Page 46 - BANKING FINANCE OCTOBER 2021

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How it is beneficial to farmers? provides a uniform framework for private investment in
market, without challenging a farmer's ownership right or
Earlier, contract farming has been in existence for decades.
However, the farming agreement is to be made popular right to cultivate which will provide farmers three benefits.
i) Risk mitigation and greater predictability of income.
because of its uniqueness with reference to i) Equity or
inclusiveness (to attract more investments in the agriculture Farmers will have the option to enter into agreement
sector and promote inclusiveness) ii) Public Accountability with buyers before sowing, securing the price for their
(introducing system of e-registration and dispute resolution) sale. The farmers may be able to enter into agreement
and iii) Innovation (as both the market and inputs will be that protect them from harvest losses as well as they
available to the farmer at farm gate level). can insure against output risk. In scenarios like crop
output or market prices are highly variable, farmers can
The Farmers (Empowerment and Protection) Agreement on take a risk to grow the commercial crops where risk is
Price Assurance and Farm Services Ordinance 2020, enables more.
farmers to mitigate the production risk and price risk by the ii) Access to market intelligence. Due to lack of forward
farming agreement with the buyer before sowing stage. linkages farmers are unable to access the consumer
Farming agreements can be made between farmer and
demand trends at micro level and hence not able to
sponsor/buyer for purchase of future farming produce with optimize crop and varietal mix. This Ordinance will
risk of production remaining with the farmer or with the
payment of service charges to farmers where risk of enable stronger linkage with both domestic and export
markets.
production is borne by the sponsor/buyer. There can be a
combination also as per mutually agreed terms between iii) Access to better technology and knowledge for farm
farmer and sponsor/buyer. The sponsor may also agree to management. Private sector have a better framework
supply inputs or technology during the process of production and infrastructure to integrate the modern farming
to ensure the quality aspects of the farm produce. practices and hence they can engage expertise in
farming as well as make direct technology investment
Farming agreement gives small and marginal holding like use of IoT, Artificial intelligence etc. for driving
farmers the possibility of knowing in advance when, to whom higher yield and promoting sustainable agriculture over
and at what price they will sell their products. This helps to long term.
reduce the unpredictability of agriculture and allows them
to better plan their production. When sponsor also provide Concerns
access to inputs including technical assistance, farming
agreement can lead to significantly increased yields and 1. Government interference challenges the
profits. Privity of Contract
The ordinance is a positive move towards freedom of
The farming contract gives win-win situation for farmers/ contract farming in India, it leaves the scope for
FPO and sponsors. The farmers/FPO gets easier access to government interference particularly in sou moto litigation
inputs, services and credit improved production and and Executive adjudication.
management skills, secure market, more stable income
whereas the products purchased by sponsor from buyer The ordinance creates a window for reintroducing
conform to quality and safety standards. Under farming government interference by giving the executive powers to
agreement niche product clusters can be developed. This adjudicate disputes through suo moto cases. These are cases
ordinance safeguards farmers by providing fair trade where neither of the parties to a farming contract has raised
practices, good dispute resolution mechanism, and provision
a dispute, but the authority still can enter into the contract
of penalties for misconduct by buyers.
and make changes. This violates a fundamental principle of
contract law: If the parties to a contract are not
Opportunity for private investment complaining, third parties should not interfere in the
The existing legal framework of contract farming never contractual relationship (called 'privity of contract').
gains confidence of private investors. This Ordinance Violating this principle undermines the commercial

46 | 2021 | OCTOBER | BANKING FINANCE