contract farming final

8/3/2019 Contract Farming Final

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Presented by-

Joseph Thomas 11DCP076

Tarun Gautam 11DCP100


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CONTRACT FARMING Contract farming is agricultural production carried out

according to an agreement between a buyer andfarmers.

It establishes conditions for the production andmarketing of a farm product or products.


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Features Farmer agrees to provide established quantities of a

specific agricultural product.

meet quality standards and delivery schedule set bythe purchaser.

The buyer commits to purchase the product, often at apre-determined price.

The buyer may commit to support production throughsupplying farm inputs, land preparation, providingtechnical advice and arranging transport.


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Benefits for farmers Improved access to local markets

Assured markets and prices (lower risks) especially fornon-traditional crops

Assured and often higher returns

Enhanced farmer access to production inputs,mechanization and transport services


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Benefits for contract partners

Assured quality and timeliness in delivery offarmers

products;

Lower transport costs, as coordinated and larger loadsare planned.


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Types of contract farming Centralized model

Nucleus Estate model

Multipartite model

Informal model

Intermediary model


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Centralized model The contracting company purchases the crop from the

farmers, and then processes, packages and markets theproduct, thereby tightly controlling its quality.

can be used for crops such as tobacco, cotton, paprika,sugar cane, banana, coffee, tea, cocoa and rubber.

This may involve tens of thousands of farmers.


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Nucleus Estate model This is a variation of the centralized model.

The promoter also owns and manages an estateplantation

The estate is fairly large in order to provide some

guarantee of throughput for the plant.

Mainly used for tree crops


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Multipartite model

The multipartite model usually involves the

government, statutory bodies and private companiesjointly participating with the local farmers.

The model may have separate organizations

responsible for credit provision, production,management, processing and marketing of theproduce


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Informal model Individual entrepreneurs or small companies make

simple, informal production contracts with farmers ona seasonal basis.

The crops usually require only a minimal amount ofprocessing or packaging for resale as with vegetables,watermelons, and fruits.

Financial investment is usually minimal. The most speculative of all contract-farming models,

with a risk of default by both promoter and farmer


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Intermediary model This model has formal subcontracting by companies to

intermediaries (collectors, farmer groups, NGOs)

The intermediaries have their own (informal)arrangements with farmers.

The main disadvantage in this model is it disconnectsthe link between company and farmer


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Disadvantages Or Issues Farmer sells to a buyer other than the one to whom the

farmer is contracted.

company's refusal to buy products at the agreed prices

downgrading of produce quality by the buyer.

Side selling by farmers to competing buyers.

Buyers may use their bargaining clout to their financialadvantage


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Indian Scenario PepsiCo was the first company in India to start contract

farming of tomatoes in Hoshiarpur district of Punjab.Reliance Life Sciences, ITC (agri-business division) and

McDonalds are some of the prominent business giants,which have either started contract farming projects alreadyor are in the process of actively discussing them with

various state governments.

PepsiCo and other companies have used the contractsystem for the cultivation of Basmati rice, chilli andgroundnut, as well as for vegetable crops such as potato.


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Helps farmers in terms of land preparation, crop

monitoring during growing period.

Help in terms of harvesting, transportation and logistics.

Finally, farmers are paid promptly and the agreed price.

Net impact; Tomato yields increased dramatically from 16to 52 MT per hectares.

Farm incomes increased by more than 2.5 times.

PepsiCo gained by receiving uninterrupted and regularflow of quality raw materials.

PepsiCo generated good will for itself.


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Nestle Nestle now covers about 100 thousand dairy farmers in

over 1500 villages in several districts of Punjab.

In 2005, Nestle collected 438 million kg of milk fromfarmers.

The firm observes strict food safety and qualitystandards right from the milk production stage.


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ITC It intends to leverage information technology to

reduce aggregate cost of its supply chain and to extractvalue through a near disinter-mediation of the supplychain.

ITC is of the firm belief that intermediaries who yieldsubstantial socio-political power in their belt cannotbe totally eliminated. But they could be disassociatedfrom the intermediation of the information flows.Taking this understanding as the basis they havestructured the e-Chaupal initiative.


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e-Chaupals Across various villages in interior Madhya Pradesh,

Karnataka, Uttar Pradesh and Andhra Pradesh ITCse-Chaupals holding Internet-enabled Pentiumdesktops and printers display the itcibd.com portal.

Functions of Sanchalaks -

-Information and knowledge dissemination

-Virtual aggregation of demand and supply- Allowing retailing of agri-input


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Problems- Indian Scenario System puts farmers under the total control of

corporations.

Which not only decides the crops grown but also theprocurement prices.

Growing incidents of the pre-determined prices beingreduced on the pretext of inferior quality of the grain.

E.g.:- Punjab Agro Food grains Corporation has to buyBasmati Rice rejected by the contracting companies.


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Contd.. It certainly led to more employment but increased

competition for work through mitigation has pushedwages further down.

Male labour is being displaced by mechanisation,while lower-paid women and children are increasinglyemployed for the more labour-intensive activities.

Also, the problem of finding alternative employmentfor displaced cultivators has become a serious concern.


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It tends to displace labour quite substantially

marginalise direct cultivators, who lose control over theproduction process and often even over their land.

encourage more capital-intensive and often less sustainablepatterns of cultivation.

result in greater insecurity and lower incomes for farmersbecause of the use of quality measures to lower the effectiveoutput price paid by contractors.

even deny farmers the benefit of higher prices, which couldbe instead absorbed by corporate contractors with localmonopolistic power.


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Suggestions Given these evident problems, why is contract farming still

promoted so assiduously? This is really because public institutions have failed to

provide farmers with the essential protection and supportrequired for viability on a sustained basis.

What cultivators in rural India need-- a basic price-support mechanism that ensures that costsare covered

-efficient extension services that provide information aboutpossible crops, new inputs and their implications and newagricultural practices relevant for the particular area

-and the availability of reliable and assured credit atreasonable rates of interest.


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contract farming final

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