Introduction
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, commonly referred to as the Contract Farming Act, was one of the three farm laws passed by the Government of India in September 2020.
This Act aimed to regulate contract farming by providing a legal framework for agreements between farmers and agribusiness firms, processors, wholesalers, exporters, or large retailers. The objective was to ensure price assurance for farmers before sowing crops and protect them from price volatility.
However, like the other two farm laws, this Act faced widespread protests, primarily due to fears that it would favor large corporations over farmers. As a result, the Act was repealed in November 2021 along with the other two farm laws.
Full Text of the Act: Click Here
Objectives of the Act
- To protect farmers by ensuring pre-agreed prices for their produce.
- To promote contract farming by allowing direct agreements between farmers and buyers.
- To eliminate middlemen, ensuring that farmers get better earnings.
- To introduce modern agricultural practices and improve quality standards.
- To promote investment in agriculture by agribusinesses, exporters, and food processors.
Key Features of the Act
1. Legal Framework for Farming Agreements
- The Act allowed farmers and agribusiness firms to enter into pre-agreed contracts for agricultural production.
- These contracts would include pricing, quality, supply timelines, and farm services.
2. Price Assurance Mechanism
- The Act required the agreement to specify a guaranteed price for the produce.
- If the market price at the time of sale was higher, the farmer could receive a bonus.
3. Farm Services & Inputs
- Buyers could provide seeds, fertilizers, pesticides, technology, and advisory services to farmers.
- This was intended to enhance productivity and quality.
4. Contract Duration
- The agreement could be signed for any duration, but it could not exceed five years unless mutually agreed.
5. Dispute Resolution Mechanism
- Disputes were to be resolved through a conciliation board or, if needed, by the Sub-Divisional Magistrate (SDM).
- Farmers could not approach civil courts, which critics argued was biased in favor of corporations.
Benefits of the Act
| Benefit | Explanation |
|---|---|
| Price Assurance | Farmers were protected from market price fluctuations. |
| Reduction in Middlemen | Direct agreements with buyers meant higher earnings for farmers. |
| Access to Modern Technology | Companies provided farmers with better seeds, fertilizers, and farming techniques. |
| Increased Investment in Agriculture | Encouraged private investment in the sector. |
| Improved Agricultural Infrastructure | Contract farming was expected to lead to better cold storage, logistics, and value addition. |
Challenges & Criticism of the Act
1. Fear of Corporate Exploitation
- Farmers feared that large companies would dictate unfair contract terms, leading to economic exploitation.
2. No Legal MSP Guarantee
- The Act did not ensure that farmers would receive Minimum Support Prices (MSP).
- Critics argued that corporations could offer lower prices over time.
3. Dispute Resolution Bias
- The Act barred civil courts from hearing disputes, giving powers to bureaucrats (SDMs & Collectors), which farmers feared would favor corporate buyers.
4. Weaker Bargaining Power for Small Farmers
- Small and marginal farmers lacked legal knowledge and negotiation skills, leaving them vulnerable.
- Large companies had more resources and could impose one-sided contracts.
5. No Protection Against Contract Breach
- If farmers failed to meet the agreed quality standards, they could face financial penalties.
- There were concerns about how farmers would be protected in case of natural disasters like droughts or floods.
Farmers’ Protests & Repeal of the Act
Farmers’ Protests (2020-2021)
- Massive protests erupted across India, especially in Punjab, Haryana, and Western Uttar Pradesh.
- Farmers blocked highways and railways, demanding the repeal of the three farm laws.
Key Developments in Protests
- November 2020: Farmers from Punjab and Haryana marched to Delhi.
- January 2021: Supreme Court stayed the implementation of the Act.
- November 2021: The Prime Minister announced repeal of the farm laws.
- December 2021: The Act was officially repealed by Parliament.
Reasons for Repeal
- Widespread farmer opposition and political pressure.
- Concerns about corporate control over agriculture.
- Demand for a legal MSP guarantee.
- Loss of trust between farmers and the government.
Case Laws on the Act
1. Rakesh Vaishnav v. Union of India (2021)
- Issue: Farmers challenged the constitutionality of the farm laws.
- Judgment: The Supreme Court stayed the implementation of the laws, acknowledging farmer concerns.
2. All India Kisan Sabha v. Union of India (2021)
- Issue: Farmers argued that the law favored corporate buyers over small farmers.
- Judgment: The case was dropped after the repeal of the laws.
3. Punjab Kisan Union v. State of Punjab (2021)
- Issue: Farmers argued that the Act was against federal principles since agriculture is a state subject.
- Judgment: The Act was repealed before a final ruling was given.
Impact of the Act on Farmers & Agricultural Markets
| Positive Impact | Negative Impact |
|---|---|
| Guaranteed pre-agreed prices | No MSP guarantee |
| Encouraged private investment | Favored corporate buyers over small farmers |
| Access to better farming technology | Weaker dispute resolution system for farmers |
| Strengthened agri-supply chains | Small farmers had lower bargaining power |
Future of Contract Farming in India
Even though the Act was repealed, contract farming remains an important topic in agricultural policy. The government and stakeholders are now considering:
- Developing fair and transparent contract farming models.
- Ensuring MSP protection within contract farming agreements.
- Strengthening dispute resolution mechanisms.
- Encouraging Farmer Producer Organizations (FPOs) to negotiate better deals.
- Promoting digital platforms for contract farming.
Conclusion
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 was introduced to formalize contract farming, but it faced strong opposition due to concerns over corporate dominance, lack of MSP protection, and weak dispute resolution.
The massive farmers’ protests led to its eventual repeal in 2021. While contract farming still exists in India, future policies must balance corporate investment with strong farmer protections, ensuring a fair and inclusive agricultural market.
