One of the many advantages of contract farming is that it will save farmers from the losses they face when higher production or glut results in prices plunging.
Last week, Tamil Nadu became the first state in the country to enact a legislation on contract farming.
President Ram Nath Kovind gave his stamp of approval to the Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act that was passed by the Tamil Nadu Assembly on 14 February this year.
According to the Tamil Nadu government, the act has now been gazetted. The state government said that the law had been passed to help farmers sell their produce to procurement or food processors at a predetermined price.
Either the farmers or a group of the growers under Farmers Producers’ Organisation (FPO) can enter into an agreement with a procurement firm or an agent or a processor for contract farming. This will include livestock and their products as well.
The act gives the producer the protection of getting the price fixed on the day the contract is signed. There is one rider though: the agreement has to be registered with the official who is in charge of the agriculture and agricultural marketing in that region.
The agreement should be registered in the presence of the farmer/producer. According to the Tamil Nadu government, contract farming will yield immense benefits to the growers.
One of the advantages of contract farming is that it will save farmers from the losses they face when higher production or glut results in prices plunging.
The contract farming agreement will not result in any loss of money or property for the farmer and thus the growers will be assured of a fair price for their produce, according to the Tamil Nadu government.
On the other hand, food processors can source quality produce and raw materials directly from the farmers through contract farming.
This can also lead to a better understanding between the farmers and agri-related industries. It will pave the way for better coordination between the farmer and end user in the future.
Since the price of the produce is likely to be determined even before sowing, farmers would be encouraged to adopt the latest technology and increase production. This would guarantee an increased income for the farmers.
If a procurement firm or a processing company defaults on the agreement, all safety measures have been taken to ensure the farmer or grower is protected and gets the price assured to him/her.
The state government will institute panels at the level of revenue divisions, district, and state to remove all hurdles in implementing contract farming.
The act will also ensure that any produce or commodity banned by the Centre is not grown in the state under contract farming.
Basically, contract farming shifts the risk of post-harvest market unpredictability on the buyers from the growers.
Once a farmer or producer or an FPO signs a contract farming agreement, they can be sure of getting the assured price. Not only that, the procuring firm or the food processing company will come forward to take full responsibility to ensure a good harvest.
This would mean that farmers can expect to get assistance from these buyers in technology, crop protection that will include post-harvest measures, and infrastructure.
For example, some farmers in the Tiruvannamalai district of the state who chose to adopt Swedish agro major Syngenta’s Tegra Seedling Technology a few years ago were counselled until paddy was harvested on their farm.
The contract farming will most likely benefit small and medium farmers, whose welfare will now be taken care of by the buyers. Procurement agencies and buyers will tend to help farmers and plan for their welfare in order to ensure continuous supply of raw materials.
Contract farming has been in existence in Tamil Nadu for some time now.
In the Cauvery delta, banana farmers have gone in for contract farming. Similar contract farming exists for sugarcane and cotton cultivation in Tamil Nadu.
But the state has faced problems in the past in contract farming.
A textile mill in the Coimbatore region entered into an agreement with cotton growers for contract farming about 15 years ago. However, it ran into problems within a couple of seasons since the growers played truant.
Growers and farmers begin to feel nervous or would want to go back on the agreement on occasions when market prices tend to rise higher than what has been assured in the agreement.
Towards this, experts feel that farmers can be promised a guaranteed price or the market rate, whichever is higher, at the time of harvest.
ITC Ltd is a good example of contract farming. It has helped chilli and wheat farmers to earn more while ensuring that their produce meets quality standards. Not just that, the company pays a premium over market price to them if they follow the standard procedures recommended by it.
Such an approach by other buyers can not only help in contract farming thriving but also ensure a rise in production and improve the financial status of the farmer.
The state government decision on contract farming has evoked mixed reactions with a section of the farmers welcoming it and another opposing it.
But opposition is based on fears and apprehensions that are unfounded.
If the farmers can see for themselves the benefits of contract farming, then they can see through the game of the fear-mongers.
For the Tamil Nadu government, farmers and the buyers — procurement firms and processing companies — it is a win-win situation.