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Vol. XXIX No. 3, May 16-31, 2019

Contract Farming – revenue generator through exports

by A Special Correspondent

This is the second and concluding part of the article on what needs to be done to make the Tamil Nadu Contract Farming Act a success

(Continued from April 16th Issue)

A precaution relating to mono-cropping – raising the same crop on the same piece of land season after season – may be advisable to avoid the risks it entails. The contracted area must have enough expanse to enable the farmer to raise the contracted crop on different locations by rotation to avoid falling yields and susceptibilities to pest and diseases. With similar climatic conditions as in Tamil Nadu, Cambodia has been able to carve out a niche market for Jasmine rice in technical cooperation with growers. When last reported the venture was successful exporting organically grown Jasmine aromatic rice to many European countries at a premium of $ 40-50 per ton. For agro-based products with large export possibilities, contract farming is the only option other than full ownership of land under institutional farming.

Without quality control through close technical guidance, it is unlikely that smallholders would have the capacity to avail of export opportunities. For fresh produce, say, organic fruits or vegetables, there is the requirement of “traceability” i.e. being able to identify the source, if problems related to produce specification, quality or food safety arise. Much of the production of “organic” foods is being done on contract as an integrated operation that provides clear crop identity from farmer to retailer. Contract farming makes quarantine controls more manageable. Quarantine inspections are easier over a limited number of exporters, who supervise farmers, than over hundreds of individual producers. Individuals or groups of farmers by themselves do not have the expertise to cope with complex certification stipulations for exports.

The object of the model Contract Farming Act, on which the Tamil Nadu Act is based, is to encourage contract farming by setting the playing field and laying down the rules of the game. It provides for an “appropriate and unbiased state level agency” consisting of officials, experts in agriculture, representatives of farmers and constituents of the industry such as food processors, seed processors and exporters. This body would regulate practices to ensure that farmers are not exploited. It would act as a dispute resolution mechanism to avoid extended litigation. While the aims of the legislation are laudable, by itself legislation would be inadequate unless followed up with measures for ease of business. The provisions of the Act should not degenerate into undue bureaucratic interference affording room for corrupt practices.

Ideally, contract ventures are left to self-regulation. Contract terms providing for protection of growers from demand and price fluctuations and climate vagaries would ensure durability of the operation. Farmers diverting the produce to outsiders cannot be easily brought to book nor easily forced to comply with the contract. Crop diversion by farmers is a symptom that staying within the system is not sufficiently protective and beneficial.
Experience shows that joint ventures with farming communities have proved to be sustainable only when there is equitable balance of benefits and risk protection among the partners. Contracting organisations of stature with a long-term vision and faith in building a relationship with growers are likely to have a higher rate of success. They share benefits either directly by paying premium compensation to the growers or by ploughing back part of the earnings into building community facilities like hospitals and schools. For its part, the government should refrain from over-regulation but follow up the promulgation of the Act by extending fiscal and non-fiscal support to contract ventures. The system deserves an opportunity to demonstrate that it can make Tamil Nadu’s farm sector an engine of growth and a forex earner. The follow up action by government and the industry’s response to the new Act are to be watched with interest.


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