CONTRACT FARMING: BOON OR BANE

PRESENTED BY

NEERAJA SASIDHARANNEERAJA SASIDHARAN

ASPEE AGRIBUSINESS MANAGEMENT INSTITUTEASPEE AGRIBUSINESS MANAGEMENT INSTITUTE

NAVSARINAVSARI1

WHAT IS CONTRACT FARMING ?WHAT IS CONTRACT FARMING ? Contract Farming is an institutional arrangements in which both

producers and the processors/exporters enter into a contract to supply and purchase, respectively, a specified quantum of commodity, at a pre-determined price and for a specified period of time.

Typically, the farmer agrees to provide established quantities of a specific agricultural product, meeting the quality standards and delivery schedule set by the purchaser. In turn, the buyer commits to purchase the product, often at a pre-determined price.

This approach is widely used, not only for tree and cash crops but also, increasingly for fruits and vegetables, poultry, pigs, dairy products and even prawn and fish.

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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 prices

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NATURE OF CONTRACT FARMING The farming contracts may fall into three categories

• Market specification contracts :- These are pre harvest agreement that

bind the processing firm and the growth to a particular set of conditions

governing the sale of the crop.

• Resource –Providing Contracts :- This obliges the processor to supply

crop inputs, extension or credit, in exchange for a marketing agreement.

• Production management contracts – This binds the farmer to fallow a

particular production method a input regimen, usually in exchange for a

marketing agreement or resource provision. 4

SUCCESS STORIES• Pepsi foods ltd. in Punjab Pepsi foods ltd. in Punjab – successful in Basmati rice, Chillies,

oilseeds like groundnut and vegetables crops like potato . The company has established strategic partnership with PAU and Punjab Agro Industries Corporation (PAIC).

• Appachi’s integrated cotton company model Appachi’s integrated cotton company model –ACC is the only private ginner in the country to have successfully entered backward and forward integration between the ‘grower’ (farmer) and the ‘consumer’ (textile units) backed by a model called the Integrated Cotton Cultivation (ICC).

• Ugar Sugar’s experience with barleyUgar Sugar’s experience with barley• Rallis India limitedRallis India limited( basmati rice , fruits & vegetables in M.P,U.P)( basmati rice , fruits & vegetables in M.P,U.P)• McDonald’s in Gujarat for CF of potatoMcDonald’s in Gujarat for CF of potato• Cadbury India Ltd. Tamil Nadu Horticulture Department Cadbury India Ltd. Tamil Nadu Horticulture Department ( Cocoa ( Cocoa

farming)farming)

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BOON OR BANE?? ADVANTAGES

Availability of inputs and production services to the farmers and sponsor gets land and produce ;

Easy access to credit; Introduction of appropriate

technology and skill transfer to farmers;

Guaranteed and fixed pricing structures;

Assured market for produce; Exposure to world class agro

technology with inputs; Diversification Middlemen are minimized

DISADVANTAGES Land availability constraints,

social and cultural constraints by farmers.

Contractor may enjoy monopoly position;

Extra contractual marketing and input diversion by farmers.

Unsuitable technology and crop incompatibility;

Manipulation of quotas and quality specifications.

Absence of laws to discourage defaults in contractual commitments

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CONCLUSION

In existing model, farmers are ‘price takers’ and sponsors are ‘price In existing model, farmers are ‘price takers’ and sponsors are ‘price makers’, but in order to establish an agrarian economy that ensures makers’, but in order to establish an agrarian economy that ensures food security to a population of over a billion, raw material for its food security to a population of over a billion, raw material for its expanding industrial base, surpluses for exports, and a fair expanding industrial base, surpluses for exports, and a fair rewarding system for the farming community, contract farming is rewarding system for the farming community, contract farming is no doubt an alternative marketing reform. no doubt an alternative marketing reform. Thus successful cases should be encouraged so that other Thus successful cases should be encouraged so that other enterprises emulate them and agriculture can gain prosperityenterprises emulate them and agriculture can gain prosperity.

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