From better returns to improved market access: Here’s how Contract Farming can solve India’s agricultural woes

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Amid the COVID-19 pandemic and the resultant nationwide lockdown, the Indian farming sector has been hit hard due to distortions in the food supply chain, shortage of labour, lack of market access and dwindling returns.

Although these are tough times for the lifeblood of rural India, the central government’s recent announcements, including amendment in the Essential Commodities Act, ensuring barrier-free trade and providing additional trading opportunities to farmers to facilitate contract farming, will be helpful for both consumers and farmers.

The decisions were part of the Modi government’s special economic package, which was announced last month.

Among all the sweeping reforms, ‘The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020’ holds the potential to solve the woes of the Indian agriculture as it allows any company/processor/FPO/cooperative society to enter into a contract farming arrangement for a minimum of one crop cycle or one production cycle, in case of crops or livestock respectively.

Simply put, contract farming is a pre-harvest agreement between producers (like farmers) and buyers (such as processing units, marketing firms) for carrying out the production and supply of the produce at predetermined prices.

Through this method, the farmer reduces the risk of fluctuating demand and market prices while the buyer can lessen the risk of non-availability of quality agri-produce.

Let’s take a look at how this radical reform can help solve the long-standing problems of Indian farming:

In India, the small and marginal holdings (below two hectares) constitute nearly 85% of the total landholdings. Several agricultural census and surveys have also time and again revealed that the country’s agriculture is predominated by smaller holdings.

Moreover, the size of operational holding has been dwindling down to uneconomical levels creating own share of issues like delivery of inputs, credit access etc.

In such a scenario, contract farming can be a boon. Like a single firm can enter into a contract with such growers for the consolidation of their farms in one go in order to maximize their returns.

Another positive aspect of this farming system is that small farmers would have access to new markets which would otherwise have been unavailable to them.

Moreover, contract farming could also boost the prospects of crop diversification as there is too much reliance on food crops such as paddy, wheat in the South Asian nation.

So contract farming can enable the peasants to grow non-food crops as it assures the farmers of a fixed price for their produce.

At the same time, the pre-determined prices become more significant for farmers in case of unprecedented situations like the ongoing COVID-19 pandemic from the perspective of assured returns.

The contract farming system can also help India in resolving the alarming issue of food wastage as the world’s second-most populous country wastes a significant portion of its produce every year owing to not-so-strong cold chain infrastructure. Plus, inadequate knowledge on handling the perishables makes the matters worse.

Here, contract farming could be revolutionary as big companies can invest heavily in the cold chain sector to tackle food loss. Besides optimising the supply chain, it would also generate employment opportunities in the related sectors as well.

The Indian government has also been making efforts to integrate growers with agro-industries. That’s why the Indian Ministry of Agriculture came out with a draft Model Contract Farming Act, 2018 to create a related policy framework. Based on this draft, states can enact a law on contract farming.

Last month, the Indian state of Odisha also promulgated an ordinance to facilitate contract farming in view of the Covid-19 outbreak.

In short, to bring Indian agriculture on a developmental track, contract farming is, no doubt, a viable alternative farming model. However, the success of this farming mechanism is dependent on the existence of a responsive legal-cum-policy framework and institutional support.