Contract Farming


Why in news?

Contract farming suffers from market failures due to Monopsony

Contract firms enter into an agreement with farmers to grow differentiated crops.This turns the firm into a sole buyer and farmers into price-takers


Contract farming refers to an agreement between farmers and marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices

The contract between farmers and buyers insulates farmers from price risk, helps them develop new skills, and opens new markets

Regulation of contract farming

In India, contract farming is regulated under the Indian Contract Act, 1872

The Act has many general provisions that are relevant to contract farming, including the formation of contracts, obligations of parties, and consequences in case of breach of contract

The model APMC (agricultural produce market committee) Act, 2003 provides specific provisions for contract farming, like compulsory registration of contract farming sponsors and dispute settlement

Government intervention

The department of agriculture and farmers welfare has now come out with a draft model contract farming Act, 2018

It intends to establish a win-win framework for both farmers and sponsors

SOURCE – The Hindu.