India makes ‘contract farming’ legal; stock limits on food processors lifted

Players in the food processing value chain got a shot in the arm as the government allowed them to keep stocks without any limits subject to their capacities  and export orders. It also unveiled a clutch of schemes aimed at boosting the infrastructure facilities and logistics chains across the value chain from farm-gate to retailing and exports.

Many food processors and other investors in the allied sectors may now be prompted to enter contract farming, as the government has virtually given legal backing to such ventures.

With the proposed easing of inter-state trade in farm goods, food processors, aggregators and retailers can now buy directly from the farmers without being hamstrung by the intransigent APMCs and cut costs as they won’t have to pay the assorted mandi taxes and commissions.

Government-assisted investments to promote food clusters, processing development assistance at farm-gate and supporting FPOs for post-harvest infrastructure will all help reduce wastage and improve the overall productivity of the food supply chains. The move will be of particular benefit to the horticulture sector, consisting of fruits and vegetables.

“Amendments to the Essential Commodities Act, reforms in agricultural marketing and risk mitigation through predictable prices will empower farmers, strengthen agri-food processing linkages and enable demand-driven value added agriculture. The reforms will encourage investments in food processing and together with the infrastructure outlays will contribute in shaping a competitive agri value chain, reduce wastages and raise farmer incomes,” said ITC chairman Sanjiv Puri

Food processors will now be able to stock the adequate quantity required for processing without fear of breaching stock-holding limits. Unlike Europe or Australia, most of the processing units in India have lower capacities in agri and horticulture produce and they would not like to block working capital by stocking more than their actual requirement.

Having scaled a peak of almost $43 billion in FY14, India’s farm exports, including that of processed items, have remained under pressure in recent years and stood at $38.5 billion in FY19. In the April-January period of FY20, such exports witnessed an 8% slide to almost $29 billion, far exceeding the contraction on overall merchandise exports. The fall in exports will only accentuate in this fiscal due to the Covid-19 outbreak.

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