Contract farming

Guidelines for Farming Agreement

Guidelines for Farming Agreement

The Department of Agriculture, Cooperation, and Farmers Welfare issued the Guidelines for Farming Agreement as per the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020. As per the provisions of this Ordinance, a farmer/FPO may enter into a Farming Agreement for the sale of any farming produce before the actual production takes place. The agreement should cover all the relevant aspects related to parties, product, price, and conciliation process and delivery mechanism. The current article briefs the guidelines for Farming Agreement.

Farming Agreement

A Farming Agreement is a written document between the farmer or Farmer Producer Organization (FPO) and sponsor (the person purchasing the farming product).

  • The Farming Agreement should be written in the local language and the presentation of terms should be simple and easily understandable to the parties involved
  • A Farming Agreement should be prepared and signed by all the parties to the agreement
  • Farming Agreement may be registered in the e-registry constituted by the respective State Government as per rules framed under the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020

Know more about National e-Governance Plan in Agriculture (NeGP-A)

General Conditions for Framing the Farming Agreement

The condition for preparing the farming agreement is explained in detail below:

The farming agreement should be drafted through in-person discussions between the Sponsor or his representative and the FPO/Farmers or their representatives.

Note: The terms of the agreement need to be clear to all parties involved in the agreement.

Conditions for FPO

In case the Farmer Producer Organization enters into a Farming Agreement, responsibility for the performance of the Agreement should be appropriately assigned by the members of the FPO.

Conditions for sharecropper

In case a sharecropper is involved in the agreement, he will be responsible for the following activities:

  • Receiving and using any inputs from the sponsor
  • Cultivation of produce of the appropriate quality
  • Production of produce using good standard practices.

As per the agreement, delivering the contracted quantities will be one of the responsibilities of farmers. No clause in the agreement can be in derogation of rights of such sharecropper.

Conditions for sharecropper

The Farmer should read the framed Agreement or have the Agreement read over and explained to him /her by an appropriate independent third party. The farmer can also seek the advice of a legal advisor before signing the agreement.

Other Conditions’

The agreement needs to be made available to the farmer/FPO for signing at a reasonable time before the commencement of an agricultural season. The Farming Agreement should indicate the following details:

  • Nature of the farming
  • Size of land area
  • Survey number of the farmer’s field
  • The business address of Sponsor
  • Name of the village
  • Address of the farmer

Purpose of the Farming Agreement

  • The Sponsor will supply inputs, technology, and extension services to farmer/FPO, after framing the agreement.
  • The Farmer should agree to produce and sell the farming produce to the sponsor on the agreed terms and conditions

Period of validity of the

The period of validity farming agreement is subject to the minimum period of one crop season or one production cycle. Farming agreements are valid for the maximum period of five years.

In the case the single production cycle runs more than five years, the validity of the farming agreement can extend beyond five years.

Details to be Mentioned in the Farming Agreement

The details to be mentioned in the Farming Agreement are explained in detail below:

Supply of inputs by the Sponsor

Where the sponsor is required to supply inputs, it should be ensured that the agreement specifies this requirement. The Sponsor shall share the required inputs (including delivery) and technical advice to the farmer either on cost-basis/free of charge/cost-sharing basis. The sponsor must deliver the inputs to the farmer at the time and place specified in the agreement. The sponsor is responsible for any loss or damage to the farming produce, production site, assets, and any legal consequence of inputs supplied by him.

 Use of Inputs by the Farmer/FPO

The inputs supplied by the sponsor should be checked/verified for its quantity and quality by the farmer who can notify the sponsor in writing in case of any shortfall/defects. The farmer should use the inputs following any instructions framed in the Farming Agreement. The farmer would ordinarily be responsible for any loss or damage to the inputs after their acceptance from the sponsor. The farmer can return any unused inputs to the sponsor at the end of the production cycle or otherwise as per the agreement.

Production of Farming produces by the farmer/FPO

The Farmer must follow the production methods and standards (social, labour, environmental standards) for the cultivation of crop as outlined in the farming agreement. The Sponsor or his representative/s may visit the production site to provide advice, supervise any production process, and/or verifying the Farmer’s compliance with the prescribed production methods. Frequency and time of visits as provided in the agreement should be coincided with normal business hours and should not unduly burden or inconvenience the farmer.

Inspection of the Farming Produces

As per the Farming agreement, after production, the sponsor or his representative will inspect the farming produce to comply with the quality standards

Delivery of the farming produces

As per the agreement, the farming produce should be packaged by the farmer as per the commodity-specific requirements before delivery.

The Sponsor needs to weigh the packaged produce before accepting delivery.

Grades and Standards of Farming Produce

Promoting awareness among the Farmer/FPO about various grades and standards of the farming produce is one of the responsibilities of the Sponsor.

The grade standards to be followed for the farming produce may be related to physical/Physico-chemical/both attributes such as size, shape, colour, brix-acid ratio, oil content, specific gravity, acid value, free fatty acid, and Refractive index.

The quality grades may be categorized into the following:

  • Premium quality
  • Fair average quality
  • Below fair average quality

Pricing Mechanism

The product must be purchased at a price provided for in the farming agreement. The price may be linked to market price and in such cases; a minimum guaranteed price must be specified.

Sale of Farming produces by the Farmer to the sponsor:

The place and mode of delivery of the product should be specified in the farming agreement. The sale of farming produce by the farmer to the sponsor may be at the farm gate subject to provisions in the agreement, especially when there is no feasibility for transportation.

Payment of Sales Proceeds

The Sponsor should make the payment to the farmer on the day of delivery of the Farming Produce.

Availing Credit and Insurance Facilities

Either the Farmer/Sponsor can seek insurance for the crop. If the Farmer agrees to purchase the crop insurance or weather insurance, it may be at his own cost or be paid for by the sponsor if provided for in the agreement. If the sponsor agrees to purchase insurance on behalf of the farmer, it may be at the sponsor’s own cost.

Termination of the Farming Agreement

The Farming Agreement only is terminated between the two parties in any of the following circumstances:

  • By mutual agreement of the Parties
  • Either Party by giving written notice to the other Party, if the Agreement provides for the same

Upon expiration of the Farming Agreement, both the Parties may agree in writing to its renewal for the next crop cycle.

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