Whereas contract farming is an agreement between farmers and processing and or marketing firms for the production and supply of agricultural products under forward agreements, at predetermined prices, whom does it really benefit in practice? Does it really benefit the farmers? Can an agreement benefit both the signatories? An agreement has generally a service rendered by one and a fee received by the other. A perceived profit or benefit must be normally inbuilt into an agreement. The catch However, is that whereas profit is tangible, a benefit is not.
When Companies, government bodies or individual entrepreneurs are on one side, and economically weaker farmers on the other, is it not essentially an agreement between unequal parties? Most times, the buyer specifies the quality of the produce required and the price, with the farmer agreeing to deliver at a future date. How does a farmer guarantee quality of his produce when it is dependent on a host of parameters, not necessarily under his control? How many farmers understand the usual quality schedules appended to the main contract or their enforceability in courts? Is a farmer then trading on asset of abstracts which he can never deliver? While the buyer seeks to maximise his profit component by bringing down the prices by clever data analytics that maps farmers databases and his land holdings, what recourses do the farmers have?
A contract usually specifies the terms and conditions for the farmers to grow, while the company agrees to promote, purchase, process and market. Initially, the Company would measure and assess the suitability of the plot proposed by the farmer for planting the seeds. They may even provide sufficient high-quality seed to the farmer for planting in the mutually accepted farm along with fertilizers and agro-chemicals against either cash or credit besides advice on cultivation. If the advice results in benefits to the farmer, the credit goes to the company. What if the farmer faces losses? Can he sue the company with so many grey areas in the contract? Are these contracts legally enforceable?
The farmer must first agree to use the seeds provided by the company, plant them on the advised dates, agree to the farm being surveyed and follow all technical recommendations made by the Company with regard to planting, irrigating, weeding, fertilizing, controlling pests and diseases, picking, sorting and packing. The company will However, buy only the produce that is of acceptable quality and reject the rest. How does the farmer prove that the deficit in quality if any was not his doing? The farmer will certainly be rewarded if he exceeds the required quality standards or the expected level of production. But how does a farmer do this when every cultivation parameter is sought to be controlled by the company? Does he not risk a rejection and loss if he deviates or innovates? Farmer groups may be formed but then how effective will they be?
The contracts generally have clauses that seemingly protect both the farmer and the company. Whereas the agreement is terminated if the farmer fails in his obligations, he too can sue the company and claim compensation to the value of the services foregone or to the value of the crop lost, at rates agreed between the Company and the Farmers’ Group. The catch However, is who will arbitrate on behalf of the farmer and at what cost? Usually, all contract farming agreements are for one growing season which means a farmer is expected to go through the rigmarole every season. Can a farmer, a small land owner, most of the time uneducated afford the paper work and the litigations?
Are not all the aces with the company for is not quality of yield dependant on the quality of seeds and the fertilisers used? The farmer hardly has the requisite knowledge or control over it. He doesn’t even know what the fertilisers would do to the quality of his farm land in the long run, forget their utility in enhancing the yield. Would he be responsible for unfair or harmful use of fertilisers and pesticides? Eventually, the farmer has to bear the brunt of replenishing the farm land at his own cost in addition to loss of revenue or forgo the next produce completely. Is this any different from the way dairy cattle are managed? After three or four years of intense and stressful milk production, are not the females sent to slaughter since they will never produce milk? That several State governments are making anti-cow slaughter laws only shifts the burden of responsibility without addressing the inherent problems.
Contract farming has seemingly great benefits for the farmer. Survey results on rice farming show that the average revenue of a contract farm is about 11% higher than an average non-contract farm. The per hectare cost of production in a contract farm is about 13% lower and as a result the average profit margin under contract is more than 50% above those without contract. What may be a way out if these results were to be realised without the farmer being exploited? The Government must make a model contract legally vetted by the Law and Judiciary department as enforceable in courts and appoint arbitrators as and when required. If that were not to be done, we are looking at what happened to real estate with companies creating unliteral agreements and then running away with the investor’s money, which in this case will be the farmer’s sweat. Can we have a twin of a RERA in farming? Why can’t we create a FERA today? FERA (Farm Estimate Resource allocation). There is a way out of the dark room for the bureaucrat who framed the laws to meet the complete truth squarely in the eye.
The farmer must become a true “bhaagidaar” in contract farming. A cooperative must be created between farmers and the stockists for all produce especially paddy, wheat and other Rabi crops. Let the surplus produce be stocked and a stock receipt given to the farmer indicating stock bin number and after it gets sold let the profit be split between the stockist and the farmer. If the farmer wants money, he can easily off load some more of the produce. Rice fetches higher prices as it gets older. Why must the farmer not have a share in that? Of course, he must share the losses too if they were to accrue.