Amit seminar on contract farming
Post on 14-Apr-2017
CONTRACT FARMING IN INDIA PRESENT STATUS, SCOPE, OPPORTUNITY, CONSTRAINTS, IMPORTANCE AND STRATEGIES FOR ITContract Farming: - It is an agreement between farmers & processing and marketing firms for the production and supply of agricultural products under certain agreement, frequently at predetermined prices.Objective of Contract farming: - To achieve consistent quality To achieve regular supply To improve quality of produce To stabilize the agro-raw produce Price is not affected by market pricesIntroduction:- Agriculture is the mainstay of Indian Economy and about 65 percent of Indian population depends directly on agriculture. It has to support almost 17 per cent of world population from 2.3 per cent of world geographical area and 4.2 per cent of worlds water resources. The economic reforms, initiated in the country during the early 1990s, have put the economy on a higher growth trajectory. Though its contribution to the overall Gross Domestic Product (GDP) of the country has fallen from about 30 percent in 1990-91 to less than 15 percent in 2011-12, a trend that is expected in the development process of any economy, agriculture yet forms the backbone of development (Annual report 2013-14). Agriculture derives its importance from the fact that it has vital supply and demand links with the manufacturing sector. The nation is striving to find ways and means to keep its burgeoning population adequately fed. On the one hand it is facing the problem of declining productivity and on the other, challenges posed by liberalization. In such a scenario, leveraging the available natural resources and existing infrastructure is the only way to make the ends meet.Indian agriculture, as it exists today, has come a long way from its hitherto image of being non-commercial and traditional in its methods of farming. With the increasing demand for value added and high quality niche products, Indian agriculture has been forced to step up and adopt commercially, technically and economically viable agribusiness solutions. Business and investment opportunities in this sector have suddenly jumped manifold. However, so far only a few successful efforts have been made by corporate to enter into the sector through contract farming.Contract farming is generally defined as farming under an agreement between farmers and a Sponsor (processor, exporter, and marketing firm) for the production and supply of agricultural products under Forward Agreement often at pre-determined prices. The basis of the relationship between the parties is a commitment on the part of the farmer to provide a specific commodity in quantities and in quality standards determined by the purchaser and an undertaking of the sponsor to support farmers the production and to purchase the commodity. It has the potential of combining small farmer efficiency, utilizing corporate management skills, providing assured markets and reducing transaction costs in the value chain by ensuring vertical integration. Contract farming is a win-win situation for both the parties and leads to building a platform for improvement of farm incomes, development of agro-processing and expansion of rural economy. The contract could be of three types: (1) Procurement contract under which only sale and purchase conditions are specified; (2) Partial contract wherein only some of the inputs are supplied by the contracting firm and produce are bought at pre agreed price. (3) Total contract under which contracting firm supplies and manages all the inputs on the farm and the farmer becomes only the supplier of the land and labor. The relevance of each type varies from product to product and from time to time. (Singh Sukpal 2000) Recent years have witnessed a shift to diversify higher value products such as fruits, vegetables, eggs, meat, dairy, fish and flowers in India through contract farming.Contract Farming System has the potential of addressing most of the urgent and critical needs of the Indian Agriculture Sector. It offers, perhaps, the only way to make small scale farming competitive by enabling small farmers to access technology, credit, marketing channels and information while lowering transaction costs. At the same time, it offers a feasible and viablemodel of private sector participation in agriculture on a massive scale. Contract farming has the potential to be an effective instrument to work as an aggregator at the grassroot level of small and marginal farmers by giving them access to technology, inputs, capital, extension and risk management. Successful contract farming also provides a platform for supply of reliable agricultural produce of specified quality for the establishment and development of processing sector and reliable and competitive channel for supply of exports as well.Progress of Contract Farming in IndiaContract Farming was introduced for the first time in Taiwan in 1895 by the Japanese Government. In India, Contract Farming has its historical roots during the time when the Europeans first introduced indigo and opium cultivation in the Bengal Region, under the East India company rule. ITCs contracts with the farmers of Andhra Pradesh for growing Virginia tobacco during the 1920s, Contract Farming by PepsiCo for the cultivation of vegetables particularly tomatoes and potatoes in Hosiarpur Taluk of Panjab in 1927, emergence of seed companies during the 1960s, the green revolution during the 1970s and finally the tomato farming contracts by PepsiCo in Punjab during the 1990s can be quoted as some of the milestones in the emergence of Contract Farming in India. Several cash crops like tea, coffee, rubber, indigo etc are introduced in various parts of the country, mostly through a central expatriate-owned estate surrounded by small out growers model (Chakrabarti, M. 2015). Since the Green Revolution, the Central Government started the largest Contract Farming model, through which it subsidized fertilizers, provided new hybrid variety seeds, provided training and also guaranteed the procurement by State agencies with a minimum support price. The Model Agricultural Produce Marketing (Regulation) Act circulated by the Central Government to the States in 2003 for implementing marketing reforms has provisions for the registration of Contract Farming sponsors and recording of Contract Farming agreements with the Agricultural Produce Marketing Committee (APMC) or a prescribed authority under the Act, protection of title or rights of the farmers over the land under such contracts, dispute settlement mechanism and a model draft agreement suggesting various terms and conditions. To help States in the formulation of rules in this regard, the Ministry of Agriculture has also circulated a set of Model APMC Rules to them for adoption. By now, relevant provisions have been made by several state governments in their respective APMC Acts for providing a legal framework to Contract Farming. In India, Contract Farming by the corporate sector has so far been more of a case of buy back and input supply, except for some exceptions in states like Punjab, where the state is actively involved in some of the contracts (Satish H.S., 2012). Some of the Contract Farming initiatives by the corporate sector in India are given in Table 1.Table 1: State wise Contract Farming initiatives by private companies in IndiaSTATECOMPANYCROPAREA (ha.)KarnatakaHimalaya Health Care Ltd.Ashwagandha700Mysore SNC oil Co.Dhavana400-500AVT Naturals Products Ltd.Marigold and caprice Chilli4000Natural remedies Pvt. LtdColeus15020 Pvt. CompaniesGherkins8000MaharashtraTinna Oil and ChemicalsSoybean1,54,800ION Exchange Enviro farms Ltd.Several fruit, vegetables, cereals and pulses19MadhyapradeshCargil India Ltd.Wheat, soybean and Maize17000Hindustan Lever Ltd.Wheat15000ION Exchange Enviro farms Ltd.Several fruit, vegetables, cereals and pulses12098ITCSoybean1200PanjabNIJJER Agro Food Ltd.Tomato and chilli250United Breweries Ltd.Barley2270Satnam Overseas, Sukhjit StarchBasmati, Maize4000Satnam Overseas, Amira Indian Food Ltd.Basmati14700PepsiCo India Ltd.Basmati, groundnut, potato and chilli6000Nestle India Ltd.Milk65000000 lit./dayTamil NaduSuper Spinning 570 millsCotton570Bhuvi Care Pvt. Ltd.Maize800Bhuvi Care Pvt. Ltd.Paddy200Appachi CompanyCotton260Source: Nature and Scope of Contract Farming in India by H.S. Satish (2012)Need for contract farming in India: Production and marketing are very critical in India. Overcome inadequate linkages with market. Lack of capital, poor infrastructure, technology transfer, etc To avoid post harvest losses. Unfavorable conditions for procurement. To avoid migrations.TYPES OF CONTRACTS:1. Marketing contract Only purchase at predetermined price. No input supply. 2. Partial contract Provides only some inputs at predetermined price. Purchase of produce. 3. Total contract All the inputs at predetermined price. Purchase of produce. Models of contract farming in India:Depending upon the sponsor, role of the sponsor, and role of other parties, contract farming can be implemented by adopting more than one model. Three models have been adopted in the past in our country. These are as follows:Three models of contract farming 1. Bipartite Agreement modelThe Bipartite model was adopted by Pepsi in its contract farming enterprise in panjab which commenced in early 1990s. Pepsico, Voltas and Panjab Agro Industries Corporation (PAIC) formed a joint venture. This joint venture supplied seedlings to the contract farmers and agreed to purchase a specified quantity of certain quality of produce at pre-fixed price and time.2. Tri-partite Agreement model Under the stste-led contract farming model (which is launched in Panjab in 2002), the stste agency such as Punjab Agro Food-grains Corporation (PAFC) provides inputs and extension services to contract growers and buys back the produce at pre-agreed price to be sold to a processing or marketing company later.3. Quad-partite Agreement model The quadripartite model has been followed by companies such as Mahindra Shubhlabh Services Ltd. (MSSL) and Rallis. Under this system, the sponsor provides inputs to the registered growers for a fee. The sponsor, by virtue of its tie-up with processor/marketers and banks is capable of offering the registered grower a complete package, if it may be termed so.Advantages and Problems of Contract FarmingAdvantages of Contract Farming Advantages for the farmersThe main benefit of a contractual agreement for farmers is that the sponsor will normally undertake to purchase all produce grown, within specified quality and quantity parameters. Contracts can also provide farmers an opportunity to access a wide range of managerial, technical and extension services that otherwise may be unattainable. Farmers can use the contract agreement as collateral to arrange credit with a commercial bank in order to fund inputs. Thus, possible advantages of Contract Farming for farmers are given below -i. Provision for better inputs and production services: For ensuring a proper crop husbandry practices in order to achieve projected yields in required qualities many contractual arrangements involve considerable production support in addition to the supply of basic inputs such as seed and fertilizer. Sponsors may also provide land preparation, field cultivation and harvesting as well as free training and extension.ii. Easy access to Credit: With the collapse or restructuring of many agricultural development banks, the majority of small holder producers experience difficulties in obtaining credit for production inputs. Contract farming usually allows farmers access to some form of credit to finance production inputs. Arrangements can also be made with commercial banks or government agencies through crop liens that are guaranteed by the sponsor, i.e. where the contract serves as collateral.iii. Application of better technology: New production techniques are often necessary to increase productivity as well as to ensure that the commodity meets market demands. However, small scale farmers are frequently reluctant to adopt new technologies because of the possible risks and costs involved. Private agribusiness will usually offer technology more diligently than government agricultural extension services because it has a direct economic interest in improving farmers production.iv. Improvement in skills of the farmers: The skills the farmer learns through contract farming may include record keeping, the efficient use of farm resources, improved methods of applying chemicals and fertilizers, knowledge of the importance of quality and the characteristics and demands of export markets. Farmers can gain experience in carrying out field activities following a strict timetable imposed by the extension service.In addition, spillover effects from contract farming activities could lead to investment in market infrastructure and human capital, thus improving the productivity of other farm activities. Farmers often apply techniques introduced by management (ridging, fertilizing, transplanting, pest control, etc.) to other cash and subsistence crops.v. Guaranteed Pricing System: The returns farmers receive for their crops on the open market depend on the prevailing market prices as well as on their ability to negotiate with buyers. This can create considerable uncertainty which, to a certain extent, contract farming can overcome. Frequently, sponsors indicate in advance the price(s) to be paid and these are specified in the agreement. Thus Contract Farming ensures guaranteed and fixed pricing structures.vi. Easy access to reliable market: Farmers will not cultivate unless they know they can sell their crop, and traders or processors will not invest in ventures unless they are assured that the required commodities can be consistently produced. Contract farming offers a potential solution to this situation by providing market guarantees to the farmers and assuring supply to the purchasers. Even where there are existing outlets for the same crops, contract farming can offer significant advantages to farmers. They do not have to search for and negotiate with local and international buyers, and project sponsors usually organize transport for their crops, normally from the farm gate.Advantages for the SponsorsThe possible advantages for the sponsors are as follows i. Political Acceptability: Contract farming, particularly when the farmer is not a tenant of the sponsor, is less likely to be subject to political criticism. It can be more politically expedient for a sponsor to involve smallholder farmers in production rather than to operate plantations. In recent years, many African governments have promoted contract farming as an alternative to private, corporate and state owned plantations.ii. Overcoming barriers on land restrictions: The majority of the worlds plantations were established in the colonial era when land was relatively abundant and the colonial powers had little conscience about either simply annexing it or paying landowners least compensation. However, in present days most large tracts of suitable land are either traditionally owned, costly to purchase or unavailable for commercial development.Contract farming, therefore, offers access to crop production farm land that would not otherwise be available to a company, with the additional advantage that it does not have to purchase it.iii. Production consistency and shared risk: Working with contracted farmers facilitates sponsors to share the risk of production failure due to poor weather, disease, etc. The farmer takes the risk of loss of production while the company absorbs losses associated with reduced or nonexistent throughput for the processing facility. Where production problems are widespread and no fault of the farmers, sponsors will often defer repayment of production advances to the following season. Both estate and contract farming methods of obtaining raw materials are considerably more reliable than making purchases on the open market.iv. Quality assurance: A steady markets for fresh and processed agricultural produce require reliable quality standards. Moreover, these markets are moving increasingly to a situation where the supplier must also conform to regulatory controls regarding production techniques, particularly the use of pesticides. Both estate and contracted crop production require close supervision to control and maintain product quality, especially when farmers are new with innovative harvesting and grading methods.5.2. Problems of Contract FarmingProblems faced by the farmersThe potential problems as confronted by the farmers due to Contract Farming are given below i. Possibility of greater risk: Farmers who were entering into a new contract farming venture should be prepare themselves to assess the prospect of higher returns against the possibility of greater risk. Such risk is more expected when the agribusiness venture is introducing a new crop to the area. There may be production risks, particularly where prior field tests are inadequate, resulting in lower-than-expected yields for the farmers. Market risks may occur when the companys forecasts of market size or price levels are not accurate.ii. Outdated technology and crop incongruity: The introduction of a new crop to be grown under conditions meticulously controlled by the sponsor can cause disruption to the existing farming system. Again, the introduction of sophisticated machines (e.g. for transplanting) may result in a loss of local employment and overcapitalization of the contracted farmer. Furthermore, in field activities such as transplanting and weed control, mechanical methods may produce less effective results than do traditional cultivation methods. Therefore, Field extension services must always ensure that the contracted crop fits in with the farmers total cropping regime, particularly in the areas of pest control and field rotation practices.iii. Manoeuvring in quotas and quality specifications: Incompetent management can lead towards production exceeding original targets. For example, failures of field staff to determine fields following transplanting can result in gross over planting. Sponsors may also have unrealistic expectations of the market for their product or the market may crumple unexpectedly owing to transport problems, civil unrest, change in government policy or the arrival of competitors. In some situations management may be tempted to manipulate quality standards in order to reduce purchases for honoring the contract. Such practices may cause sponsor-farmer confrontation, especially if farmers have no method to dispute grading irregularities. Therefore, all contract farming ventures should have forums where farmers can raise concerns and grievances relating to such issues.iv. Corruption: Problems occurs when staff responsible for issuing contracts and buying crops taking undue advantages of their position. Such practices result in a collapse of trust and communication between the contracted parties and soon undermine any contract. In a large contract, the sponsors can themselves be dishonest or corrupt. Governments have sometimes fallen victim to dubious or fly-by-night companies who have seen the opportunity for a quick profit. Therefore, in every case farmers who make investments in production and primary processing facilities run the risk of losing everything. Problems faced by the SponsorsThe possible problems as confronted by the Contract Farming Developers are outlined below i. Limitation on land availability: Farmers should have a suitable cultivable land on which they are to cultivate contracted crops. But problems can arise when farmers have minimal or no security of tenure as there is a possibility of drainage in sponsors investment as a result of farmer - landlord disputes. Difficulties may also arise when sponsors lease land to farmers. Some contract farming ventures are dominated by customary land usage arrangements negotiated by landless farmers with traditional landowners. While such a situation allows the poorest cultivator to take part in contract farming ventures, discrete management measures need to be applied to ensure that landless farmers are not exploited by their landlords. Before signing a contract, the sponsor must ensure that access to land is secured, at least for the term of the agreement.ii. Social and Cultural constraints: Promoting Contract Farming is a cultural, customary beliefs and religious issues. In communities where custom and tradition play an important role, difficulties may arise when innovative farming is introduced. Therefore, before introducing new cropping practices, sponsors must consider the social attitudes and the traditional farming procedures of the community and decide how a new crop can be introduced.iii. Farmers disgruntlement: Sometimes, situations may crop up which may leads towards farmer discontent; e.g. biased buying, late payments, incompetent extension services, poor agronomic counsel, undependable transportation for crops, a mid-season change in pricing or managements impoliteness to farmers will all normally aggravate the relationship between sponsors and the farmers. If not readily addressed, such circumstances will cause antagonism towards the sponsors that may result in farmers withdrawing from projects.iv. Below quality agro-inputs: Sometimes farmers are forced to use inputs supplied under contract for the purposes other than those they were intended for. They may choose to utilize the inputs on their other cash and subsistence crops or even to sell them. As a result contracted crops yields were reduced and the quality is affected. Improved monitoring by extension staff, farmer training and the issuing of realistic quantities of inputs can resolve the matter successfully. Majority of farmers conform to the agreement when they have information that the contract has the advantages of technical inputs, cash advances and a guaranteed market. However, until a project is very poorly managed, input diversion is usually an infuriation rather a serious problem.v. Sale of crops by the farmers beyond contractual agreement: The sale of produce by farmers to a third party, outside the terms of a contract, can cause major problem to the sponsors. However, extra-contractual sales are always possible when there is an alternative market. The outside buyers offered cash to farmers as opposed to the prolonged and difficult collection of payments negotiated through the cooperative. Sometimes the Sponsors may encourage extra-contractual practices as there are several companies working with the same crop (e.g. cotton in some southern African countries) and they could collaborate by establishing a register of contracted farmers. Managers must be aware of the situation when produce were sold outside the project and also when produce from outside being forced into the buying system. This happens when non-contracted farmers take advantage of higher prices paid by a well-known sponsor. Non-contracted crops are filtered into the buying system by outside farmers through friends and family who have crop contracts. Such practices make it difficult for the sponsor to regulate production targets, chemical residues and other quality aspects.Scope and Opportunities of Contract FarmingThe contracts could be of three types; (i) procurement contracts under which only produce sale and purchase conditions are specified; (ii) resource provision contracts wherein some of the inputs are supplied by the contracting firm and the produce is bought at pre-agreed prices; and (iii) total contracts under which the contracting firm supplies and manages all the inputs on the farm and the farmer becomes just a supplier of land and labour. Whereas the first type is generally referred to as marketing contracts, the other two are types of production contracts (Scott, 1984; Welsh, 1997). The relevance and importance of each type varies from product to product and over time and these types are not mutually exclusive (Hill and Ingersent, 1987; Key and Runsten, 1999). But, there is a systematic link between product and factor markets under the contract arrangement as contracts require definite quality of produce and, therefore, specific inputs (Scott, 1984; Little, 1994). Also, different types of production contracts allocate production and market risks between the producer and the processor in different ways.Dairy The onus of development of the dairy sector in India has been primarily with the cooperatives. Operation Flood (1970-1996) was a major breakthrough in the Indian dairy sector that rendered dairying a profitable occupation for millions of farmers, resulting in a significant impact on the livelihoods of small and marginal farmers. However with the amendment of the MMPO in March 2002, a number of private companies have entered the dairy market and are scaling up their procurement and processing activities. Nestle India, Limited, which started operations in 1961 in Moga district of Punjab with just 180 farmers, now has more than 98,000 contract farmers to source its daily requirement of liquid milk (Nestle 2006). Recently, Reliance has ventured into dairying, also starting its operations from Punjab, and there are reports of it rapidly expanding procurement volumes of liquid milk and network of contract farmers.Poultry The poultry sector is highly susceptible to production and marketing risks which periodically affect profitability, particularly of small farms. These risks also threaten the profitability of the industries engaged in breeding of chicks, and manufacturing of feed, vaccines and medicines. In order to minimize the risks to the producers and sustain the growth and profitability of the industry, some large poultry firms (for example, Venkateshawara Hatcheries Ltd., Suguna Poultry Farm Ltd., and Godrej Agrovet Ltd.) began vertically integrating breeding, hatchery, feed, and veterinary enterprises with broiler production Venkateshwara Hatcheries started its contract broiler operations during the mid 1990s in south and western India. In their model, broiler, prices are fixed by BROMARK growers also receiving a share of any additional profits earned due to rise in market prices, as well as an incentive for better feed-conversion efficiency. Suguna Poultry Farm Ltd. with a turnover of Rs.20.2 billion ($450 million) in 2007/08, is the largest poultry integrator in India, beginning operations in 1984 in Coimbatore and now operating with more than 15,000 contract growers in 11 states. Sugunas model provides contract growers with quality day-old chicks, feed, medicines, and technical support and guidance. Suguna then markets all output, paying growers an agreed fee per kilogram of weight gain, plus incentives for reducing mortality or improving feed conversion beyond specified norms.Fruit and Vegetables Contract farming in fruits and vegetables is being led by cooperatives, farmer groups, and private firms, both multinational and domestic. The entry of private firms can be traced back to the operations of PepsiCo in Punjab in 1989 and, in the recent past, quite a few retailers and agro processors have joined the foray. However, Mother Dairy, organized as a cooperative, is one of oldest players in this sector, entering into retailing of fresh fruit and vegetables and some processed items under the Safal brand in Delhi in 1988. Mahagrapes is an example contract farming led by a farmer group in Maharashtra.In an example of a public-private partnership, the Council for Citrus and Agri Juices in Punjab has ventured into contract farming of citrus orchards to supply Tropicana juices, a product of Pepsico. The Council has acquired 5,185 acres of land, of which 2,600 acres have been planted with sweet oranges, with a target to bring an additional 10,000 acres under citrus cultivation in 2008. Sam Agritech is a private company in Andhra Pradesh engaged in contract farming for grapes, pomegranates, mangoes, chikoos, and exotic vegetables. Initially, Sam Agritech contracted with large farmers based on the condition of their orchards and other details, but now is tying up with small farmers as well. Importance of Contract FarmingThe followings are the major importance of the contract farming. They are, stable income, higher income than non contract farming, market certainty, delivery service for inputs, ease of obtaining input, loan made available though financial institutions, learning new technology, infrastructure: road and ditch, information, news and networking, quality development, risk uncertainty is less, improved access to local markets, assured markets and prices (lower risks) especially for non-traditional crops, assured and often higher returns, enhanced farmer access to production inputs, mechanization and transport services, and extension advice, provision of inputs and production services, access to credit, introduction of appropriate technology, skill transfer, guaranteed and fixed pricing structures etc.Why Contract farming in India? 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. 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. Extensive areas are required by the Agro-processors for an intensive cultivation to build a uniform method of cultivation that would reduce their production and transaction costs with the growers. Effective & efficient monitoring of production operations, extension activities and credit delivery in a conjugal area is easy in Contract farming. Contract farming will maximize the profits to the farmers and minimize risk in farming like production related risks, transfer price risk and produce risk. There is a tendency amongst the users to go in for environmental friendly, value added quality agro products in their daily life. 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. Contract farming facilitates more and more private Companies to develop backward linkages with the farmers. Access to crop loans at attractive terms through tie-ups with Banks is facilitated through contract farming. There is a tendency amongst farmers to go in for an alternate cropping system for better monetary returns.Issues and concernsAs in any other form of contractual relationship, there are potential disadvantages and risks associated with contract farming also. Common contractual problems include farmer sales to a different buyer (side selling or extra-contractual marketing), a company's refusal to buy products at the agreed prices, or the downgrading of produce quality by the buyer. Side selling by farmers to competing buyers is perhaps the greatest problem constraining the growth of contract farming. Contractors also may default by failing to pay agreed prices or by buying less than the pre-agreed quantities. Another concern about contract farming arrangements is the potential for buyers to take advantage of farmers. Buying firms, which are invariably more powerful than farmers, may use their bargaining clout to their financial advantage. Indeed, if farmers are not well organized or where there are few alternative buyers for the crop or it is not easy to change the crop, there is a danger that farmers may have an unfair deal. Tactics sometimes used are changing pre-agreed standards, down grading crops on delivery so offering lower prices, or over-pricing for inputs and transport provided. Strengthening farmer organizations to better access appropriate services such as credit, extension services and market information and improving their contract negotiating skills can redress the issue of exploitation of farmers and poorly formulated contracts and their enforcement. Despite the typical problems listed above, contractual arrangements are gaining popularity as they are being used more frequently in agriculture worldwide.1. Soil fertility concerns:Mostly the crops cultivated under contract farming arrangements are generally of above-the-average quality, sometimes of export quality too. Due to heavy demand in the processed foods in western and other countries, crops suitable for such processed foods are grown under contract arrangements. The quality standards are set high for these products and to comply with high standards and to maximize output heavy dose of fertilizers, pesticides and insecticides are applied in the field which leads to deterioration in soil quality. High value crops need changes in cropping technologies. This leads to change in the cultural practices in the field. Repeated cultural operations like ploughing, weeding and watering leads to over exploitation of land and soil erosion ultimately occurs. Soil erosion again leads to depletion in soil fertility.2. Environmental issues:Due to over use of inorganic fertilizers and pesticides in the fields under contract cultivation of crops the environment gets disturbed which ultimately leads to air-, soil- and water pollution.Bio-diversity issuesDespite being the mainstay of the economy and the main source of livelihood for the people, agriculture has failed to meet the economic requirement of the people depending upon it. Among the various reasons of this failure is the gradual shift marked in the trend of agriculture which has undergone a transformation from low cost, traditionally evolved, and sustainable multi-cropping to artificially induced, high cost, externally dependent unsustainable mono-cropping. Such unsustainable shift in the agriculture sector can be attributed to development of a perspective that considers conservation of agricultural biodiversity as anathema to the dominant resource exploitative development paradigm which focuses on a process that lays emphasis on short term maximization of returns from agriculture at the cost of the rich agro biodiversity. Dominance of such perspective does not augur well for the agro-biodiversity in the state. The government seems to have entirely ignored these worrying facts about the agriculture biodiversity and has moved ahead with its programs to usher in privatization of agriculture in the state. Taking advantage of the government support private players have already started promoting monoculture of cash crops like jatropha and cotton in different parts of the state. Promotion of cash crops, which is undermining the already fragile and vulnerable agricultural biodiversity, has reportedly led to an increase in the instance of poverty and food insecurity because cash crop farming has increased the dependency of the farmers on external inputs, therefore their dependency on private agencies. Such farming has also increased the input cost and hence the credit requirement of farmers which in turn has led to these farmers falling into the debt trap. In addition to that, monstrous innovation like introduction of Genetically Modified Organisms (GMOs) in the field of agriculture has posed another threat to the farmers, that of contamination of genetic diversity which has got a direct impact not only on Agro- Biodiversity and related issues like food security but also on environment and human health. After having spread their tentacles across the world and in India, Genetically Modified Crops (GMOs), promoted by MNCs (Monsanto, Cargill) are now targeting farmers in Odisha.3. Food security concerns:Most of the crops grown under contract arrangements are cash crops which give more income to farmers but at the same time due to this profit motive food crops are being neglected. Even major food producing areas now are gradually moving towards non food crops under contract cultivation. With ever increasing population, need for food crops in the future will also increase. There is every possibility that contract farming might hamper the food security of the small farmers in future. Such mindless privatization which empowers the private companies to control and manage the agriculture sector is a threat for the already fragile agriculture biodiversity in the state. What is a cause of worry is the fact that this fragile agriculture biodiversity supports an equally fragile food security of the people. The food insecurity of the state stands at about 57 per cent of the states population according to the State Human Development Report. The same report, taking into account food availability, food access, and food absorption, represented by 19 indicators, put Odisha in the category of severely food insecure regions.4. Seed problems:The seeds of generally modified crops to tackle pests, diseases and to get maximum output are sold by the MNCs. The seeds once used cannot be regenerated as is the case of BT cotton. In such case the farmers under contract cultivation of such genetically modified crops are dependent on MNCs for seeds and planting materials. Since all inputs are assured by firms involved in the contract farming, the cost of supplying such demanding inputs is deducted by these farms from the amount to be paid to the farmers. So farmers always remain dependent on external agencies 5. Labour problems:Gender based exploitation of labour persists in many areas. Some technically demanding crops are handled by young girls under the age of fourteen, like in the case of cross pollination in cotton cultivation. It is revealed from that girls more than the age group of fourteen are not allowed to do such that due to old belief and gender problem. Also these girls are asked to work more than standard hours of working. A huge advance payment of salary is made to the parents of these girls for such work. This occurs mainly in cotton contract farming.6. Contract disputes:There are no standard legal procedures in resolving the disputes arising under contract agreements. Most of the reported cases of disputes are from farmers side. Also once these farmers get the confidence of producing such technically intensive crops and selling the same in open market they tend to break the contract with farms. Also the quality standards set by the farms result in contract disputes either by firms side or by farmers.7. Middle mans influence:Most of the firms involved in contract arrangement with farmers have fixed middle men to procure the produce from the farmers. These middle men either on their own or joining hands with the firms often under-evaluate the quality of the harvest. Under contract arrangements payments are to be paid based on the quality standards. When the produce is under-evaluated by such middle men the farmer ultimately gets lower price for his produce.Future strategies of contract farmingBased on the above study, the following recommendations are made for an improved Contract Farming Model of agriculture in India -i. Present provisions of institutional arrangement to record all contractual arrangements should be made effective. The Panchayat or Gram sabha, particularly in PESA areas or in case of Forest Right Holder communities, may be connected with this process. This will promote and strengthen confidence building between the parties and also help to solve any dispute arising out of violation of contract.ii. There should be a contract farmers association or cooperatives at the plant level which will improve bargaining power of the farmers and the sponsors and promote equality of partnership. It will also minimize the role of middlemen or commission agents who are involved in marketing of the contract commodities on behalf of the company.iii. The selection of appropriate plant genotype is one of the crucial factors for Contract Farming. Unless the plant material is of good quality and high yielding and also less prone to pests and diseases, the contract farmers may lose their confidence and discontinue the cultivation of contracted crop.iv. Every contract farming agreement should have a provision for both forward and backward linkages. Unless both input supply and market for the produce are assured, small farmers are not encouraged to participate in contract farming.v. Bank finance to small and marginal farmers should be on easy terms. A sustainable contract farming requires adequate infrastructure facilities e.g. roads, public transport, telephones, postal services, stable power and water supplies, cold storage facilities, etc. Therefore, it is the responsibility of the governments to provide the minimum necessary infrastructure facilities like roads, electricity, cold storage, and market yards.vii. The contracts should be managed in clear and participatory manner so that there is greater social consensus in handling contract violation from either side without getting involved in costly and lengthy process of litigation. Also the terms of contract need to be more comprehensive and flexible.viii. In many parts of the country, agricultural tenancy is legally banned, although concealed tenancy exists. Tenants who do not enjoy security of tenure are unable to participate in contract farming. Hence, legalisation of tenancy is a prerequisite for the tenant farmers who will enter into contract farming. Although different forms of land tenants including share-croppers can be adopted to maintain the contract farming but security of tenure is a must.ix. As assured market of the farm motivates a farmer to enter into contract with a company, similarly market prospect for the processed products of the company should exist. Ultimately, it is the success of the company's product in national or international market, which decides whether contract farming for any particular crop or commodity would sustain.x. The government must ensure that contract farming, which is generally a commodity specific and tends to promote monoculture, does not grow beyond certain limit which will destroy biodiversity and agricultural ecology.xi. The Central Warehousing Corporation and the State Warehousing Corporations should develop commercially acceptable quality standards in respect of various commodities in order to ensure quality maintenance of the stored goods over a sufficiently longer period of time.xii. Updated database of contract farmers along with other relevant details such as the area & crops under contract, contracting agency, etc. should be maintained at various state levels and should be available to the public through a website.xiii. Agreements written in vernacular language should be given priority so that the local farmers can understand the terms of contract. To suite the other party, it can be made bilingual. Standard formats for farmer-friendly agreement should be designed and mandated by the governments.xiv. Contract Farming in lands recognized under Forest Rights Act is a virtual control of a person or agency other than the right-holder himself/herself and this lead towards violation of the spirit & mandate of the Act; therefore governments should take protective measures in this context.xv. Liability of the contractor for any environmental losses should be fixed by the government, and in case such losses occur, the penalty realized in a proportionately appropriate amount should be spent for restoring the concerned area, preferably through the local Palli sabha/ Gram sabha.DIFFERENT CASE STUDY OF CONTRACT FARMINGFigure1.CroppingPatternShiftsinSampleNon-ContractFarmersNon- Contract Farmers (2002)Wheat 42.2%Non Basmati rice 36.9%Basmati Rice 0.7%Sugarcane 11.0%Fodder crops 5.1%Maize 0.7%Others 3.3%Non- Contract Farmers (2007)Wheat 37.1%Non Basmati rice 27.7%Basmati Rice 9.3%Sugarcane 7.1%Fodder crops 6.2%Maize 2.9%Pulses 2.4%Oilseeds 6.2%Vegetables 1.2%Figure2.CroppingPatternShiftsinSampleContractFarmersContract Farmers (2002)Wheat 42.6%Non Basmati rice 35.0%Basmati Rice 9.9%Sugarcane 4.0%Fodder crops 4.9%Maize 3.3%Others 0.3%Contract Farmers (2007)Wheat 34.9%Non Basmati rice 19.7%Basmati Rice 21.3%Sugarcane 6.3%Fodder crops 6.6%Maize 0.8%Pulses 2.0%Oilseeds 0.9%Vegetables 6.6%Others 0.8%Figure1.CroppingPatternShiftsinSampleNon-ContractFarmersFigure2.CroppingPatternShiftsinSampleContractFarmersCropping PatternFarmers grow a variety of crops in the study area (Figure 1). In the contract households, rice (basmati and non-basmati) is a main crop occupying 41 percent of gross cropped area during kharif season and wheat (34.9%) in rabi season, accounting for over three-quarters of the total cropped area. Vegetables and sugarcane are two other important crops, occupying about 13 percent of gross cropped area. The average area allocated for fodder crops is about 6 percent. The area under basmati rice has increased between 2002 and 2007, whereas, area under non-basmati rice has declined during the same period. The cropping pattern on non-contract farms is also dominated by rice (37%) in kharif and wheat (37.1%) in rabi season, accounting for nearly 75 percent of the gross cropped area (Figure 1). Sugarcane accounted for over 7 percent of acreage, followed by oilseeds (6.2%), and fodder crops (6.2%). The area under basmati rice has increased between 2002 and 2007, whereas, area under non-basmati rice has declined during the same period. It is interesting to note than area under basmati rice is significantly higher (21.3%) in case of contract framers compared to non-contract farmers (9.3%). In contrast area under nonbasmati rice is higher (27.7%) in non-contract farmers compared to contract farmers. It is evident from the results that there is shift in area from water-intensive non-basmati rice to basmati rice in both contract and non-contract farmers after introduction of contract farming in the State. However, this shift in area is more pronounced in contract farmers compared with non-contract framers. These results clearly show the impact of government efforts to shift area from non-basmati rice, which is a water-intensive crop, to basmati rice (less water intensive crop). Impacts of Contract FarmingContract farming has been used to promote new high-value crops, which are more input intensive, risky, and market dependent for profitability, to lower costs either by yield improvement or cutting input costs through better extension services, and to raise returns by value addition to primary produce. In order to examine impact of contract framing in yields, we compared productivity levels of major crops such as rice (basmati and nonbasmati) and wheat between 2002 and 2007 on contract farms as well as between contract and non-contracts households in 2007 and results are presented in Figures 2. The per hectare productivity of basmati rice under contract farming showed an increase of about 12 percent (3.7 tonne in 2007 compared with 3.3 tonne in 2002), followed by nonbasmati rice (6.4% increase). While wheat productivity witnessed a declining trend and yield declined from 4.3 tonne per ha in 2002 to 4 tonne in 2007, which is consistent with state level productivity trends (Figure 2). Due to increase in crop productivity, area under basmati shows an increasing trend over the years. Many farmers believe that better quality seeds supplied by the companies along with better extension services have been responsible for increased crop yields in the area.Table 1. Net returns realized by contract and non contract farmers for baby corn and chilli in Karnataka ParticularsForeigncontractDomesticcontractNon-contractBabycornChilliBabycornChilliBabycornChilliVarietyPACSeriesConfidentialPACSeriesNs-114PACSeriesChikkaballapurYield(kg/acre)IGrade195440712259430716192894IIGrade-214-227--Price(Rs/kg)IGrade78786.610.2IIGrade-5-5--Returns(Rs/acre)Mainproduct136783363815814355911066929374Byproducts2871-4745-2019-Grossreturns165493363820558355911268829374Totalcostofproduction849926657994824484965323273Netreturns80506981106101110830356101Costofproduction/kg4.346.204.405.405.968.00Returnsperkg18.104.22.168.51.910.2Returnsperrupeeinvested,Rs2.01.32.11.51.31.3Karnataka Nagarajetal.2008Data show in Table 1 the total production cost of baby corn and chilli, the major item of expenditure was labour, accounting for about 30 per cent and 32 per cent in contract farming and 23 per cent and 32 per cent in non-contract farming, respectively. The impact of contract farming was clearly visible on the transaction costs (involved in marketing produce and buying inputs) of baby corn and chilli. These were Rs 89/acre and Rs 79/acre, respectively for farmers under foreign firm and Rs 6/acre and Rs 5/acre under domestic firms, respectively, while in the case of noncontract farmers, these costs were Rs 2,318/acre for baby corn and Rs 4,991/acre for chilli. For baby corn, the farmers under domestic contract firm realized higher productivity of 22.6 q/ acre compared to 19.5 q/acre under foreign contracting firm and 16.2 q/acre by non-contract farmers. The domestic contract farmers derived higher net returns than foreign contract farmers. In the case of non-contract farmers, the net returns (Rs 3,035) were less than one-third of domestic contract farmers (Rs 10,610) and slightly more than one-third of foreign contract farmers (Rs 8,050). In the case of chilli also, the net returns realized per acre were maximum under domestic contract farmers, followed by foreign contract farmers and non-contract farmers. The returns per rupee invested were higher in farming of baby corn in all the three categories than those of chilli farming. (Nagarajetal.2008).Table2.Per-hectareincomefromdifferentcropson contractandnon-contractfarmsCropfarms(Rs/ha)Contractfarms(Rs/ha)Non-contractfarmsChangeovernon-contractGherkin77066--Babycorn64681--Paddy31602272574345(15.3)Groundnut30462288211641(5.7)Sunflower2855330477-1924(-6.3)Chilli20372--Ragi16671122504421(36.1)Pnatnagar Jagdish and Prakash 2008Note:Figureswithintheparenthesesindicate percentageschangeovernon-contractfarmsTable3.Averagelevelofyearlyemploymentoncontractandnon-contractfarmsParticularsfarmsHiredhumanlabourContractNon-contractfarms(human-days)Changeovernon-contractfarms,%Male48(15.5)22(19.8)26*(118.2)Female261(84.5)89(80.2)172*(193.7)Totalhiredhumanlabour309(100)111(100)198*(178.4)Familylabour-useincropproductionMale197(70.4)64(73.6)133*(207.8)Female83(29.6)23(26.4)60*(260.9)Totalfamilyhumanlabour280(100)87(100)193*(221.8)Familylabour-useinlivestockproductionMale41(21.7)64(29.5)-23(-35.9)Female148(78.3)153(70.5)-5(-3.3)Totalfamilylabour189(100)217(100)-28(-12.9)Totalmalelabour286(36.8)150(36.1)136**(90.7)Totalfemalelabour492(63.2)265(63.9)227**(85.7)Totalhumanlabour778(100)415(100)363**(87.5)Pnatnagar Jagdish and Prakash 2008Notes:FigureswithintheparenthesesindicatepercentagestototalThefigureswithintheparenthesesindicatepercentagechangeovernon-contractfarms*and**indicatesignificanceat1percentand5percentlevels,respectively.Jagdish and Prakash 2008 at Pantnagar result revealed that Per-hectare Income from Crops on Contract and Non-contract Farms The crops grown under contract farming were not being grown normally by non-contract farmers. Therefore, it was not possible to compute additional cost incurred under contract farming and only incomes from various crops have been compared. The per-ha income for various crops under contract and non-contract farms has been reported in Table 2. A perusal of Table 2 reveals that among contract crops, the income generated by gherkin was highest (Rs 77066/ha), followed by baby corn (Rs 64681/ha) and paddy (Rs 31602/ha). Among noncontract crops, sunflower contributed the maximum (Rs 30477/ha), followed by groundnut and paddy. Sunflower was the only crop that yielded more income on non-contract than contract farms. It may be because the contract farmers devote their best land for the cultivation of contract crops and use relatively inferior land for cultivation of sunflower. Employment Generation The results for employment (per year, perhectare and crop-wise) generatation have been presented below. Per-year Employment on Contract and Noncontract Farms The average level of employment per-year on contract and non-contract farms, given in Table 3, reveals that contract farms employed more hired human labour than that by non-contract farms. The family human labour employed in crop production and livestock was also more on contract than noncontract farms. The overall average human labour employment generated was more on contract than non-contract farms, by 363 human-days/year (37% male and 63% female). It was due to higher cropping intensity, more labour-intensive crops and better economic status of contract farmers to pay wages for the hired labourers. Table 4 Category-wise production of barley on contract and non-contract farms, 2010-11Qha-1CategoryoffarmFarmsizeMarginalSmallSemi-mediumMediumLargeOverallContractfarmsMainproduct44.8645.6347.1648.5950.9847.03Byproduct40.3842.2043.0545.1746.2443.16Non-contractfarmsMainproduct38.4540.2741.1742.4644.7941.11Byproduct40.5442.4543.7244.4545.1043.17DifferenceMainproduct6.415.365.922.214.171.124(16.67)(13.31)(14.55)(14.44)(13.82)(14.40)Byproduct-0.16-0.25-0.670.721.14-0.01-(0.39) -(0.59) -(1.53)(1.62)(2.53)-(0.02)RajasthanSitaram and Kumawat,(2015)Figuresinparenthesesarethepercentincreaseinproductiononcontractfarmsovernon-contractfarmsThe perusal of Table 1 depicts the production of barley on contract and noncontract farms. The table indicates that overall production of main product and by-product on contract farms was worked out at 47.03 quintal and 43.16 quintal, respectively. These parameters (main product and by-product) were higher by 5.92 quintal (14.40 percent) and lower by 0.01 quintal (0.02 percent) than that on non-contract farms. Category wise the production of main product varied from 44.86quintal on marginal farms to 50.98 quintal on large farms and that of by-product from 40.38 quintal to 46.24 quintal on same size groups under contract farms. In case of non-contract farms main product varied from 38.45 quintal on marginal farms to 44.79 quintal on large farms and by-product varied from 40.54 quintal to 45.10 quintal on same size groups. Category wise production difference of main product on contract and non-contract farms was highest on marginal farms (16.67 per cent) followed by semi-medium (14.55 per cent), medium (14.44 per cent), large (13.82 per cent) and small farms (13.31 per cent) with an overall difference of 14.40 per cent. In case of by-product difference on contract and non-contract farms was highest on large farms (2.53 per cent) followed by medium farms (1.62 per cent). In case of marginal, small and semi-medium farms the difference was estimated to be negative indicates that the quantities of by-product on contract farms was less as compared to noncontract farms. (Sitaram and Kumawat,2015)PlayersCommoditiesType ofOwnershipSample SizeYearofsurveyinformationRelevant toEconomics of CF (Net profits(Rs/ton)/output perAcre )Area of StudyStudiesCFNCFCFNCFMilkfed-VerkaMilk&MilkProductsCooperative1171342005200452783960Punjab-LudhianaAnd RupnagardistrictsGupta et.al. 2006NestleMilk&MilkProductsCorporate(Multinational)152222002-032001-0236511821Punjab-MogadistrictBirthal et.al. 2005VenkateshwaraHatcheriesPoultryCorporate(Domestic)25252002-032001-0222552003Andhra Pradesh-Rangareddy,MehboobnagarAnd NalgondadistrictsBirthal et.al.2005Mother Dairy-SafalVegetables(spinach)Cooperative100502002-032001-0217911007Delhi and SonepatdistrictinHaryanaBirthal et.al.2005MahagrapesFruitsFarmers Group889520052004149809390Maharashtra-Pune,Nashik and SanglidistrictsRoy & Thorat. 2008Global GreenCompanyGherkinCorporate100Allofit isunderCF2004-052002-0335000(Rs/ha)Andhra PradeshRao.et.al.2008Annexure Table A1: Some Studies on Contract Farming In India Gulati et al. 2008.ConclusionFrom the ongoing presentation, it can be concluded that the India, given the diverse agro climatic zones, can be a competitive producer of a large number of crops. There is a Need to convert our factor price advantage into sustainable competitive advantage. Contract farming offers one possible solution.ReferencesAnnual Report 2006.Nestle India Limited.Annual Report 2013-14. Department of Agriculture and Cooperation Ministry of Agriculture Government of India.Asokan, S. R. 2005. A perspective of contract farming with special reference to India. Indian Journal of Agricultural Marketing 19 (2): 94-106.Birthal, P.S., P.K. Joshi and Ashok Gulati. 2005. Vertical Coordination in High Value Commodities: Implications for Smallholders. Markets, Trade and institutions Division Discussion Paper no. 85, International Food Policy Research Institute, Washington D.C.Chakrabarti, M. 2015. An Empirical Study on Contract Farming In India. International Journal of Informative & Futuristic Research 2 (5): 1464-1475.Gupta, Kanupriya, Devesh Roy and Harsh Vivek. 2006. Do Small Farmers gain from participation in producers organizations? The Case of Milkfed Dairy Cooperative in Indian Punjab, in From Plate to Plough: agricultural Diversification and Its Implications for the Smallholders in India. Submitted to Ford Foundation, New Delhi by International Food Policy Research Institute, Washington D.C.Hill B. E. and K. A. Ingersent 1987. An Economic Analysis of Agriculture, London, Heinemann.Key, N and Runsten, D. 1999. Contract Farming, Smallholders, and Rural Development in Latin America: The Organisation of Agroprocessing Firms and the Scale of Outgrower Production. World Development 27 (2): 381-401.Kumar, J. and Prakash, K. 2008. Contract Farming: Problems, Prospects and its Effect on Income and Employment. Agricultural Economics Research Review 21: 243-250Little, P. D. and M. J. Watts, 1994. Living Under Contract - Contract Farming and Agrarian Transformation in Sub-Saharan Africa, Madison, University of Wisconsin Press, 216-247.Nagaraj, N. Chandrakanth, M.G. Chengappa, P.G. Roopa, H.S. and Chandakavate, P. M. 2008. Contract Farming and its Implications for Input-supply, Linkages between Markets and Farmers in Karnataka. Agricultural Economics Research Review 21: 307-316Ram, S. and Kumawat, R.C. 2015. Effect of contract farming on production and price of barley in rajasthan Indian J Econ Dev 11 (4): 961-965Rao. Parthasarthy, P.K. Joshi, Ashok Gulati, Kavery Ganguly and Shravan. 2007. Agricultural Diversification in Andhra Pradesh, India: Patterns and Determinants. Manuscript submitted to IFPRI, New Delhi.Roy, D. and A. Thorat. 2008. Success in High Value Horticulture Export Markets for the Small Farmers: The Case of Mahagrapes in India. World Development 36 (10): 1874-1890.Satish H.S. 2012. Nature and Scope of Contract Farming in India. www.slideshare.net/.../natureand- scope-of-contract-farming-in-india accessed on 14th December, 2014.Scott, C D 1984. Transnational Corporations and Asymmetries in the Latin American Food System. Bulletin of Latin American Research 3(1): 63-80.Sharma, V. P. 2007. Indias Agrarian Crisis and Smallholder Producers Participation in New Farm Supply Chain Initiatives: A Case Study of Contract Farming. Indian Institute of Mmanagement, Ahmedabad.Singh, S. 2000. Contract Farming for Agricultural Diversification in the Indian Punjab: A Study of Performance and Problems. Indian Journal of Agricultural Economics 56 (3): 283-294.Singh, S. 2005. Contract Farming for Agricultural Development and Diversification in Punjab: Problems and Prospects. Journal of Punjab Studies 12(2): 251-269.Singh, S. 2006. Organic Produce Supply Chains in India, A research report, CMA, IIM, Ahmedabad.Singh, S. 2005. Contract Farming for Agricultural Development and Diversification in Punjab: Problems and Prospects. Journal of Punjab Studies 12(2): 251-269.Survey Report 2011. Contract Farming in Odisha: Prospects and Constraints. Social Educational Research and Voluntary Institute for Community Education (SERVICE), Bhubaneswar. Study commissioned by: Regional Centre for Development Cooperation (RCDC), Bhubaneswar. www.rcdcindia.org, www.banajata.org Welsh, R. 1997. Vertical Co-ordination, Producer Response and the Locus of Control over Agricultural Production Decisions. Rural Sociology 62(4), 491-507.*********************Dr. P.C. Chaplot Amit Kumar(Major Advisor) Ph.D. Scholar
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