RESEARCH PAPER

PROPOSAL
Topic-Future of Contract farming in India

NAME-GRACY KHTTIYA
Roll No.- 491
Topic- Is contract farming the future of India?
Research Question-Is contract farming the future of India?

What is contract farming?

Contract farming in simple words is where the buyers (contractor) and the producer (farmer)
enter into a prewritten contract that shall dictate the terms of their relationship starting from
the time of sowing seeds to selling the produce to the buyer at a pre agreed price. Under
contract framing the farmer is expected to plant the contractors crop on his own land which is
then supposed to be sold to the contractor at agreed quantity of produce with prescribed
quality norms at a pre agreed price. In return the contractor may provide the farmer with the
needed working capital which may range from advance credit, fertilizers, seeds and even
technical know how about the use of pesticides and fertilizers etc.
The obvious question that arises now is why is contract farming needed specially in India.
Contract farming in India can be traced back as early as the 1990’s liberalization reforms.
Many big MNC like Pepsi and Hindustan Unilever started practicing contract farming in
India specially in Punjab since then. The basic purpose of introducing contract farming was
to create a direct linkage between the market and the farmer while provide assured price to
the farmers for their produce, in addition to ensuring adequate supply for agro-based
industries. The need for such a system has its origin in the age-old problem of demand supply
disequilibrium that agriculture faces, wherein farmers have to dump their produce way below
their market value and on the other hand agro based industries facing quality input supply
shortage. Contract farming has a promising future in India when it has a massive potential to
bring some cash flow into the cash stripped agriculture sector in India in addition to
accelerating technological transfer process to this sector.

Contract farming in India

Now I shall try to analyse the suitability of contract farming in India by examining the pros
and cons of contract farming practised so far in India.
Contract farming has existed in India since decade of 1960’. There are mainly two kinds of
contract farming, based on the role played by the contracting agencies. The first category
consists of contracting agencies acting as a marketing channel between farmer and the big
firms at national or international level. In the first category the contract is usually informal in
nature usually practised by sate agencies’ for instance the procurement of wheat and paddy
by the Govt. at minimum support price and further distribute it through the Public
Distribution System is an example of this category of contract farming in India. On other
hand we have the procurer involved in processing the Agri produce. This kind of contract
farming,the contractor not only provides a predetermined price for the crop but also with
some inputs like seeds etc during the process. This kind of contract farming started India
since the 1990 LPG reforms when many big MNC like Pepsi Co. started contract farming in
Punjab for vegetables like Tomato, Potato etc.

However, the major question that looms at large: “is contract farming even suitable for
India?” Based on several case studies conducted in Punjab and Madhya Pradesh (major states
where contract farming is practised) farmers have benefitted a great deal form assured price
and return in contract farming. Moreover, the major advantage of contract farming was that
not only will the contracting company purchase the entire produce in a pre-determined price
but also provides farmers with access to a range of managerial technical and extensions
services that otherwise may be inaccessible for farmers. In other words, contract farming has
not only brought the major cash flow needed in the cash stripped agricultural sector but also
brought the much required technological transfer to this sector.
Another major advantage of contract farming is the availability of credit either provided by
the contracting company or through a third party. It is pertinent to mention here that with the
introduction green revolution agriculture became a capital-intensive venture govt. wherein
could not keep up with its growing requirement for credit for costly inputs like HYV
seeds,fertilizer etc. This proved to the breeding ground for informal moneylenders and Mandi
Athariyas in states like Punjab providing credit at very high rate of interest ranging from 12%
to as high as 24%.With the coming of contract farming this problem has partially been
resolved as now contracting agencies provide the farmers with the much required capital for
large scale farming but also with technical knowhow regarding the use of pesticides
fertilizers properly. This is a pure advantage for farmers especially when it is a high risk
business and the time lang between cash inflow and outflow is massive.
However, it is important to highlight that not only has the income has increased but also the
inputs of farming have increased in contract farming as now farmers may have to rely on the
high priced seeds and technology that the MNC will provide them.In fact not only has the is
contract farming economically costly but also environmentally damaging. The wast use of
pesticide nad fertilizers to increase productivity and maintain quality standards has a very
negative impact on the ecology.Such an impact on ecology will soon if not now will cause
massive repecussions in the form of massive prughts,salination of soil and fertile lands soon
turning barren and infertile.these pesticides and chemical fertilizers not only have a grave
impact on pollinators like honey bees but are also harmful for humans who shall consume
such farm produce, therefore its not surprising to see massive rise in cancer cases in states
like Punjab where Green revolution was massively successful.
In contrast to the popular perception that contract farming has brought price stability in Agro
produce market, the reality is quite the opposite. It has been observed that many times
especially when the market price of certain farm products is quite lucrative than the price
decided at the time of agreement companies tend to refuse the taking the produce citing that
the quality standards have not been maintained. This makes the farmer vulnerable wherein
he will either try to renegotiate the produce with the company at a much lesser pric or will be
forced to sell the same in open market which may cause the market to crash with excess
supply at cheap cost with no substantial demand. This also highlights the inability of farmers
to afford legal aid when company tries to breach their contract or refuse to pay the
predetermined price for the produce. This ultimately makes renegotiating with the companies
even when they are exploitative in nature, the only viable option .
Scholars have predicted that Contract farming has the potential to substitute for the state in
the wake of neo-liberal reforms in the agrarian sector. Private firms can enter to fill the same
role and are believed to do so more efficiently. However the question remains that would they
be the apt choice when it comes to development of rural infrastructure presently taken care by
Mandis.
In Addition, various case studies in India has shown that MNC prefer large and medium
farmers over marginal farmers because they have the capacity produce in large scale that
match their requirements. This places the marginal farmers at a disadvantage especially in the
absence of proper implementation of when land reforms (particularly land redistribution)in
the country.
Comparative case studies in developing countries have shown women and children as the
predominant workforce in the agricultural sector specially in contract farming because they
can be paid less and be made work for long hours.

Political context
In the Globalizing world India has hardly been able to escape the massive pressures to
liberalize its economy. While liberalization has been prominent in many sectors specially the
service sector and the industrial sector in India, agriculture sector is still far from being
liberalized. This is prominent with existence of regulating acts like Essential commodities act
that has been used to manage the supply, distribution and production of commodities termed
as ‘essentials. In this way the government makes these commodities available for
consumption at acceptable prices. A minimum support price can also be fixed by the
government should it deem it necessary. The Essential Commodities Act (ECA), Agricultural
Produce Marketing Act, the Small-Scale Industry Reservation, and so on, need to be
thoroughly reviewed and revamped with a view to abolishing all legal impediments under
these Acts that restrict the entry of big private sector, including FDI, in marketing, storage
and process.

The Public distribution system wherein the Govt. purchases the farmers produce at a assured
MSP and shall stockpile it in order to ration it through fair price shops at subsidised rate
bearing the loss in between. The mounting stocks of foodgrains with the FCI are explained by
the steep rise in procurement prices (acting as minimum support prices), and the open ended
pro- curement by the FCI even when market conditions were adverse. A good part of the
large amounts of grain procured is off- loaded at a price almost half its 'economic cost'. Such
market operations at huge discounts drove out the private sector from grain trade, and
consequently government is saddled with even more stock.
India in WTO has fought a massive tussle with the developing countries regarding the
agricultural subsidies wherein India although trying to subsidies its marginal and poor
farmers and ensuring food security in India has been labelled as violator of fair trade
practices by exceeding the trade distorting subsidy limits specially the Amber box subsidy.

In the past decade, however, this system has come under fire. On the one hand, global
pressures led by the United States and other grain exporting countries in the World Trade
Organisation (WTO) have repeatedly sought to curtail or even to dismantle India’s food
procurement and subsidy programme. Through clever classification of the subsidies into
trade-distorting (amber box) and non-trade distorting (green box), developed countries
manage to heavily subsidize agriculture in their countries while targeting developing
countries including India of indulging in trade-distorting practices. Even with low subsidies,
India should be worried of breaching the 10% limit on subsidies.
Domestically too,  expert committees and economists have consistently urged the government
to transition away from support to farmers in the form of discounted input prices or
guaranteed output prices to reduce the fiscal burden of these operations.

Against this background, farmers see the Farm Acts, which do not allude to the MSP at all,
and the entry  of private players, as first steps towards dismantling a support regime that has
formed the backbone of their livelihood. Farmers have thus demanded that the government
commit to guaranteeing MSP as a legal entitlement, extending to private purchases as well.

Such a context seems very relevant that why India in 2020 decided to introduce a
comprehensive framework of contract farming in India through the 3 controversial farm laws.
Which would eventually allow the Govt. to focus its subsidies to the much needed marginal
farmers and allow the large farmers to be introduced to the benefits of contract farming in
turn maintain its commitments to WTO.

The three Farm laws

The three farm laws introduced by the government in Nov 2020 presented a
comprehensive framework of contract farming in India. The three farm laws were as
follows:

1.Produce Trade and Commerce (Promotion and Facilitation) Act, 2020,

2.Essential Commodities (Amendment) Act, 2020, The Farmers'

3. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm

Services Act, 2020

These 3 acts aims at introducing a comprehensive framework to deregulate the agricultural

sector by facilitating private investment in it. Firstly Produce Trade and Commerce
(Promotion and Facilitation) Act, 2020, allowed the sale and marketing of agri produce
outside the APMC mandis in addition to removing barriers to inter state trade and
introduction of a framework for electronic trading of agricultural produce. Thus
breaking the monopoly of govt. regulated mandis and allowing farmers to sell directly
to private buyers. Such an provision was expected to help farmers get the freedom of
choice of sale thus helping farmers to get better price for their produce because of more
choice of market.

Secondly, Essential Commodities (Amendment) Act, 2020, The Farmers' removes potato,
cereals,, pulses, onions, oilseeds, edible oils, and from the list of essential commodities, while
deregulating the production, storage, movement and distribution of these food commodities.
Moreover it also removes stockholding limits on such items except under "extraordinary
circumstances" like war, famine, extraordinary price rise and natural calamity of grave
nature.

Thirdly Farmers (Empowerment and Protection) Agreement on Price Assurance and

Farm Services Act, 2020 provides legal safeguards for farmers to soundly enter into written
contracts with private entities like MNC’s thus creating a national framework for contract
farming in India. It provides a dispute settlement mechanism that consist of 3 levels namely:
Conciliation Board, Sub-Divisional Magistrate and Appellate Authority.

However, critics have argued that such provisions have arbitrarily served the interest of the
big MNC and conglomerates over the interest of small and marginal farmers. Farmers feared
that with introduction of private players into the agricultural sector would make govt.
regulated mandis will drive the business towards private mandis causing huge losses to
regulated mandis. Farmers fear that the new proposed system will end the minimum
support price regime. As the Govt encouraging tax-free private trade outside the APMC
mandis will make these notified markets unviable, which could lead to a reduction in
government procurement itself. These fears were more widespread because the lack of any
statutory backing for MSP in India. The deregulation of the sugar industry in 1998, which
paved the way for private establishments, did not result in a significant improvement in
farmers' productivity or incomes. • A state-led attempt in Bihar to deregulate the APMCs in
2006 has not resulted in an increase in farmers' income or improved infrastructure.Without
strong institutional arrangements, laissez-faire (no economic interventionism) policy may
harm lakhs of unorganised small farmers.

In addition, deregulation of essential commodities except in extraordinary circumstances

would work in the favour of private entities who may indulge in market hoarding and causing
prices to artificially inflate or cause massive shortages. Although the farm laws provide legal
safeguards and a dispute settlement mechanism critics are very apprehensive of contractual
obligations specially keeping in mind the unorganised nature of agriculture in India and lack
of resources for a legal battle with private corporate entities. The inability of the small and
marginal farmers to understand the terms of the contract may lead to the exploitation of such
farmers. Thus causing farmers to be apprehensive of the free hand given to private corporate
house may lead to exploitation of farmers in India.

Moreover the contract farming would have been beneficial and successful in India had only
land reforms taken place in a proper manner in India. Given the concentration of massive
land holding in few hands would eventually would contract farming would further
marginalize the small and poor farmers. This is because large corporates generally prefer big
farmers because they have the resources to satisfy their bulk quantity demand.

While the concerns of farmers are not ignorable however the inevitability of agriculture
reforms in India has not been grater than ever before. With half India’s population dependent
on agriculture the contribution of Agriculture stands stagnant at 14% only.Introduction of
farm laws could have been a great step towards the future of contract farming in India
however politics played a crucial role in blocking its way through India. Given the limitations
of 3 farm laws although cannot be totally ignored could have been amended rather than
being withdrawn totally. Because the inevitability of private sector involvement in agriculture
is now vsible than ever before.Economist have for several decades advised the govt to reduce
its fiscal deficit by reducing agricultural subsidies but populist agendas combined with the
immense hold of farmer unions and the wested interest of rich farmers still continuing to
benefit from subsidies at cost of the poor ones have made the passage of such laws almost
impossible in India. Even a majority Govt like the present NDA Govt. although was able to
pass the 3 farm laws but its still could not ensure its smooth implementation given the
massive farmer protest across the country.

“The results of the municipal elections in Punjab 2021 has added a new dimension to the
whole issue and highlighted possible electoral implication of the protests. Congress won an
unprecedented victory and the Bhartiya Janata Party (BJP), which fought alone after the
break in its alliance with the Shiromani Akali Dal (SAD), came in fourth. Of 2,165 wards in
the municipal council and municipal corporation, the Congress got 1,484, SAD won 294, the
Aam Aadmi Party (AAP) got 57 and the BJP just 47. The Congress won 68.5% of the wards,
SAD 13.5%, AAP 2.6% and the BJP 2.1%. While the Congress captured the Bathinda
municipal corporation after 53 years, the BJP lost even in its strongholds.
Rajasthan is another state where the farm protests have had an impact. The Congress did well
in the civic elections held there last month. This suggests a degree of anger against the BJP in
states where the farmer agitation has been a part of the discourse.”
How will farm protests affect electoral landscape? - Hindustan Times

The worst fears of BJP Govt were proving to be true, as BJP saw itself loosing in these
elections. Uttar Pradesh traditionally has always been an important state for political parties
specially given its massive share of seats in Lok Sabha election. BJP was seeing decline in its
support in this region specially in Western UP which had eventually become the epicentre of
farm discontent. Rakesh Tikait who comes from this region was one of the prominent leaders
of the farmers protest in India .Realizing its biggest fear NDA govt. very prudently decided to
withdraw the farm laws just few months before the UP elections in a desperate attempt to
regain its supporter base in this region.
Thus it was very clear that Farm Laws 2020 although with its own drawbacks was a
milestone in agricultural reforms of India it could not survive the politics of farm unions in
India. While the introduction of farm laws was a prudent move to liberalize agriculture and
unlock its massive potential however it prove to be disastrous political move for BJP when
farmers across India approximately constituting 50% of the electorate stood up against these
3 farm laws.

Suggestions

• The lack of bargaining power of farmers with big companies is also a major concern.
• Critics are apprehensive about formal contractual obligations owing to the unorganised nature of
the farm sector and lack of resources for a legal battle with private corporate entities. Lack of price
fixation mechanism:

• The Price Assurance Act, while offering protection to farmers against price exploitation, does not
prescribe the mechanism for price fixation. There is apprehension that the free hand given to private
corporate houses could lead to farmer exploitation.

deregulating the agricultural sale and marketing outside state regulated APMC’s, secondly
removing the pulses, oilseeds, edible oils, onions and potatoes from the list of essential
commodities deregulating its storage production, distribution, movement of these
commodities and finally. Which in turn increases the ease of business in agricultural sector,
and helps farmers to earn much higher incomes and assured returns for their produce.

The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020:

• The act aims at opening agricultural sale and marketing outside the notified Agricultural
Produce Market Committee (APMC) mandis for farmers, removes barriers to inter-State trade
and provides a framework for electronic trading of agricultural produce. The act seeks to
break the monopoly of government-regulated mandis and allow farmers to sell directly to
private buyers.

Addressing the lacunae of APMC acts:

• The law related to the regulation of Indian agricultural markets like the Agricultural
Produce Market Committees (APMC) act had led to centralization and was thought to be
reducing competition and participation, with undue commissions, market fees, and monopoly
of associations damaging the agricultural sector.

• The act seeks to break the monopoly of government-regulated mandis and allow farmers
to sell directly to private buyers by circumventing the APMCs. The new laws provide full
autonomy for farmers to sell their produce.

Higher price realization for farmers:

• The act is expected to increase the freedom of choice of sale of agri-produce for the
farmers and this could help the farmers in getting a better price for their produce because of
more choices of markets. This would allow small and marginal farmers to sell their produce
at market and competitive prices.

• The act allows for private players to buy the farmers' produce even at their farm gates. This
will allow the farmers to get better prices through competition and cost-cutting on
transportation.

• This would help raise rural incomes and subsequently provide an impetus to the economy
at large due to the increased demand from the rural areas.

One India, one agricultural market:

• It is expected to pave the way for the creation of a ‘One India, One Agriculture Market’ by
promoting barrier-free inter-state and intra-state trade with provisions of electronic
trading as well..

Against the spirit of federalism:

• Since agriculture and markets are State subjects – entry 14 and 28 respectively in List II –
the acts are being seen as a direct encroachment upon the functions of the States and
against the spirit of cooperative federalism enshrined in the Constitution.

• The Centre, however, argued that trade and commerce in food items is part of the
concurrent list, thus giving it constitutional propriety.

Fears with respect to MSP system:

•

• The creation of private mandis will drive agriculture business towards private mandis,
ending government markets, intermediary systems and APMCs. In a scenario where more
and more trading moves out of the APMCs, these regulated market yards will lose revenues.

• As a result, big corporate houses will overtake markets, thereby procuring farm produce at
incidental rates. Critics view the dismantling of the monopoly of the APMCs as a sign of
ending the assured procurement of food grains at minimum support prices (MSP). This could
lead to the increasing clout of private buyers and could lead to low bargaining powers of the
farmers. • Lack of statutory support in the acts for the MSP is a major point of concern,
especially for farmers from Punjab and Haryana, where 65% of wheat (2019) is procured at
MSP by the Food Corporation of India and state agencies.

• Mandis bring in revenue for state governments. The diversion of agricultural trade
towards private mandis could lead to the loss of states' revenues.

• Some states are concerned about the loss of revenue from mandi taxes and fees, which
currently range from 8.5% in Punjab to less than 1% in some States.

• The deregulation of the sugar industry in 1998, which paved the way for private
establishments, did not result in a significant improvement in farmers' productivity or
incomes. • A state-led attempt in Bihar to deregulate the APMCs in 2006 has not resulted in
an increase in farmers' income or improved infrastructure.

• Without strong institutional arrangements, laissez-faire (no economic interventionism)

policy may harm lakhs of unorganised small farmers. Cases of fraud:

Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm

Services Act, 2020:

• It creates a national framework for contract farming. It provides a legal framework for
farmers to enter into written contracts with companies and produce for them.
• The written farming agreement, entered into prior to the production or rearing of any farm
produce, lists the terms and conditions for supply, quality, grade, standards and price of farm
produce and services.

• It defines a dispute resolution mechanism. The Act provides for a three-level dispute
settlement mechanism-- Conciliation Board, Sub-Divisional Magistrate and Appellate
Authority.

Challenges to farmers:

• The inability of the small and marginal farmers to understand the terms of the contract may lead
to the exploitation of such farmers.

• The lack of bargaining power of farmers with big companies is also a major concern.

• Critics are apprehensive about formal contractual obligations owing to the unorganised nature of
the farm sector and lack of resources for a legal battle with private corporate entities. Lack of price
fixation mechanism:

• The Price Assurance Act, while offering protection to farmers against price exploitation, does not
prescribe the mechanism for price fixation. There is apprehension that the free hand given to private
corporate houses could lead to farmer exploitation.

Essential Commodities (Amendment) Act, 2020:

• It removes cereals, pulses, oilseeds, edible oils, onions and potatoes from the list of
essential commodities. It will deregulate the production, storage, movement and distribution
of these food commodities.

• It will also remove stockholding limits on such items except under "extraordinary
circumstances". The central government is allowed regulation of supply during war, famine,
extraordinary price rise and natural calamity of grave nature and annual retail price rise
exceeding 100% in horticultural produce (basically onions and potatoes) and 50% for non-
perishables (cereals, pulses and edible oils), while providing exemptions for exporters and
processors at such times as well.
• It requires that imposition of any stock limit on agricultural produce be based on price rise.
• It will allow agribusinesses to stock food articles and remove the government’s ability to
impose restrictions arbitrarily

Increased threat of food insecurity:

• Critics anticipate that the easing of regulation of food items would lead to exporters, processors
and traders hoarding farm produce during the harvest season, when prices are generally lower, and
releasing it later when prices increase. This could undermine food security. Increased volatility of
food items:

• Critics anticipate irrational volatility in the prices of essentials and increased black marketing. Lack
of clear cut guidelines:

• The act proposes a price trigger mechanism for invoking ECA. However, it involves a wide range for
a price trigger to invoke the ECA. Many things are left vague. Price triggers or price levels do not
have a reference to a locality.

Contract Framing
Pros
 Assured return (Cash flow in Agricultural sector)
 Higher income for farmers
 Diversification of crops
 Technical assistance and working capital provided to farmers
 Solved the problem of supply of quality inputs in agriculture
 Removed price uncertainty among farmers

Cons
 MNC’s are Biased towards large and big farmers as they have the land and capacity to
produce in bulk for them as compared to marginal farmers.
  Comparative case studies have shown women and children as the predominant
workforce in the agricultural sector specially in contract farming because they can be
paid less and be made work for long hours.

 Although the output may be higher in contract farming but proportionally the input
also becomes costlier not only in economic terms but also environmentally. (Huge
quantities of pesticide and fertilizer is used)

 Farmers may not be able to afford legal aid in case they are exploited by the
contractor.

In this paper I shall try to critically analyse the pros and cons of contract farming (through
case studies in Punjab and Andhra Pradesh) and try to define why contract farming may have
been a prudent economic decision by govt to bring some cash flow in the cash stripped
stagnant agriculture sector of India. However, the much-needed agricultural reforms have
been side-lined due to populist politics in India.
I shall contextualize why even with its cons contract farming introduced through the
comprehensive 3 Farm laws that provide an extensive enabling legal framework was suitable
economic decision for India but proved politically disastrous decision for the current Govt.
(farmers protest).
In fact, I shall explore how the very myth of farmers being antagonistic to the govt. is broken
when we realize that the very protest and aggression of farmers was for demanding continued
protectionism from govt fearing open markets. (An interesting discourse to explore in social
movements)
These 3 agricultural reforms mainly aim at:

 Opening up agricultural sale and marketing outside the notified Agricultural Produce
Market Committee (APMC) mandis for farmers.

 It provides a legal framework for farmers to enter into written contracts with
companies and produce for them in addition to a dispute resolution mechanism.
  It removes cereals, pulses, oilseeds, edible oils, onions and potatoes from the list of
essential commodities. It will deregulate the production, storage, movement and
distribution of these food commodities.

With Few minor adjustments and reforms like making the dispute settlement mechanism
more robust and a concrete land reform programme prior to the 3 farm laws, contract farming
would have flourished in India making farming a lucrative business in India. However, I shall
try to discuss how the propaganda of Mandi Mafias (who were earning massively from the
monopolistic position in the Agri. business) and the wave of misinformation regarding MSP
being removed or side-lined caused a massive uprising of farmers. Farmers comprising
approximately half the electorate BJP could not afford going forward with a reform that costs
them their next Lok Sabha elections or state elections.
Following which I shall discuss how could the much-needed land reforms be introduced in a
effective manner in India that could help the present govt. garner popular support for its
future neo liberal reforms for unlocking the latent potential of agriculture sector in India. In
addition to which I shall propose some suggestions how the 3 farms laws could have been
amended to suit the present needs of farmers like a robust dispute settlement mechanism etc.
References

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607–08. JSTOR, http://www.jstor.org/stable/4419261. Accessed 26 Feb. 2023.

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JSTOR, http://www.jstor.org/stable/4419083. Accessed 26 Feb. 2023.

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Feb. 2023.
Farm laws: India PM Narendra Modi repeals controversial reforms - BBC News
How will farm protests affect electoral landscape? - Hindustan Times
Most agricultural commodities (cotton, onions, sugar, etc) continue to be under
severe export controls and quotas. These destroy any chance of building up a sus- tained
international mark

Farmer disenchantment with agribusiness comes not so much from their ignorance of these
lucrative  possibilities but from their underwhelming experience in engaging with large
corporations.

The farmers from Punjab, who are leading the protests, have been at the forefront of many
key innovations in Indian agriculture. They were the stewards of the Green Revolution in
wheat and rice, which was instrumental in India becoming self-sufficient in food grains.

One of the first organised contract farming schemes in India that involved a corporate entity
was enabled by the Punjab government in 1988–89; and indeed, most early examples of
successful organised corporate sector engagement with farmers are from Punjab.  Yet, many
of these have largely failed to gain traction due to risks associated with contract farming and 
poor contract enforcement.

There are similar cautionary episodes from elsewhere as well. In 2019, PepsiCo took potato
farmers in the western state of Gujarat to court claiming unauthorised use of their seeds. In
another high-profile case, in 2016, the Competition Commission of India opened an
investigation into accusations that  Monsanto Holdings Pvt (MHPL) was abusing its
dominant position in the GM-cotton seed industry.

Their conditions around the provision, marketing and sale of their proprietary seeds were
deemed to undermine and threaten the development of alternate seed technologies by other
seed producers.

These are grim reminders for farmers of the ways of big business and what small farmers
might face down the line, even if not in the short term.
A gradual erosion of the network of state-regulated markets under APMC, in the face of
private competition and/or benign neglect, would leave small farmers especially vulnerable.

Despite their flaws, APMCs provide an organised space and commonly known or shared
possibilities for price discovery, providing a benchmark price for collective bargaining and
recourse to dispute resolution in the event of disagreements around quality, quantity and
payment default. Thus, even without the spectre of agribusiness consolidation, farmers view
deregulation without any safeguards to protect farmer interests as potentially catastrophic.

State Support in Jeopardy: Fiscal and Global Pressures

the US under PL480, the MSP is a price floor maintained by the government for 23 Another
key demand of farmers pertains to the Minimum Support Price (MSP), a defining feature of 
Indian agricultural policy. Instituted in the 1960s, when India still depended on food grain

In the past  decade, however, this system has come under fire. On the one hand, global
pressures led by the United  States and other grain exporting countries in the World Trade
Organisation (WTO) have repeatedly sought to curtail or even to dismantle India’s food
procurement and subsidy programme.

Domestically too,  expert committees and economists have consistently urged the government
to transition away from support to farmers in the form of discounted input prices or
guaranteed output prices to reduce the fiscal burden of these operations.

A 2015 report on the role of the Food Corporation of India, which manages  this system,
advocated a gradual transition to income support for farmers and cash transfers for 
consumers away from the current system.

Against this background, farmers see the Farm Acts, which do not allude to the MSP at all,
and the entry  of private players, as first steps towards dismantling a support regime that has
formed the backbone of their livelihood. Farmers have thus demanded that the government
commit to guaranteeing MSP as a legal entitlement, extending to private purchases as well.

Defence of Democratic and Federal Principles

Interestingly, the farmers’ protest goes well beyond the Acts themselves, calling also for the
restoration and preservation of federal and democratic principles.

India’s current government has built a dubious reputation for decisive action with scant
regard for its effects on the poor. Prominent examples are the 2016 demonetisation, which
within hours rendered invalid 86 per cent of all cash in circulation, the hasty transition to a
centralised tax regime (Goods and Services Tax) that hurt medium and small enterprises
disproportionately, and the stringent nationwide lockdown to contain the spread of Covid-19.

The same government has also systematically resorted to actions that undermine India’s
federal structure, even while India’s Constitution vests states with wide-ranging powers to
legislate and shape the nature of economic growth and development.

In passing these three Acts as ordinances during the Covid-19 crisis, the government has
shown a willingness to overlook the preferences and local needs of the states.

While advocates of the Farm Acts claim, correctly, that such agricultural market reforms
have been discussed for two decades, the fact is that these Acts themselves saw no discussion
at all. Their rushed passage in Parliament prompted former prime minister, HD Deve Gowda,
a farmer himself, to express anguish at the lack of any substantive discussion in Parliament
on the merits of the Acts.

Critics of an apparently milder disposition have dismissed these protests as led by elite
farmers who have too long been mollycoddled with public support; one economist likened
the Acts to “snatching away the milk bottle” of a privileged few. The Prime Minister himself
has  accused the opposition of “playing tricks” with the farmers and misleading them.

Contract farming was introduced in India following the wave of LPG reforms post 1991.
Many big MNC like Pepsi and Hindustan Unilever started practicing contract farming in
India specially in Punjab. Under contract farming, farmer is required to plant the contractors'
crop on his land and is supposed to sell the contractor, an agreed quantity of produce with
prescribed quality norms at a pre-agreed price. Contractor on the other hand may supply the
farmer with working capital in the form of selected inputs(like seeds etc.), technical advice
etc. Basic purpose of adoption of such a policy is to provide a proper linkage between the
farm and market by giving farmer an assured price and procuring the farm produce on the one
hand and insuring timely and adequate input supply to the agro-based and food industry on
the other. Need for such a policy has its genesis in the demand and supply disequilibrium that
agriculture faces, where farmers have to dump there produce for the want of buyers on the
one hand and agro-based industries face difficulties in procuring quality inputs on the other.
In fact, Contract farming has the potential to substitute for the state in the wake of neo-liberal
reforms in the agrarian sector. Private firms can enter to fill the same role and are believed to
do so more efficiently.