The Telegraph
Since 1st March, 1999
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For the last couple of years, the Central government has been working on guidelines for contract-farming meant for farmers in the country as also the agro-business sector. The agriculture and processed food products export development authority is preparing the guidelines which will be forwarded to state governments for consideration, since agriculture is a state subject.

Contract-farming is a system of guaranteed marketing of agricultural commodities grown under contract. Farmers enter into an agreement with buyers to grow and sell products of a pre-determined quality and quantity at a specific price. These contracts often include a clause whereby the buyer promises to provide agricultural inputs like seed, fertilizer and pesticide; technological assistance; and credit to the farmer in order to ensure the products of the desired quality.

Rapid globalization has left India with very few options to contract farming. However, the smooth functioning of this system will depend on the willingness of both parties to honour the contract. This is not always the case in India. Thus, the governmentís job is to create a legal framework and an administrative mechanism which will safeguard farmersí rights and ensure that the conditions of contract-farming are honoured by everyone.

At present, Tamil Nadu is the only state to have drafted a legislation on contract-farming. The West Bengal government has also taken up the matter recently in its new agriculture policy proposals.

Company matters

The law drafted in Tamil Nadu last year covers the relationship between the contract farmer, the contractor and the processing-industry. It specifies that disputes are to be settled by an independent arbiter or by a special court appointed by the state government. However, the state government is yet to notify this law.

But some companies have already started entering into contracts with farmers without waiting for appropriate legislation. Hindustan Lever is the pioneer in this field and has been procuring green-peas from contract growers for the past few decades. Now, several others like PepsiCo (tomato and chilli), Nijjer (tomato), Kargill and so on, have also entered the field and are targetting staples like rice and wheat, as well as vegetables. Most of these contracts involve big and medium farmers in Punjab, Haryana, Uttar Pradesh and the like.

An study sponsored by the Institute of Rural Management, Anand, on contract-farming reveals that most farmers are happy with the system, since it means assured sale of their product. But the study also detected several operational problems in the way the system works now. These are delayed payments, cheating, manipulation of norms by firms and poor technical assistance.

Intermediate clause

Lack of transparency in the contracts, combined with the poor bargaining power of farmers, is to blame for most of these problems. The relationship between farmers and businessmen in our country has always been one of exploitation and the legalization of contract-farming should be followed by safeguards to protect the interests of farmers ó especially small or marginal ones.

The law on contract-farming should also contain other clauses. Farmers should be asked to enter into an initial contract which lays down the details of the project and its duration. They should be discouraged from using their land as security for the contract, nor should it be leased out or rented through the contract. Local government institutions like the gram panchayat or the panchayat samiti should be made the co-guarantor and entrusted with the responsibility of monitoring its execution.

All contracts must be yearly and must specifiy the crop to be produced, the production area, price at which the crop is to be sold and so on. While farmers should not be permitted to sell the produce elsewhere, businessmen should also be bound to purchase the crop in accordance with the contract. A specific percentage of the shares of the company should be allotted to the registered growers and there should be a farmerís representative on the board of directors of the company.

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