Contract Farming is a Triangular Benefit - Satheeshkumar.N

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Contract farming in Agriculture is a triangular benefit.The beneficiaries are Industry, Farmer and the Government.The detail account of this you can get by going through this presentation uploaded here.Please share your feedback.Thanks.

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Contract Farming is a Triangular Benefit - Satheeshkumar.N

  1. 1. LEVERAGING CONTRACT FARMING IN AGRICULTURE FOR TRIANGULAR BENEFIT Presented by N.Satheeshkumar (virusat87@gmail.com) 1
  2. 2. Contents • • • • • • • • • Definition Need & Importance History of Contract farming Area under CF Clauses of contract Advantages & Disadvantages Types Success stories & Failure Conclusion 2
  3. 3. Definitions – Contract Farming • Agricultural production carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product/products (FAO,2009) • Contract farming (CF) is defined as forward agreements specifying the obligations of farmers and buyers as partners in business. Federal Ministry for Economic Cooperation and Development (BMZ),2011 3
  4. 4. In General • Contract farming is an understanding between farmers and processing units or marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices.” 4
  5. 5. www.barterindia.in 5
  6. 6. Importance • To increase private sector investment in agriculture • Crop selection by Indian farmers • To generate a steady source of income • To promote processing & value addition • To generate gainful employment • To reduce migration www.cci.in 6
  7. 7. Need for contract farming in India • Production and marketing are very critical. • Overcome inadequate linkages with markets • Presence of fragmented land holdings • Lack of capital, poor infrastructure, Technology transfer, etc • To avoid Post harvest losses • Unfavorable conditions for procurement FICCI, 2005 7
  8. 8. Need for contract farming in India • The liberalized marketing system coming up in India • The growing role played by supermarkets • Changes in consumption habits • Increasing number of fast-food outlets • Continued expansion of world trade FICCI, 2005 8
  9. 9. 9
  10. 10. Partnership • Farmer – Companies • Farmer – Government bodies • Farmer – Individual Entrepreneur • Farmer – Unequal parties • Farmer – NGO / Facilitator 10
  11. 11. Pre – Arrangements in Contract farming 11
  12. 12. State wise area under CF Total cropped area STATES (In ‘000 ha) Area under contract farming (Ha) Assam 3962 160 Bihar 7882 20 Goa 169 1924 Gujarat 11311 2000 Haryana 6388 1416 Mizoram 98 2447 Orissa 8637 5990 Punjab 7931 121457 Tamil Nadu 5316 236610 190641 425834 India www.indiastat.com,2007 12
  13. 13. Contract farming approach From Company’s perspective • • • • • • • • • • Need and plan for the targeted raw material Selection of geographic area Selection of contract farmers Signing of agreements with contract farmers Distribution of inputs Technical assistance + Monitoring of production Procurement of production Payment Storage and Shipment Processing 13
  14. 14. Criteria to identify the contract farmers • • • • • • Practical experience on the targeted crop Resources to cultivate selected crop Residence in the targeted area Suitability of land for targeted crop Good reputation in the community Farmers who have their own land/acceptable leased arrangement • Not involved with competing companies for same crop • Have time to devote to contract farming 14
  15. 15. Basics of Arrangements • Commitment by the farmer towards quantity & quality • Commitment by the industry to procure the produce at fixed price & time. 15
  16. 16. Preconditions to be Met • From Industry – – – – Supply for long term Production meets required quantity Prediction on yield should be positive Economic viability • From Farmers – Hope to get good yield from practiced crop cultivation – Best market potential than other alternatives – Manageable risk Premjit Sharma – Contract Farming, 2007 16
  17. 17. Conditions from Farmer’s side • Providence of agreed quantities of specific product • Same quality standard of produce • Supply at right time 17
  18. 18. Conditions from Government side • Should make a platform to both buyer and Seller • Legislative clearance for the type of produce • Act as a facilitator, if needed 18
  19. 19. Conditions from buyer’s side • Standby commitment of purchase. • Should support production • Fit to the pre determined price. • Timely payment 19
  20. 20. Signing the agreement 20
  21. 21. Clauses of contract • General obligations • Product specification • Production technology • Terms and conditions • Determination of final prices after deducting loans • Choice of jurisdiction • Reference to a dispute settlement 21
  22. 22. Problems faced by Farmers • Increased risk (Production problem) • Unsuitable technology and crop incompatibility • Manipulation of quotas and quality specifications • Corruption • Domination by monopolies • Indebtedness and overreliance on advances 22
  23. 23. Problems faced by Industry • Land availability constraints • Social and cultural constraints • Farmer discontent • Extra-contractual marketing • Input diversion 23
  24. 24. Problems faced by Government • Legislative issues • Issues from the public faced by fraudulent 24
  25. 25. Favourable situations • Physical environment • Utilities and communications • Land availability and tenure • Input availability • Social considerations 25
  26. 26. Government support • Enabling and regulatory role • Developmental role 26
  27. 27. Key Functions Rendered by Corporate Extension services Procurement • Recruitment & Training • Harvesting • Execution of Technology transfer • Registration/ based buying • Selection of Farmer & Contracting • Produce Collection • Farmer Training & Education • Quality Inspection • Provision of Implements • Transportation of the produce to the • Provision of Agricultural Inputs • Nursery & Seed Supplies • Management of Information system • Post Transplantation Care • Management of Farmer payments • Maturity & Harvest Prediction processing unit 27
  28. 28. Types • Centralized model • Multipartite model • Informal model • Intermediary model • Nucleus estate model 28
  29. 29. Model to be selected • Depends on – The product – The resources of the company and – The intensity of the relationship between farmer and company that is necessary 29
  30. 30. Centralized Model Corporate Corporate Extension Arm Farmer Farmer www.fao.org 30
  31. 31. Multipartite Model 31
  32. 32. Intermediary Model Corporate NGO / Lead farmers / Govt body Farmer 32
  33. 33. Informal model Agri Inputs Seeds Corporate Bank for Crop loans Implementing Agency Fertilizers Pesticides Farmer Insurance for Crop / Life 33
  34. 34. Nucleus Estate Model • Promoter also owns and manages an estate plantation (usually close to a processing plant) • Estate is often fairly large in order to provide some guarantee of throughput for the plant • Mainly tree crops, but also e.g. Fresh vegetables and fruits for export • Close supervision of production 34
  35. 35. Specifications of CF • • • • Legal framework – Based on the law of the country Formula – Clarification of managerial responsibilities Format – Prescribed manner Specifications – Details of implementation of contract 35
  36. 36. Monitoring performance • Monitoring quality and yield – – – – Quality controls Yield estimations Calculated yield indicators Production matrices • Monitoring Human Resources – Appraising employees – Reviewing farmer performance • Protecting the environment 36
  37. 37. Impact on society • Child labour • Small holder 37
  38. 38. CF in Developing countries • Spot markets and plantations • Transaction costs – – – – Costs of drafting contracts Maladaption costs Set-up and running costs Bonding costs 38
  39. 39. Criteria for success in CF • Economic, Technical and Social environment – – – – Strong markets Land ownership Macro institutional policies Sophisticated technology • Management of environment – – – – Farm groups Farmers selection Contract default Conflict resolution 39
  40. 40. Poverty reduction & Equity • Welfare of small holders • Equity amongst small holders • Collective action • Regional development 40
  41. 41. Commercialization of CF • Income generation • Dislocation of alternative crops 41
  42. 42. Consequences • • • • • • Effect of contracts Barriers to entry Small seed firms Collective action by farmers Role of institutions Vertically integrate the sector 42
  43. 43. State wise contract farming initiatives by Private sector State Crop Company Area (ha) Karnataka Ashwagantha Himalaya Health Care Pvt Ltd 700 Karnataka Dhavana Mysore S N C oil company 400-500 Karnataka Marigold & Caprica chilli AVT Natural Pvt Ltd 4000 Karnataka Coleus Natural Remedies Pvt Ltd 150 Karnataka Gherkins 20 Pvt companies (Global green company pvt ltd, Unicorn agrotech ltd,etc.,) 8000 (Including of TN & AP) Madhya Pradesh Soybean Tinna oils and chemicals 134800 Madhya Pradesh Several fruits, Vegetables, Spices, Cereals & Pulses IEEFL - (NIAM, 2003, Times Agriculural journal) 43
  44. 44. State wise contract farming initiatives by Private sector State Crop Company Area (ha) Madhya Pradesh Wheat, Maize, Soybean Cargil India Ltd Madhya Pradesh Wheat Hindustan Lever Ltd Madhya Pradesh Several Fruits, Vegetables,Spices, Cereals & Pulses IEEFL Madhya Pradesh Soybean, Tomato & ITC, IBD Chilli 1200 Punjab Tomato & Chilli Nijjer Agro foods Ltd 250 Punjab Barley United Breweries Ltd 2270 Punjab Basmati & Maize Satnam overseas, Pepsico 4000 15000 (NIAM, 2003, Times Agriculural journal) 4 4
  45. 45. State wise contract farming initiatives by Private sector State Crop Company Area (ha) Punjab Basmati Satnam overseas, Amira foods India Ltd 14700 Punjab Basmati, Tomato, Chilli, Potato & G.nut Pepsico Around 6000 Punjab Milk Nestle India Ltd 65000000 kg / day Tamil Nadu Cotton Super spinning mills 570 Tamil Nadu Maize Bhuvi care pvt ltd 800 Tamil Nadu Paddy Bhuvi care pvt ltd 200 Tamil Nadu Cotton Appachi cotton company 260 45 (NIAM, 2003, Times Agriculural journal)
  46. 46. 46
  47. 47. Pepsico’s contract farming Steps of contract farming • R&D Activities • Transfer of technology • Commercialization FICCI, 2005 47
  48. 48. Pepsico’s impact in Punjab • Tomato yields increased threefold • Production technology spread to non Pepsi growers • Farm income increased due to price fixation • Chilli yields increased from 2.5 MT to 9 MT / acre • Crop diversification 48
  49. 49. Pre - operative • Need of technical team, with an applied & commercial focus • Research the site & location well • Conduct trials – Intensive R&D efforts • Poll grower attitudes to your crop • Assess availability & Sustainability of other resources and infrastructure 49
  50. 50. The Nursery • Low cost tunnel technology works. • Land preparation is critical. • Siting nursery operations on elevated ground. • Mechanization of operations. • Proper maintenance. 50
  51. 51. The Main field • Extension services team should be available at the farmer’s call • Never offer your growers any commercially, untested technology • Break the hard pan in clay, encourage deep rooting • Ensure availability of adequate and appropriate inputs • Agricultural implements offered gratis to growers – an investment that yields long term benefits • Field record maintenance • Make payments at priority 51
  52. 52. Contract farming Vs A price support mechanism Contract farming • • • • • • • • Planting material supplies Technology transfer Assured price Assured quantity Free equipment Partnership approach Builds commitment Long term Price support • • • • • • • • Usually none None Minimum guaranteed No assured quantity No free equipment Usually adversarial Builds mistrust Short term www.fao.org 52
  53. 53. A Lot can be done despite the absence of a legal framework • Maintain a proper database on farmers • Repeat defaulters are not considered again • Incentives, rewards & public recognition • Maintains a high motivation level • Publicising the names of defaulters in the locality of default • The social stigma usually suffices as a disincentive to default • Farmer encouraged to set own targets, assist with draft of QC standards etc., • Promotes “Ownership” of the business, builds loyalty over the long term • Clearly allocate quantities for the fresh market • The difference becomes apparent very quickly 53
  54. 54. Policies needed • Single tier regulatory authority at the district level • Make purchase interference by a third party as a cognizable offence • For a registered contract farming programme – Abolish all fees, taxes, duties, levies on procurement – Exempt taxes and duties on import of agri equipments – Eliminate red tape in import of varieties / hybrids 54
  55. 55. Policies needed • Introduce insurance policies • Exposure of Agricultural students to CF • Development of crop and region specific agendas through SAU. 55
  56. 56. Factors to failure • Reluctance of farmers in production • Clashes & Disagreements • Violation of agreement when price change • Weather harshness • Deviation from commitment 56
  57. 57. Challenges to Industry • Highly restricted and regulated agricultural marketing system • Monopoly of the state govt. to set up markets • Mandi revenues not deployed for infra structure development • Price setting not transparent • Processing industries cannot buy directly from farmers 57
  58. 58. Conclusion • Contract farming plays an important role in agricultural growth and it leads to increase in GDP • Contract farming leveraging multi sector growth in India • ‘Commitment driven’ contract farming is always viable • Government should take necessity step towards small holders growth simultaneously. 58
  59. 59. My special thanks to Dr.K.Vaiyapuri 59

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