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Contract Farming

Model Law on Contract Farming By NITI Aayog

NEW DELHI: The Niti Aayog is drawing up a model law on contract farming for approval by the Cabinet by June, in a move intended to protect farmers against price volatility, particularly in perishables like onions, tomatoes and potatoes.

As market fluctuations have made distress sales with dramatic photographs of farmers dumping kitchen staples on roads, a regular feature, the centre's think-tank is considering options that can reduce the risks for farmers by balancing entry of private players with safeguards for agriculturalists.

Agriculture expert and member of NITI Aayog, Ramesh Chand said, "We have been working on the model law for quite some time. Meetings with states' representatives were held last year. We will hold further consultations on the final draft after the assembly elections."

The NITI Aayog had already come out with an initial draft in October, further discussions and consultations were required to tighten certain provisions which would arm farmers with legal safeguards. As part of reform measures in the Union Budget, Bringing a model law on contract farming was announced.

A law on contract farming is considered important for entry of private players into the sector. This contract farming law would induce competition and ensure assured and better price of agriculture and horticulture produce to farmers through advance agreements. Such contracts could offered assured price.

Farmers can enter into agreements with private entities\buyers who may, in turn, invest in technology and bring in management skills to increase productivity and reduce transaction costs, once states come on board and adopt the proposed law.

At present, when a bumper crop causes a glut in the market or in a situation where their produce is unable to reach the 'mandis' in time for a variety of reasons, then farmers can suffer losses.

To integrate farmers to agro-processing units for better price realisation and to take care of their post-harvest losses, if any, is the main idea behind contract farming.

During 2003 for contract farming agreement, a model Agricultural Produce Market Committee (APMC) Act was first circulated to states. Though 20 states had amended the legislation, only 12 have so far notified rules for implementation.

States like Gujarat, Haryana, Karnataka, Maharashtra and Madhya Pradesh have done this through amendments to the existing law for certain crops and though Punjab had enacted a separate law on contract farming in 2013, it has so far not implemented it.

A registered buyer can enter into an advance agreement with farmers for a minimum of one crop season or a maximum of three years, under the Punjab Contract Farming Act. It also provides for recovery of crop losses or damages as per prior agreement. It has a provision where district level authority is responsible for dispute resolution. Many such provisions are expected to be there in the model law on contract farming, covering all crops.