What is Contract farming?
Farming is an age-old means of livelihood for millions of Indians. However, there have been few systems/models in which farmers are assured of a market for their produce, leave alone a remunerative price.
Farmers have on occasion had to throw their produce away for want of buyers. This is one side of the coin. On the other is the agri-based and food industry, which requires timely and adequate inputs of good quality agricultural produce. This underlying paradox of the Indian agricultural scenario has given birth to the concept of Contract Farming, which promises to provide a proper linkage between the ‘farm and market. Farmers in India are all set to see a sea-change in agriculture sector soon, thanks to contract farming. contract farming is emerging as an important institutional arrangement in India that promotes coordination between production and marketing activities.
Contract farming involves a pre-agreed price between the company and the farmer. The agreement is defined by the commitment of the farmer to provide an agricultural commodity of a certain type at a time and a price and in the quantity required by a committed buyer, mostly a large company.
It is clear why the business sector is gunning for contract farming. They seek to integrate the supply chain to ensure timely availability of quality and quantity of raw material. Significantly, it also reduces the procurement cost for them by doing away with the middlemen. It leads to significant gains for them, as not only do they get the raw material as per their specific demands, the cost is also much less.
It is also believed that the participation of the corporate sector in the farming segment will play a crucial role in technology transfer, capital inflow as well as lead to assured markets for crop production.
The model which is most popular in the country today is the one in which the contractor supplies all the inputs required for cultivation, while the farmer supplies land and labour. However, the terms and nature of the contracts vary according to the crops grown, the agencies involved, the farmers themselves and technologies and the context in which contract farming is taken up. Generally, a farmer’s participation is limited to production in the fields.
However, in the present context, contract farming is clearly a win-win situation for both the corporates and the farmers. Agriculture sector is facing a number of problems in the country and farmers actually don’t have many options in the matter of deciding whether or not to go in for contract farming.
With rising debt and soaring seed and fertiliser costs, contract farming seems to be the only choice left open to them. This is mainly because the company provides all the material including seeds as well as technical know-how and there is also a guarantee of purchase of the produce after harvest. In most cases, the minimum price of the produce is fixed in advance. In the present scenario, the increasing number of farmers’ suicides is seen as a reflection of the fact that agriculture is no longer seen as a profitable venture.
This makes the economic security offered by the contract farming very attractive. The detractors of the contract farming believe that far from being a panacea for agriculture sector, contract farming is likely to increase the problems.
The main concern is that the land, which is currently used to grow staple crops like wheat and rice, will be used to grow crops required by the food-processing industry, which also has a significant overseas market. The switch to contract farming, therefore, leads to a rise in exports.
The main thing is that farmers don’t have any role to play in contract farming except providing the corporates with labour and land. About 70 per cent of the population is dependent on agriculture.
Farmers have on occasion had to throw their produce away for want of buyers. This is one side of the coin. On the other is the agri-based and food industry, which requires timely and adequate inputs of good quality agricultural produce. This underlying paradox of the Indian agricultural scenario has given birth to the concept of Contract Farming, which promises to provide a proper linkage between the ‘farm and market. Farmers in India are all set to see a sea-change in agriculture sector soon, thanks to contract farming. contract farming is emerging as an important institutional arrangement in India that promotes coordination between production and marketing activities.
Contract farming involves a pre-agreed price between the company and the farmer. The agreement is defined by the commitment of the farmer to provide an agricultural commodity of a certain type at a time and a price and in the quantity required by a committed buyer, mostly a large company.
It is clear why the business sector is gunning for contract farming. They seek to integrate the supply chain to ensure timely availability of quality and quantity of raw material. Significantly, it also reduces the procurement cost for them by doing away with the middlemen. It leads to significant gains for them, as not only do they get the raw material as per their specific demands, the cost is also much less.
It is also believed that the participation of the corporate sector in the farming segment will play a crucial role in technology transfer, capital inflow as well as lead to assured markets for crop production.
The model which is most popular in the country today is the one in which the contractor supplies all the inputs required for cultivation, while the farmer supplies land and labour. However, the terms and nature of the contracts vary according to the crops grown, the agencies involved, the farmers themselves and technologies and the context in which contract farming is taken up. Generally, a farmer’s participation is limited to production in the fields.
However, in the present context, contract farming is clearly a win-win situation for both the corporates and the farmers. Agriculture sector is facing a number of problems in the country and farmers actually don’t have many options in the matter of deciding whether or not to go in for contract farming.
With rising debt and soaring seed and fertiliser costs, contract farming seems to be the only choice left open to them. This is mainly because the company provides all the material including seeds as well as technical know-how and there is also a guarantee of purchase of the produce after harvest. In most cases, the minimum price of the produce is fixed in advance. In the present scenario, the increasing number of farmers’ suicides is seen as a reflection of the fact that agriculture is no longer seen as a profitable venture.
This makes the economic security offered by the contract farming very attractive. The detractors of the contract farming believe that far from being a panacea for agriculture sector, contract farming is likely to increase the problems.
The main concern is that the land, which is currently used to grow staple crops like wheat and rice, will be used to grow crops required by the food-processing industry, which also has a significant overseas market. The switch to contract farming, therefore, leads to a rise in exports.
The main thing is that farmers don’t have any role to play in contract farming except providing the corporates with labour and land. About 70 per cent of the population is dependent on agriculture.
Contract farming is defined as a system for the production and supply of agricultural/horticultural produce under forward contracts between producers/suppliers and buyers. The essence of such an arrangement is the commitment of the producer/ seller to provide an agricultural commodity of a certain type, at a time and a price, and in the quantity required by a known and committed buyer.
Contract farming is an organizational arrangement that allows firms to participate in and exert control over the production process without owning or operating the farms. Independent growers perform the cultivation.
Contract farming is an organizational arrangement that allows firms to participate in and exert control over the production process without owning or operating the farms. Independent growers perform the cultivation.
What are the different types of contracts?
The contracts can be classified into three, not mutually exclusive categories viz., market specification, resource providing and production management. The market specification contracts are pre-harvest agreements that bind the firm and grower to a particular set of conditions governing the sale of the crop. The conditions specify price, quality and pricing. Resource providing contracts oblige the processor to supply crop inputs, extension or credit, in exchange for a marketing agreement.
Production management contracts bind the farmer to follow a particular production method or input management, usually in exchange for a marketing agreement or resource provision. In various combinations these contract forms permit the firms to influence the production technology and respond to the markets without having to operate their own plantations.
The contracts can be classified into three, not mutually exclusive categories viz., market specification, resource providing and production management. The market specification contracts are pre-harvest agreements that bind the firm and grower to a particular set of conditions governing the sale of the crop. The conditions specify price, quality and pricing. Resource providing contracts oblige the processor to supply crop inputs, extension or credit, in exchange for a marketing agreement.
Production management contracts bind the farmer to follow a particular production method or input management, usually in exchange for a marketing agreement or resource provision. In various combinations these contract forms permit the firms to influence the production technology and respond to the markets without having to operate their own plantations.
Contract farming is not totally new to our country. When the white revolution was born in India, Contract farming also came into being by the introduction of Operation Flood I & II. Milk cooperatives of Gujarat under the banner Amul are running examples of a type of Contract farming. The Sugar Cooperatives of Maharashtra and also in many states, growing of fruit crops (papaya, passion fruit, pine apple) and seed cotton in Tamil Nadu on similar pattern, cultivation of oil seeds especially Sunflower in North are examples of the currently practiced systems of Contract farming.
Why Contract farming in India?
1. In our country the farmers face the problems of traditional technology and management practices, little bargaining power with input suppliers and produce markets, inadequate infrastructure and market information, lack of post-harvest
management expertise, poor package of produce and inadequate capital to grow a quality crop. They are waiting for change for better living standards.
2. Contract farming helps small farmers to participate in the production of high value crops like vegetables, flowers, fruits etc and benefit from market led growth.
3. Extensive areas are required by the Agroprocessors for an intensive cultivation to build an uniform method of cultivation that would reduce their production and transaction costs with the growers.
4. Effective & efficient monitoring of production operations, extension activities and credit delivery in a conjugal area is easy in Contract farming.
5. Contract farming will maximise the profits to the farmers and minimise risk in farming like production related risks, transfer price risk and produce risk.
6. There is a tendency amongst the users to go in for environmental friendly, value added quality agroproducts in their daily life.
7. The farmers find it easy to get under one roof inputs, technological & extension services, postharvest processing facilities and more importantly, the marketing of their produce with assured cash returns.
8. Contract farming facilitates more and more private Companies to develop backward linkages with the farmers.
9. Access to crop loans at attractive terms through tie-ups with Banks is facilitated through contract farming.
10. There is a tendency amongst farmers to go in for an alternate cropping systems for better monetary returns.
What is the present stage of contract farming in India?
The Union Agriculture Ministry is putting its weight behind contract farming drafting a model law to give legal support to a practice that can give small farmers access to modern technology and resources. An institutional mechanism is being contemplated to record contractual arrangements and help resolve possible disputes.
The Union Agriculture Ministry is putting its weight behind contract farming drafting a model law to give legal support to a practice that can give small farmers access to modern technology and resources. An institutional mechanism is being contemplated to record contractual arrangements and help resolve possible disputes.
The farm ministry detailed an agenda for expansion of agricultural credit to the tune of Rs.7,36,570 cr. during 10th Plan and the official note to the finance ministry gave financing of contract farming by banks priority.
Agricultural and Processed Food Products Development Authority is developing policy guidelines on contract farming for forwarding to state governments for implementation. The guidelines will focus on regularising the relation between producers and processors of food materials. During this year, 20 Agri-Export zones will be set-up in different states that would integrate the complete process from production to export stage and contract farming is being
encouraged to rope in local farmers to join these export zones as members to pool in their produce.
encouraged to rope in local farmers to join these export zones as members to pool in their produce.
The national agricultural policy, announced last year, had highlighted the need for an increase inthe private sector participation in farming by leasing private land for agri-business and contract farming to private companies.
The Standing Committee on Food Management and Agricultural Exports had recommended suitable amendments to the State Agricultural Produce Marketing Regulation Act to promote development of marketing infrastructure in private and co-operative sectors, direct marketing and contract farming.
Contract farming is already undertaken in tea estates by major companies including Pepsi Food, ITC, Hindustan Lever and for crop diversification by Mahindra Shubhlab Services with Punjab Agro Food grains Corporation;Escort Limited with Punjab Agro for Basmati rice and durum wheat besides drawing a plan to set up grain handling and storage facilities like conveyor belts and silos and earmarking Rs.1 billion for contract farming and creating post-harvest infrastructure in Punjab and other states in next 3 years.
Punjab plans to diversify crops in 1.5 million acres in next 4 years through contract farming. Already 3 lacs acres under contract farming have been diversified from paddy and wheat to commercial crops like maize, barley, white
mustard, Basmati rice and oil seeds during this year.
mustard, Basmati rice and oil seeds during this year.
In Karnataka, wide varieties of vegetables, gherkins, lime, pomegranate, grapes for resins, pearl onions, asparagus and mangoes for pulp are already covered under contract farming.
Our Bank financed under contract farming to the tune of Rs.14.86 lacs in Villupuram, Chiitoor and Salem districts for gherkins,cotton, maize etc. Financing for medicinal plants has been taken up under contract farming.
What are the advantages for Bankers?
More coverage under credit to agriculture is facilitated with comparatively less production, processing and marketing risks with the spread of risk between different players in the field.
More coverage under credit to agriculture is facilitated with comparatively less production, processing and marketing risks with the spread of risk between different players in the field.
There will be reduction in transaction cost of lending as the intermediaries is less.
Banks can go in for diversification in financing practices and coverage of crops.
As there would be tie-up with reputed companies, the risk of NPA would be the least. The farmers realise remunerative and assured prices for their produce with better surplus that Banks could tap for their resources by way of deposits.
Being part of second green revolution it enhances the emotional bondage between farmer-banker relationship and thereby giving customer-delight to the backbone of this country viz. the farmers. To conclude, Contract farming is a ‘grow to order’ way of farming that facilitates easy access to millions of farmers for an assured and organized production, processing, marketing and credit linkages to usher in Green Revolution II in India.
CONTRACT FARMING
Contract farming refers to varied formal and informal agreements between producers and processors or buyers. It may include loose buying arrangements, simple purchase agreements and supervised production with input provision, with tied loans and risk coverage.
In this system for the production and supply of agricultural/horticultural produce are under forward contracts between producers/suppliers and buyers. The essence of such an arrangement is the commitment of the producer/ seller to provide an agricultural commodity of a certain type, at a time and a price, and in the quantity required by a known and committed buyer. Contract farming usually involves the following basic elements-pre-agreed price, quality, quantity or acreage (minimum/maximum) and time (Manage 2003). Contracts can range from oral deals to formal, registered written contracts.
Features
1. Creating New Markets
2. Efficiency and Economics of Scale
3. Ensuring Quality Standards
4. Facilitating Diffusion of Modern Technologies
5. Minimizing' Transaction Costs
6. Coping with Information Asymmetries
7. Price Volatility
8. Sharing of Risk
1. Creating New Markets
2. Efficiency and Economics of Scale
3. Ensuring Quality Standards
4. Facilitating Diffusion of Modern Technologies
5. Minimizing' Transaction Costs
6. Coping with Information Asymmetries
7. Price Volatility
8. Sharing of Risk
Why Contract farming
- To reduce the load on the central & state level procurement system.
- To increase private sector investment in agriculture.
- To bring about a market focus in terms of crop selection by Indian farmers.
- To generate a steady source of income at the individual farmer level.
- To promote processing & value addition.
- To generate gainful employment in rural communities, particularly for landless agricultural labor.
- To flatten as far as possible, any seasonality associated with such employment.
- To reduce migration from rural to urban areas.
- To promote rural self-reliance in general by pooling locally available resources & expertise to meet new challenges
Contract Farming Models
There is a wide range of organizational structures that are embraced by the term `contract farming'. The choice of the most appropriate one to use depends on the product, the resources of the company, the social and physical environments, the needs of the farmers and the local farming system (Eaton and Shepherd, 2001). Some of the contract farming models practiced in India are presented below.
There is a wide range of organizational structures that are embraced by the term `contract farming'. The choice of the most appropriate one to use depends on the product, the resources of the company, the social and physical environments, the needs of the farmers and the local farming system (Eaton and Shepherd, 2001). Some of the contract farming models practiced in India are presented below.
I. Private – Farmer Model
Poultry sector in Tamil Nadu made an impressive mark in promoting contract farming as an effective institutional alternative for promotion of broiler production. Suguna Poultry Farm Ltd, has emerged as one of the leading integrated broiler producers in the country, with contract farming. Contract poultry farming managed to free the small farmers from the worries of production and market planning of the poultry products. At present, nearly 90 per cent of the poultry farming in Tamil Nadu has come under the contract farming concept.
Poultry sector in Tamil Nadu made an impressive mark in promoting contract farming as an effective institutional alternative for promotion of broiler production. Suguna Poultry Farm Ltd, has emerged as one of the leading integrated broiler producers in the country, with contract farming. Contract poultry farming managed to free the small farmers from the worries of production and market planning of the poultry products. At present, nearly 90 per cent of the poultry farming in Tamil Nadu has come under the contract farming concept.
2. Public-Private-Farmer model
State Department of Agriculture under 'tripartite public-private partnership' proposed contractual cotton cultivation programme in Thanjavur, Nagapattinam, Tiruvarur (coastal), 'I'irunelveli, Salem, Erode and Namakkal Districts. The farming focus will be on clustervillages in these districts and the contract farming facilitation will be through supply of credit-linked quality inputs to the farmers enrolled under the project which will be organised through the agricultural extension centers. The model to be followed will involve banking and insurance companies for credit input and loss guarantee and the choice of the cotton and their quality parameters would be decided in consultation with the Tamil Nadu Agricultural University and the textile mills in the State through Southern India Mills’ Association. The farming model would also receive incentive support from various State and Central Government schemes.
State Department of Agriculture under 'tripartite public-private partnership' proposed contractual cotton cultivation programme in Thanjavur, Nagapattinam, Tiruvarur (coastal), 'I'irunelveli, Salem, Erode and Namakkal Districts. The farming focus will be on clustervillages in these districts and the contract farming facilitation will be through supply of credit-linked quality inputs to the farmers enrolled under the project which will be organised through the agricultural extension centers. The model to be followed will involve banking and insurance companies for credit input and loss guarantee and the choice of the cotton and their quality parameters would be decided in consultation with the Tamil Nadu Agricultural University and the textile mills in the State through Southern India Mills’ Association. The farming model would also receive incentive support from various State and Central Government schemes.
3. Private-Community Grower Group-Farmer Model
Ion Enviro undertakes contact farming with Community Grower Groups (CGG) having large acreage, on a profit-sharing basis. Farmers are trained in-house in scientific organic farm management and certification. Community Grower Groups are promoted through non-governmental-organisation or sell-help group or registered association. They follow fair trade practices wherein middlemen are eliminated, child labour is banned, men and women are given equal status, and transparency in trade is maintained. In the process, they bring to rural areas the best of organic processes and water management techniques, thereby educating and empowering farmers. Production is executed in accordance with protocol requirements as per EEC 2092/91 standards. Written and documentary accounts are recorded to trace the origin, nature and quantities of raw materials procured and their usage (Ion exchange Enviro farms, 2005). The crops cultivated include Banana, Wheat, Cotton, Papaya, Pineapple, Basmati, Mango, Soybean, Tur, Black Gram, Green Gram, Tumeric, Grapes, Bengal Gram, Groundnut, Sesame and Cashew.
4. Private Consortium - Farmer model
Hindustan Lever Ltd (HLL), Rallis and ICICI jointly promote contract farming in wheat in Madhya Pradesh. Under the system, Rallis supplies agri-inputs and know-how, ICICI provide farm credit to the farmers and HLL buysback the farm output. In this model, farmers benefit through the assured market for their produce in addition to timely, adequate and quality input supply including free technical know-how; HLL benefits through supply-chain efficiency; while Rallis and ICICI benefit through assured clientele for their products and services. The model can he extended by including insurance firms, warehouses and manufacturers of equipments and machinery.
Ion Enviro undertakes contact farming with Community Grower Groups (CGG) having large acreage, on a profit-sharing basis. Farmers are trained in-house in scientific organic farm management and certification. Community Grower Groups are promoted through non-governmental-organisation or sell-help group or registered association. They follow fair trade practices wherein middlemen are eliminated, child labour is banned, men and women are given equal status, and transparency in trade is maintained. In the process, they bring to rural areas the best of organic processes and water management techniques, thereby educating and empowering farmers. Production is executed in accordance with protocol requirements as per EEC 2092/91 standards. Written and documentary accounts are recorded to trace the origin, nature and quantities of raw materials procured and their usage (Ion exchange Enviro farms, 2005). The crops cultivated include Banana, Wheat, Cotton, Papaya, Pineapple, Basmati, Mango, Soybean, Tur, Black Gram, Green Gram, Tumeric, Grapes, Bengal Gram, Groundnut, Sesame and Cashew.
4. Private Consortium - Farmer model
Hindustan Lever Ltd (HLL), Rallis and ICICI jointly promote contract farming in wheat in Madhya Pradesh. Under the system, Rallis supplies agri-inputs and know-how, ICICI provide farm credit to the farmers and HLL buysback the farm output. In this model, farmers benefit through the assured market for their produce in addition to timely, adequate and quality input supply including free technical know-how; HLL benefits through supply-chain efficiency; while Rallis and ICICI benefit through assured clientele for their products and services. The model can he extended by including insurance firms, warehouses and manufacturers of equipments and machinery.
5. Industry - Research Institute- Farmer model
Pepsi Foods Ltd. entered India in 1989 by installing a tomato processing plant at Gahura in Hoshiarpur district of' Punjab to produce aseptically packed pastes and purees for the international market. Grower plants the company's crops on his land, and the company provides selected inputs like seeds/saplings, agricultural practices, and regular inspection of the crop and advisory services on crop management. The PepsiCo model of contract farming, in terms of' new options for farmers, productivity increases, and the introduction of, modern technology, has been an unparalleled success. Another important factor in PepsiCo's success is the strategic partnership of the company with local bodies like the Punjab Agricultural University (PAU) and Punjab Agro Industries Corporation Ltd. PepsiCo is successfully emulating the above model in food grains (13asinati rice), spices (chillies) and oilseeds (groun(nut) and vegetable crops like potato. It also brings in the state of art technology. At Sonepet, the company has a ISO 9002 and Hazard Analysis Critical Control Point (LIACCP) certified Rice Mill. Belgaum (Karnataka)-based Ugar Sugar Works Ltd., which established a successful backward linkage with farmers of Northern Karnataka for supply of barley for its malt unit.
Pepsi Foods Ltd. entered India in 1989 by installing a tomato processing plant at Gahura in Hoshiarpur district of' Punjab to produce aseptically packed pastes and purees for the international market. Grower plants the company's crops on his land, and the company provides selected inputs like seeds/saplings, agricultural practices, and regular inspection of the crop and advisory services on crop management. The PepsiCo model of contract farming, in terms of' new options for farmers, productivity increases, and the introduction of, modern technology, has been an unparalleled success. Another important factor in PepsiCo's success is the strategic partnership of the company with local bodies like the Punjab Agricultural University (PAU) and Punjab Agro Industries Corporation Ltd. PepsiCo is successfully emulating the above model in food grains (13asinati rice), spices (chillies) and oilseeds (groun(nut) and vegetable crops like potato. It also brings in the state of art technology. At Sonepet, the company has a ISO 9002 and Hazard Analysis Critical Control Point (LIACCP) certified Rice Mill. Belgaum (Karnataka)-based Ugar Sugar Works Ltd., which established a successful backward linkage with farmers of Northern Karnataka for supply of barley for its malt unit.
6. Grading House - SHG - Farmer model
Appachi Cotton Company (ACC), the ginning and trading house in Pollachi under the name Integrated Cotton Cultivation (ICC), established backward and forward integration between the `grower' (farmer) and the `consumer' (textile units). The contract assured the farmers easy availability of quality seeds, farm finance at an interest rate of 12% per annum, door delivery of unadulterated fertilisers and pesticides at discounted rates, expert advice and field supervision every alternate week, and a unique selling option through a MoU with ACC. The core principle of the formula lies in the formation of farmers' Self Help Groups (SHGs).
Appachi Cotton Company (ACC), the ginning and trading house in Pollachi under the name Integrated Cotton Cultivation (ICC), established backward and forward integration between the `grower' (farmer) and the `consumer' (textile units). The contract assured the farmers easy availability of quality seeds, farm finance at an interest rate of 12% per annum, door delivery of unadulterated fertilisers and pesticides at discounted rates, expert advice and field supervision every alternate week, and a unique selling option through a MoU with ACC. The core principle of the formula lies in the formation of farmers' Self Help Groups (SHGs).
The cases discussed here are a few among several such successful ventures by corporates involved in food processing, agro-commodity and food products exports. The demonstrated successes of gherkin exporters of Southern India, which is over 90% based on contract larrning, and that of Marico's safflower procurement through a successful backward linkage model, are also worth mentioning.
Contract categories
1) Marketing Contract.
2) Production Contract
3) Basis Contracts.
4) Technology License Agreements
Contract categories
1) Marketing Contract.
2) Production Contract
3) Basis Contracts.
4) Technology License Agreements
Advantages
To The Farmer:
- Exposure to world class mechanized agro technology.
- Obtains an assured up front price & market outlet for his produce.
- No requirement to grade fruit, as mandatory for fresh market sale.
- Bulk supplies versus small lots as again required by the fresh market.
- Crop monitoring on a regular basis, technical advice, free of cost at his doorstep.
- Supplies of healthy disease free nursery, agricultural implements, technical bulletins etc, and remunerative returns
To The trader:
- Uninterrupted & regular flow of raw material.
- Protection from fluctuation in market pricing.
- Long term planning made possible.
- Concept can be extended to other crops, builds long term commitment
- Dedicated supplier base
- Generates goodwill for the organization.
Contract Framing by the Government resulted in, assured food security, increased farm incomes, Safeguarded our public distribution system and increased employment opportunities for rural landless
One of the examples of success of contract farming is Punjab Pepsi, Punjab Agro Industries Corporation (PAIC) and Punjab Agricultural University (PAU) Partnership in Profile and the impact of contract farming in Punjab is what follows
¨Tomato yields increased threefold, from 16 - 52 MT / hectare. Chilli & potato yields improvements were equally dramatic
¨Production of tomato in the state of Punjab went up to 200,000 MT, from 28,000. Technology spread to non-Pepsi growers
¨Fresh market prices for tomato dropped, with increased availability. However farm incomes increased.
¨Chilli yields increased from 2.5 MT to 9 MT per acre
¨Move to contract farming of other crops - Groundnut, Basmati & non-Basmati paddy
¨Contract farming of broilers between Coimbatore hatcheries with farmers
¨Marigold farmers and extraction units in Coimbatore
Beyond the limit of advantages in contract farming some of the problems also analyzed such as,
One of the examples of success of contract farming is Punjab Pepsi, Punjab Agro Industries Corporation (PAIC) and Punjab Agricultural University (PAU) Partnership in Profile and the impact of contract farming in Punjab is what follows
¨Tomato yields increased threefold, from 16 - 52 MT / hectare. Chilli & potato yields improvements were equally dramatic
¨Production of tomato in the state of Punjab went up to 200,000 MT, from 28,000. Technology spread to non-Pepsi growers
¨Fresh market prices for tomato dropped, with increased availability. However farm incomes increased.
¨Chilli yields increased from 2.5 MT to 9 MT per acre
¨Move to contract farming of other crops - Groundnut, Basmati & non-Basmati paddy
¨Contract farming of broilers between Coimbatore hatcheries with farmers
¨Marigold farmers and extraction units in Coimbatore
Beyond the limit of advantages in contract farming some of the problems also analyzed such as,
Problems in Contract Farming
- Small size of farmer landholdings.
- Need to contract with a larger number.
- No mechanism to discourage default. No legal recourse when faced with large scale contravention of contracts.
- Lack of a comprehensive crop insurance scheme to protect against natural calamities.
India, given the diverse agro climatic zones, can be a competitive producer of a large number of crops.
Need to convert our factor price advantage into sustainable competitive advantage. Contract farming offers one possible solution. Contract farming provides farmers with access to markets that would not otherwise have been available to them. Without the quality control and tight coordination offered by contract farming, it is frequently unlikely that smallholders would be able to sell perishable goods overseas through open market sales. The most significant income increases have been generated from contract farming.
Contract farming could reduce food production if a new contract cash crop displaced a previously grown food crop. Evidence suggests that such displacement does not frequently occur when farmers are allowed to make their own decisions. In such cases, the contract crop tends to displace a less profitable cash crop rather than a food crop. Local governments often favour contract farming in the belief that it will produce greater spillover or linkage effects with the local economy than would plantation production
Need to convert our factor price advantage into sustainable competitive advantage. Contract farming offers one possible solution. Contract farming provides farmers with access to markets that would not otherwise have been available to them. Without the quality control and tight coordination offered by contract farming, it is frequently unlikely that smallholders would be able to sell perishable goods overseas through open market sales. The most significant income increases have been generated from contract farming.
Contract farming could reduce food production if a new contract cash crop displaced a previously grown food crop. Evidence suggests that such displacement does not frequently occur when farmers are allowed to make their own decisions. In such cases, the contract crop tends to displace a less profitable cash crop rather than a food crop. Local governments often favour contract farming in the belief that it will produce greater spillover or linkage effects with the local economy than would plantation production
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