While Delhi Is Busy With Politics, the Rest of India Waits for Genuine Agriculture Reform

The government's feeble steps at removing restrictions on contract farming will do little to boost the rural agri-economy.

Last week, the Union government issued a gazette notification to exempt persons engaged in contract farming from restrictions on stock limits and movement under the Essential Commodities Act. 

Well aware that Delhi is completely preoccupied with major political issues, Mumbai wanted to see it as a major step to reform India’s agriculture economy. Mumbai, and for that matter, the rest of India, is quite disturbed by a collapse in rural demand which is increasingly affecting demand for consumer products in urban areas also

It soon became clear that the notification was hardly the beginning of deep reforms the agriculture sector is waiting for. The notification merely exempted purchaser of commodities, from contracted farmers, from stock limits and movement restrictions. Presently, contract farming is largely confined to sugarcane and potato, and only negligible quantity of other produce is grown under contract farming. Milk and poultry are the other two products where contract farming has been successful. It has brought 80% of India’s poultry production in the organised sector. All this has happened without regulation by the government.

For attracting private investment in agriculture, agricultural markets need freedom. The Essential Commodities Act needs to be put in abeyance for at least three years. Exempting only contract farming produce from the EC Act is not enough.

In 2018, the Central government issued a draft of the model ‘to Agriculture Produce and Livestock Contract Farming (Promotion and Facilitation) Act, 2018’ which provided that contract farming will be out of the purview of the APMC Act. In order to protect the interest of farmers, it provides that no right or title of land will vest in the sponsor. The agreement between the ‘Sponsor Company’ and farmers is to be registered at the district or block level. The model Act also provides that buyers will not have to pay any market fee or commission to APMCs. A state-level contract farming authority is also proposed in the model Act. 

One of the reasons contract farming in agriculture has not taken off is the fear of disputes between farmers and sponsoring company. The corporates have generally been reluctant to enter into contracts as they fear that in case of a dispute, politicians will support farmers rather than the companies. In the case of potato, for instance, informal contracts have been successful as the varieties required by processing cannot be sold by farmers in the open market and so they honour the contract. 

The draft model Act, 2018 provides that in case of a dispute, the sponsor and buyer can reach a solution through mutual negotiation or mediation – failing which they can refer the dispute to dispute settlement officers. If this also fails, an appeal can be filed before the Contract Farming (Promotion and Facilitation) Authority, to be set up in each state.

It is not known if any state government has enacted a law on the pattern suggested by the model Act, 2018. In 2015, the Akali government in Punjab had enacted the Contract Farming Act which, as the draft model Act of 2018, provided for the registration of contracts by the local authority. However, rules were never notified and the Act was not implemented.  

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Corporate sponsors would be hardly enthused by the recent notification on the exemption from the EC Act for contract farming. Most of them using agricultural commodities as raw material do not want to store commodities on their own account. They instead use the services of traders to procure and store the commodity as warehousing is a specialised function in which they have no expertise. 

The Warehousing Regulatory and Development Authority Act, 2007 has also not been able to bring much of agriculture storage to registered warehouses. There are just about 1,485 registered warehouses in India, and Bihar, Jharkhand, Kerala, Odisha, Punjab and West Bengal etc. have less than ten WDRA-registered warehouses. Corporates and traders do not see much benefit in storing their produce in WDRA-registered warehouses as pledge finance from banks is available in un-registered warehouses also. 

Similarly, companies have not been very enthused by the state-level appellate authority proposed under the model Act. The appellate authorities of Income Tax, Excise and GST have hardly been examples of independent judgement on taxation. 

Even though data of fresh produce under contract farming procured by organised chains like Big Bazaar, Spencers, Reliance Fresh etc. from farmers is not available, media reports suggest that they procure most of the agriculture produce from mandis or traders at prevailing prices. 

Unlike milk, eggs and poultry, maintaining uniform quality of produce is much more difficult for agricultural produce. Small and marginal farmers are used to bringing their produce to mandis even if it does not meet fair average quality specifications.

In Punjab, the norms of moisture and foreign matter in paddy have been relaxed several times in the last ten years. Centre has not even been able to impose Food Safety and Standards Authority norms to crops procured from farmers at MSP. Private companies cannot be so accommodative of farmers who do not supply produce conforming to quality specifications agreed in the contract. 

It is clear that much more is needed to deliver better prices to farmers. It is possible that the Committee of Chief Ministers headed by the chief minister of Maharashtra will provide a road map for much-needed reforms in marketing. Till then, Mumbai can only wait for Delhi to turn its attention to the economy.

Siraj Hussain is Visiting Senior Fellow, ICRIER. He retired as Union Secretary, Agriculture.