- Farmers' liability limited to advance received or cost of services provided by sponsor
- Pre-fixed pricing mechanism, with minimum assured price
- Farm gate sourcing, with provision to pay farmer for transportation cost
- Minimum contract period of one crop season, maximum five years
A month after Narendra Modi government promulgated The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020, the agriculture ministry has come up with a detailed operational guideline to implement the new system that allows farmers and farmer producer organisations (FPOs) to directly enter into supply contracts with corporate entities (sponsors).
The guideline limits the farmer's liability - in case of breach of contract - to the extent of advance given by sponsor or cost of farm services provided to farmer by the sponsor. Similarly, if the sponsor fails to take delivery of conforming produce within the stipulated timeframe mentioned in the agreement, the farmer may sell the produce to a third party and may claim from the sponsor the difference between the price in their agreement and the actual price that the farmer received for the produce. The guideline also provides for a penalty up to 150 per cent of such claim that can be imposed by the sub-divisional authority empowered to look into disputes.
The guideline provides flexibility in pricing agreement between the contracting parties. While the produce must be purchased at a price provided for in the farming agreement, the parties can link it to market price, provided, a minimum guaranteed price is specified. It also stipulates that the method of determining payment above the minimum guaranteed price based on a clear price reference must be provided in the agreement. What ever be the calculation, it shoud be simple and should avoid complex formulas or measurements of quantity and quality to arrive at price of farming produce, the guideline says. The payment to the farmer has to be on the day of delivery of the farming produce.
In order to minimise the risk of litigation, the guideline makes it clear that the place and mode of delivery of the produce 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 where the farmer lacks any feasible transportation facilities," it states. In case the farmer is asked to deliver the produce at a specific location, the sponsoring firm has been asked to reimburse the transportation cost.
The guideline says what needs to be done in case of a crop loss due to natural calamities (force majeure) and makes it clear that the Farming Agreement cannot provide for any transfer, sale, lease and mortgage of the land or premises of the farmer to the sponsor. There is a stipulation that grades and standards of the farming produce should be clarified beforehand. There are sections that covers delivery, packaging of farm produce, inspection of farm produce, use of inputs and supply of inputs by the sponsor.
The period of farming agreement - a minimum period of one crop season or one production cycle to a maximum period of five years - will have to be clearly mentioned in the agreement.