agreement

2. Guides contracting parties to fix pre-agreed price

3. Provides for contract farming facilitation group at village level

4. To keep contract farming outside the ambit of the APMC Act

5. Dispute settlement mechanism

6. Set up Contract Farming Development and Promotion Authority

7. Insurance under the existing agricultural insurance schemes

8. Provisions for making Farmer Producer Organisation (FPOs) under cooperative mechanism

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 Pepsico (Lays Chips) v. Farmers (Gujarat) – Experience (2019)
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 Pepsico – food and beverages co – pioneers in contract farming in India since 2001
 Potato, basmati rice, tomato, peanut, chilli, oranges etc
 In April 2019 Pepsico sues some farmers in Gujarat – for allegedly growing a variety of tuber/potato
(FL-5 potato variety) for which the co claims under the Protection of Plant Variety and Farmers’ Right
Act, 2001 invoking S. 64 and S. 65
 Nationwide agitation by farmers’ union, advocates, NGOs etc
 Sought protection u/ S. 39 (Farmers’ Right) to save and use…other than for marketing under brand
name
 Also S. 22 (2)(1) – farmers are permitted to sell a portion of agricultural produce to others after meeting
commitments under the contract
 Challenges ahead – find links….

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 Section 64 in The Protection of Plant Varieties and Farmers’ Rights Act, 2001
64. Infringement.—Subject to the provisions of this Act, a right established under this Act is
infringed by a person—

(a) who, not being the breeder of a variety registered under this Act or a registered agent or a
registered licensee of that variety, sells, exports, imports or produces such variety without the
permission of its breeder or within the scope of a registered licence or registered agency without
permission of the registered licensee or registered agent, as the case may be;

(b) who uses, sells, exports, imports or produces any other variety giving such variety, the
denomination identical with or deceptively similar to the denomination of a variety registered
under this Act in such manner as to cause confusion in the mind of general people in identifying
such variety so registered.

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 Section 65 in The Protection of Plant Varieties and Farmers’ Rights Act, 2001
65. Suit for infringement, etc.—
(1) No suit—
(a) for the infringement of a variety registered under this Act; or

(b) relating to any right in a variety registered under this Act, shall be instituted in any court
inferior to a District Court having jurisdiction to try the suit.

(2) For the purposes of clauses (a) and (b) of sub-section (1), “District Court having
jurisdiction” shall mean the District Court within the local limits of whose jurisdiction the
cause of action arises.

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The Farmers’ (Empowerment and Protection) Agreement on Price

Assurance and Farm Services Act, 2020

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