Analyzing Model Contract Farming Act

The agriculture ministry on 22nd May released the Model Contract Farming Act, 2018. Mr. Ashok Dalwai, CEO, National Rainfed Area Authority has chaired the committee that drafted the model law.

Contract Farming: Contract farming is a container concept that covers a wide range of contractual arrangements, which makes it difficult to draw overly general conclusions. Under contract farming, agricultural production (including livestock and poultry) can be carried out based on a forward agreement between buyers (such as food processing units and exporters), and producers (farmers or farmer organisations) frequently at predetermined prices.

The Model APMC Act, 2003 provided for contract farming however, only 14 states notified rules related to contract farming, as of October 2016. Only Punjab has a separate law on contract farming. The NITI Aayog observed that market fees and other levies are paid to the APMC for contract framing when no services such as market facilities and infrastructure are rendered by them. In this context, the Committee of State Ministers on Agricultural Reforms recommended that contract farming should be out of the ambit of APMCs. Instead, an independent regulatory authority must be brought in to disengage contract farming stakeholders from the existing APMCs. (Reference)

Salient features of Model Contract Farming Act, 2018

1. In addition to contract farming, services contracts all along the value chain including pre-production, production and post-production have been included.
2. “Registering and Agreement Recording Committee” or an “Officer” for the purpose at district/block/ taluka level for online registration of sponsor and recording of agreement provided.
3. Contracted produce is to be covered under crop / livestock insurance in operation.
4. Contract framing to be outside the ambit of APMC Act 2003.
5. No permanent structure can be developed on farmers’ land/premises
6. No rights, title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc.
7. FPO/FPC can be a contracting party if so authorized by the farmers.

Policy Analysis by Experts:

1. As per Professor Sukhpal Singh of IIMAhmedabad: The new model Act 2018 opens up agricultural markets to contracting agencies without adequate safeguards for farmers.

2. Opinion Piece by Smriti Sharma, Policy Analyst with the National Institute of Public Finance and Policy on role of the government in Contract Farming Act

3. Opinion Piece by Jayshree Sengupta, Senior Fellow (Associate) with ORF's Economy and Development Programme on making contract farming suitable for Indian farmers.

Policy Analysis and Suggestions:

1. FPOs as aggregators: From the draft Model Act, it is not clear whether FPOs can also be contract farming sponsor. There may be a situation where FPOs would like to expand the cultivated area without increasing number of the farmers as members. The model law should clarify that how can FPO will be able to expand farming activities adhering to contract farming route.

2. Pro Farmer Policy: The Act lays special emphasis on protecting the interests of the farmers, considering them as weaker of the two parties entering into a contract and has been provided for reasonable protection to the weaker party to the contract, i.e., the producer, the pre-agreed price, category wise as under Section 18(2). Where no price premium exists, and a competitive price is paid on local markets, the intermediary role of FPOs may become more important for enabling higher income effects of the contract farming arrangement.

3. Capacity of State: The model contract farming Act proposes a state-level agency, the Contract Farming (Development and Facilitation) Authority, which would put contract farming outside the scope of the APMC. There is already acute shortage of extension services in Agriculture Department and current Act is proposing for an officer at the district/block/taluka level.

4. Corruption and Transaction Cost: More the responsibilities taken by the government staff, there is a higher chances of bribery for the online registration of sponsor and recording of agreement with a registering and agreement recording committee. Registration imposes extra procedure mechanism and costs on the parties, while small and marginal farmers cannot easily afford these transaction costs. Transaction costs embedded in contract farming need to be outweighed by the benefits, both for sponsoring corporates and farmer.

5. Monopoly, Fraud and& Settlement of disputes: Sponsoring agri business companies will exploit the monopoly position and similarly farmers will sell outside the contract (extra-contractual marketing) and divert inputs supplied on credit to other purposes, thereby reducing yields. There is no provision of budget for the establishment of body for dispute settlement mechanism at the lowest level possible required for quick disposal of disputes.

6. Insurance and Risk Management:  Agricultural investments always involve risk. The five most likely reasons for investment failure in agriculture are poor crop management, climatic disasters, pest epidemics, market failure and price volatility. The standard approach in agribusiness to compensate the farmer against quantity shortfalls is crop insurance. The contracted produce will also be covered under crop/livestock insurance in operation. But the government-run crop insurance schemes are proving to be unsatisfactory

7. Price Discovery and Market: Normally, contract farming does not work in an ecosystem when either party is looking to fetch a better price without any product differentiation. This is where derivative market integration with farm sector can help. This will eventually lead to both party trying to get the best price from the market instead of the each other. Where there are fixed price contracts there is no apparent risk to farmers with regard to payment for their crops. If a market collapses, the sponsor should automatically shoulder the loss. However, if the sponsor becomes bankrupt, farmers could be permanently affected. Where contracts are on a flexible or spot-price basis the stability of farmers' incomes is always at risk.

8. Farm income varies between commodities: The costs associated with contracting is high hence, it tends to be limited to high-value commodities (including meat, milk, fish, fruits, vegetables, and cash crops) being grown for processors and exporters who sell into quality-sensitive markets. An apple grower benefit from higher yields (presumably due to technical assistance), while contract green onion growers receive higher prices (presumably due to better quality).

9. Establishment of Forum: A major feature for market to work is a "market matching" exercise. This can be done by organizing forums where agribusiness entrepreneurs could meet FPO/ farmers' representatives to discuss their requirements. The forums can be followed by more detailed discussions between individual sponsors and individual cooperatives or farmer organizations.

10. Literature Review: All studies report at least one case of contract farming that has a positive and statistical significant income effect. The lack of studies on ‘failed treatments’ leads to an overestimation of the effectiveness of contract farming. The practitioner-oriented literature indicated the high risk of failure in the first years and stressed the need for adaptive management and mechanisms to settle disputes. Apart from food security effects, the role of contract farming in rural development, such as (sector-wide) innovation, and livelihood resilience, will need more research.

Conclusion: Modest expectations and careful planning are needed for contract farming to be effective and sustainable. However, it is important for policymakers to be realistic about the potential scope of contract farming. Thus, policymakers should not think of contract farming as a solution to the problems of credit, information, and market access for all small and marginal farmers . Model Contract Farming Act should be a promoting and facilitating Act as is intended, and should not end up as a over-regulating act distorting the market for both players.

New era of P2P Lending in India

Crowd-funding is a relatively old practice commonly known as “friends and family financing.” The transparency and scalability of Web 2.0 technology has emerged as a social media-based funding mechanism leading to development of Peer to Peer platform. Crowdfund investing (CFI) is the investment alternative to pledge-based crowdfunding. This term, which describes securities based equity and debt fundraising through crowdfunding platforms, has recently emerged as an alternative to more traditional funding tools such as bank loans, angel or venture capital (VC) investments for financing entrepreneurs and small and medium-sized enterprises (SMEs). Debt crowdfunding is more popular and commonly known as peer-to-peer lending (P2P lending). It is the practice of matching borrowers and lenders through online platforms.

This is an innovation in entrepreneurial finance that can fuel the Rise of the Rest globally. In the developed world, most platforms are donation and perks-based. The early success of platforms, such as Kickstarter, has brought annual growth in the number of platforms of 60% CAGR. PwC has presented an analysis on P2P lending Peer pressure: How P2P is transforming consumer lending industry. PwC paper discusses how peer-to-peer lending platforms are transforming the consumer lending industry and the key considerations that financial institutions should evaluate when deciding on their strategic response.

Is P2P disruptive? I would say it certainly has been, but in the Indian context, it can make serious and material difference to the credit scene in the country. Access to finance is the most common constraint to growth cited by entrepreneurs in a broad range. Growth rates are higher for smaller enterprises yet the size of them becomes stagnant after a certain turnover. More recently, micro-finance has succeeded in expanding access to credit for the poor but high level of interest rates hinder the formation of surplus. By allowing customers to borrow smaller sums and lower interest rates than MFIs, the advent of P2P finance can open more possibilities for reaching the under-served than ever before. Currently the recommended rate of interest ranges from 12% p.a. to 28% p.a. and the loan tenure ranges from 6 months to 36 months.



The Fintech revolution in India had also facilitated a sudden boom in Indian P2P lending industry. The Indian P2P lending space has players like LendBox, LenDenClub, IndiaMoneyMart, Monexo, Rupaiya Exchange, LoanBaba, CapZest, and i2iFunding. Until few years back, there was no regulation in place to regulate P2P Lending. Any entity could undertake the business of P2P Lending Platform without any restriction and accountability. RBI has shared master directions for NBFC–Peer to Peer Lending Platform in 2017 and updated as on February 23, 2018. The new regulatory era began when Faircent become the First and only RBI recognized P2P lending platform.

India must find an appropriate balance between protecting investors and ensuring the flow of capital to early-stage companies. Modest and balanced regulatory schemes will more likely to accelerate formation of high growth MSMEs and crowd-funding ecosystems. The existing companies which are currently carrying on the business of P2P lending has been given 3 months’ time to apply for registration as an NBFC-P2P within 3 months from the date of the direction i.e. January 03, 2018. Recently, reports surfaced that digital payments giant Paytm is in the process of seeking a license from the RBI to operate a P2P lending platform.

Most of the MSME owners don't have the assets to present a collateral and hence don't qualify for the traditional finance. The need for collateral, from lender perspective, arises because default rates in this segment are higher and are unfeasible for profitable lending. However, only a small portion of borrowers (entrepreneurs) default and majority of this group forms a genuine customer base. But unfortunately, today there is no mechanism to segregate good portfolio from the bad in MSMEs. Hence, the lenders mandate some form of collateral to manage the risk. To reach their complete potential, this systemic hindrance & risk management must be tackled by P2P platform. Investors will be needing standardized and efficiently delivered information about business plans, use of proceeds, valuation and other disclosures in order to make investment decisions. The future is bright but the customer protection measures in place: caps on investment size, repayment frequency, tenor, margins and lending rate can lead to a sustainable Business model.

Development Consultants - Retention

A recent study of more than 600,000 researchers, entertainers, politicians, and athletes found that high performers are 400 percent more productive than average ones. Steve Jobs summed up talent’s importance with this advice: “Go after the cream of the cream. A small team of A+ players can run circles around a giant team of B and C players.” But only big 4 Consulting firms and donor agencies have power over the candidate with good monetary compensation and brand value. The other organizations have to design better HR retention strategy as they don't have deep pockets.

Being a leader at development organization is a tough task. There are essentially three basic ingredients that teams expect from a leader: Direction, Trust and Hope. Hence, building high impact team is tough as each individual require set of smart goals, timely feedback, progress monitoring, and supporting mechanism in the team. Yet, being a leader can lull one into a state of complacency. In that state one tend to assume that development consultants are subject to their will. One forget that a consultant can decide to leave them at any time. A leader can't retain development consultants alone on relationship basis. The company must support the leader with multiple levers (monetary, role, culture, growth, area of work) to manage and retain talent.

Monetary rewards are important. Development Consultants are mounted with education loans, rising inflation costs and increased peer pressure that further push talented lot to frequent hopping. Job security remains the number one reason that attracts development consultants in India, while salary is the number one driver to retain them. The organizational survey data indicates that the ability to match salary demands has been identified as the most critical challenge to hire individuals in the senior (65% of respondents) and middle management (59% of respondents) cadres, especially in urban areas. [ Talent Infusion in social enterprise]

360 Degree Feedback: Development consulting firm must set a good example of managing candidate expectations by clearly defining and communicating the job role while also developing an exposure program for the new recruit. This must includes performance in probation period, annual salary increment, leave policy etc.

Fairness in Appraisal: The most averted topic always come to haunt the enterprise during this phase. Fairness is the essence of justice. When the appraisal happen in a partisan manner and often whim of CEO, there will be disgruntled consultants.

Intrapreneurship is the biggest opportunity for the managers, and can be instrumental in bringing big rewards. The monetary incentive to bring the business and client delight must be top priority for the development consultant. Such intrapreneurs must provide support the firm to start new ventures under the umbrella of the parent organization.

Overburdening the development consultant with many consulting projects without offering a substantiate reward/ promise of the reward is a regular practice in development consultancy firms. This can't be brushed under the carpet as learning curve only. The burnout is a major reason to break away from the organization.

Flexible hours: Development consultants want to have more flexibility in their working hours and remuneration packages than a pay increase. This can be introduced successfully in organizations by converting to the “total cost to company” concept and where the different generations and individual development consultants can choose to work less hours or condense their hours as well as how much of their remuneration packages is allocated to the various benefits and allowances made available by the organization.

Work from home: While permitting flexible timings of work including permission to work from remote location must be encouraged. Encouraging development consultants to have a ‘work from home’ day at-least twice a week will be a great motivator. Many development consultants end up putting in additional effort on these days as well.

Stock options:Equity in the organization is key factors in managing senior management talent. In other words, they create a sense of ownership in their development consultants who has shown loyalty and participated in the revenue of the firm.

Volunteer Experience: Encouraging development consultants to work in other organizations for short term and get more hands-on experience for develop new skills/network can be used by the firm.

Mentoring and career growth planning is important for middle and junior management. The insight into mentor's expertise by receiving critical feedback in key areas, such as communications, interpersonal relationships, client management, technical abilities, and leadership skills must be done in official manner. Gaining knowledge about your organization's culture and unspoken rules that can be critical for success and; therefore, adapting more quickly to your organization's culture.

Access to Professional Network: Professional networking opportunities like conferences, mentoring, or even secondment to other parts of the organization, where they can get deeper insights into the work the organization does, and the difference it really makes. Networking with a more influential development consultants and donors always help in developing professional network of the consultant.

Visibility: Everyone wants to work with a star performer. The drive of HR Manager must be for making a consultant into star performer. Fundamentally, opportunities and visibility creates a positive loop – visibility increase faster if one work on more opportunities; and one is picked for more opportunities if one has a higher visibility. The recognition of the peers is often greatest motivation factor in the ecosystem of organization.

There is a British saying I always loved, “penny wise, pound foolish.” Organization spent more money in hiring new recruits rather than retaining in house talent. Retaining your good development consultant is such a valuable activity to focus on; it means spending less on employee turnover, reducing the chances of knowledge loss, and that keeps the morale of the team high. What is often overlooked when considering the retention strategies, is the habit of encouraging and listening to feedback from the exiting development consultants. They focus on retaining star consultant while they actually need a cadre of good consultants rather than solo star.

Organizations always crib the fact that candidates lack the soft-skills to work in a development consultancy. But the not-for-profit sector isn't generally known for offering the structured training programs or even assigning a mentor that some big corporates provide. There will no perfectly finished development consultant to hire. There will be critical gaps in soft skills among candidates most of times, especially at the middle management and junior staff level. What must be non negotiable is good understanding of the sector with relevant technical skills.

Development Consultants - Hiring

A Development Consultant’s primary role is to own and give technical advisory to the client projects and to facilitate research, in-depth analysis, and insightful problem-solving. It is common for clients/consultancy firms to find social consultants through personal links and alumni networks, and while this may be effective, it is weak in terms of competition, transparency, and accountability. The best way is to reach a range of potential consultants is to use free digital networks like Face-book Groups or LinkedIn or pay to advertise on job portals like NGOBOX. This improves the impartiality, build the credibility of the recruitment process, and creates chances of diversity in the organization.

The sure way to build pipeline of talent is to build good relationships with one or two recruitment partners who can provide access to quality talent and help benchmark against the industry. The recruitment process must also include advertising the post through personal networks, asking colleagues for recommendations, or encouraging particular consultants to apply. Referral is the proof that the culture and profile of the organization has positively impacted life of employees. Getting referred candidates is an important part of the process and although this does not make it a more open procedure it provides an element of cross-checking. It is important to know if someone is recommending a consultant or just passing information to their contact details.

One must look for a generalist while hiring a development consultant for the middle and lower ladder of the management. The expertise is to build slowly in the young recruit over the years. Some skills are needed in all consultancy work and may be as important as specific areas of knowledge or experience. For example, the ability to understand a situation quickly, to get on well with people and, perhaps above all, to be able to write quickly and clearly. In most cases of consultancy, knack for networking, budgeting and writing skills are crucial for a junior consultant. A Development Consultant needs to demonstrate capability:

1. Technical skills which are specific to the sectors
2. Business Communication and Interpersonal skills, which apply to all situations
3. Consulting skills, which apply to the requirements of each consulting phase
4. Relevant Work Experience (Consulting) or even Project Implementation
5. Lead Generation for Business Development and Networking
6. Extra: Local Activism, Volunteer Activities, Data Analysis & Quantitative Skills

The screening of the candidates can be done on the parameters given above in the resume. Screening resumes usually involve filtering based on the role’s minimum and preferred qualifications. The biggest challenge of screening resumes by far is volume. The recruitment process must be designed in four stages.

1. Communication Skills through Telephonic Interview
2. Quantitative Skills through Small scale B-Plan/ Budgeting
3. Analytical and Technical Skills: Analysis through a case study
4. The Last round should be Interview: Career vision, leadership, and team building

Even an organization will always put credence in analyzing track records and relevant experience, reviewing written reports, and talking to referees. But it is in the interview where chemistry is established and essential intangibles like passion, adaptability, and fit are determined. The trick is to hire mix of star and undervalued people and then give them proper leadership, guidance, environment and tools. Star will give you stellar performance for a short period of time (1-2 Years) while an undervalued person will deliver tremendous loyalty and above average performance when given proper mentor-ship and supportive structures. Hiring an undervalued consultant is not about promoting incompetence but the same as buying good stocks at a low worth.


Whenever you question the investment in hiring, always remember a great vision without great people is irrelevant. Good development consultants are expensive. As they say, If you pay peanuts, you get monkeys.

Tax Benefit to Farmer Producer Companies

Providing interest-free loans and tax holidays is a subsidy. In fact, the corporates thrive on such subsidies. Corporations use most of the loopholes and tax dodges to avoid their taxes that may be technically ‘legal’ in the sense as the tax law allows them. But those subsidies got into the tax code because corporations lobbied to put them there. Saying something is ‘legal’ doesn't mean that it’s ethical.

The difference being, these subsidies are called ‘incentives for growth’. But, strangely, it is always subsidies for the poor/farmers that come under the scanner. Even big individual agriculturists are not taxable in this country, whereas when they collectivize themselves, they were being taxed. Institutions promoting FPOs and Union agriculture ministry were seeking income-tax exemption for FPOs for a long time.

Union Budget has proposed that FPCs, registered under the Companies Act, having an annual turnover up to INR 100 crore need not pay tax on profits derived from farm-related activities. There was the deduction of income under section 80P of the Income-tax Act of producer companies registered under Par IX-A of the companies Act. This is a welcome step but many hindrances still remain. For those interested, a detailed note on the need for tax benefit to FPO by Dr. Irina Garg, Director General of NIAM was shared with the Ministry of Agriculture and Farmers Welfare and the Ministry of Finance.

To the Registrar of Companies, the FPO is just another form of a company. Therefore, the cost and burden of reporting are disproportionately huge, as the rules are the same as what would apply to a corporate. Any reporting shortfalls or violations attract huge fines from RoCs. Institutions that championed the cause of FPOs have been vocal about the need for a lighter regulatory & reporting regime for FPOs. Thus far, this issue has not received attention. Unless that is done, the risks that farmer directors face are serious.

Thoughtful Present!

Development solutions are inherently difficult, every individual in this field experiences failure at some points. Even when it comes to mundane work, everyone needs advice. Whether one isn't sure how to tackle an assignment or want to talk through an interesting job offer, there’s nothing better than having a few mentors to help you out along the way. As an individual gaining new skills by working with a mentor, one can take on more ambitious projects; As one recognize new problems to address, one can work with the mentor to develop additional expertise.

Being mentored helps in the career from 'sleepwalking into slow terminal decline'. And, on the job mentoring is much more effective than formal training programs. Mentor-ship is given when someone with expertise and experience takes an aspiring individual under their wing, to share their knowledge and advice, and to provide support and guidance in career development.

It's hard to praise boss and credit him/her as a mentor. Yet, here I am doing so. I am currently working with Mr. Swaminathan S who is quite democratic and empowers everyone around him. He is prepared to stick around for a good, long conversation about the career road up, out, and forward. Being mentored has helped me to break down the barriers between the theoretical knowledge and practical realities in development, as well as provide a much needed support network in early phase of my career.

As they say gifts come without warning when we least expect them. Got a copy of Rain Making: Attract New Clients No Matter What Your Field by Ford Harding from mentor near closing of the financial year. In Dante’s Inferno, at the bottom-most circle of hell, the ungrateful are punished by being eternally frozen in the postures of deference they had failed to perform during their lifetimes: trapped rigid in enveloping ice, they stand erect or upside down, lie prone, or bow face to feet.”

I rarely acknowledge thoughtfulness, and generosity of the power-holders. Yet, I do this time.

Indian CSR model

Indian Corporate Social Responsibility (CSR) laws have only set minimum standards, but have not created an impetus for positive action. The reported expenditure on CSR projects doesn't give a good metric of societal welfare. Issues are emerging in the Indian CSR model that is worth being paid much attention to. At present, the fate of most CSR can be termed as similar to the glorified IRDP scheme. There is a huge noise but nobody to verify the impact measured. The characteristics of the Indian CSR model:

Integration of business objectives with CSR: A study by Macarthur Foundation has found that CSR spending is highly agenda-driven and closely aligned to the corporation’s business strategies, competencies, and brand recognition. Tata Motors started a safe driving program. ITC went in and realigned its supply chain to help farmers. HUL works with children in schools and mothers through health clinics to educate them about hygiene behavior.

The scope of CSR is limited as it is seen either as a Public Relations exercise or Branding campaign by most of the companies. That is why outreach initiatives involving mass participation, such as the Marathons are funded by CSR rather than direct marketing sponsorship. Few companies responsible for acquiring lands through coercion, disposing of toxic waste unchecked, doing unmeasured usage of groundwater and unethical labor practices can counter this with a positive PR campaign.

Lack of Professional Human Resource: Companies deploy mostly Human resources from HR, Public Relations, and Marketing departments in the CSR wing. CSR with a good budget requires independent function and skilled project managers. The lack of vision leads to poor strategic planning and bias mechanism to channelize the money. There is also too much interference by the top management without the required skill set for the course correction and arbitrary suggestions to partner NGOs.

Government interference in CSR: Current government has been actively encouraging CSR investments in its pet schemes such as the Swachh Bharat Abhiyan initiative. Hence, government priorities have resulted in a very large chunk of CSR money being invested in a handful of programs to win direct or indirect goodwill from the government. Instead of revenue collected through taxation of the companies for democratically determined priorities, CSR money goes into whatever the companies prefer to emphasize. In other words, ‘mandatory’ CSR will remain largely voluntary.

Sectoral Preference: There are interesting insights while reading India CSR Outlook Report 2017. CSR spending is almost uniformly focused on community development, education, and health, and is often directed to mostly well-established NGOs and causes. Education projects received almost one-third of total CSR spent. Skills development projects received 5% while Swachh Bharat related projects received 7.3% of the Country’s CSR spent.

CSR fund is primarily focused on health and education because they are for the short term, tangible, and more visible. Community Development, Relief work, Women empowerment, Environment protection, working with disables & orphans comes secondary activities in the list. The tertiary level of involvement is in the field of skill development, livelihoods, and financial inclusion. These activities are not much taken up due to complexity in program design, lack of professional experience, and exposure of the CSR team in the given sectors. Journalism Fellowship, Rights, and advocacy-based grants are neglected by the CSRs. The reason for the neglect is simple as the funding outcome may come indirectly lead to confrontation with the state.

Funded NGOs: As far as funding NGOs are concerned, CSR spending has more strings attached than a foreign foundation. Instead of organizing the community, NGOs work on survival instincts. Local NGOs are approached by CSRs to implement their own pre-formulated programs according to their own agendas and outreach policies. This means a big gap arises between CSR requirements and real development needs.

Fraudulent Practices: Some companies are using on hire charitable trusts to fabricate CSR spending. Read more at: How Indian companies are misusing public trusts to launder their CSR spending.

Impact Investors: CSR funding currently cannot go directly towards impact investments at present. But Impact investors can currently adopt a Social Venture Fund (SVF) legal entity under Category I of India’s securities regulator SEBI’s Alternative Investment Fund (AIF) Regulations. The recommended amendment will be allowing CSR guidelines for financing to a Social Venture Fund.

There are no quick fixes when it comes to solving social issues. India Inc needs to wake up to its social responsibilities. Indian CSR is in a nascent stage and will take years of maturity to support activities with intangible outcomes. The impact numbers with the length and breadth of the activities are available but there is a lack of strategy and sustainable investment models. The future lies in the deployment of the entrepreneurial mind of corporates in designing the impact interventions. Report on India Inc spending on CSR 2017-18 will give the readers a story towards change in a year.