Contract farming is an agreement between buyers and farmers where farmers agree to produce agricultural products according to the buyer's terms. This provides benefits like guaranteed prices for farmers and assured supply for buyers. It also helps farmers access inputs, credit, and new markets. However, it can also create risks if farmers become indebted or face production issues. Overall, contract farming aims to reduce price risks for both parties through signed agreements governing production and supply.

1. Contract farming
as a
marketing
strategy.
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2. INTRODUCTION
• Agricultural production according to an agreement between
buyer and farmer.
(Biparty agreement )
• Partnership between farmers and processing companies.
• Type of minimization of price risk by hedging.
• Avoid the risk of uncertain changes of prices in future.
Fig 1:Extension service by
firm
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3. • Produce at a pre agreed market price.
• Producers and buyers are bound by a written and
signed contract agreement.
• Supply chain governance strategy
CONTRACT FARMING
Type of contract farming systems
Market
specification
contracts
• Production
management
contracts
• Resource
providing
contracts
Fig 2: Biparty
contract
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4. • Access to high value market.
• Farmers receive inputs at lower costs and extension
services.
• Access to agricultural technology.
• Reduce price fluctuation risk.
• Access to reliable credit facilities.
• Open up new markets which are unavailable to small
scale farmers.
ADVANTAGES
Fig 3: cargills
collection
vehicle
Fig 4: Extension work by firm
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5. DISADVANTAGES
• Creation of monoposonic market(Tied to a single purchaser).
• Farmers may be indebted because of production problems and
excessive advances.
• Farmers may sell outside of the contract.
• Wide difference in spot price and agreed price in some seasons.
• Lack of reliable price information.
• Lack of good extension network.
• Lack of bargaining ability.
Fig 5: Input provision to
farmers
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6. FIRMS INVOLVED IN CONTRACT
FARMING
 Department of agriculture - Provide inputs & credit facilities
 Ministry of irrigation -Provide Inputs & credit facilities.
 Paddy and milk collection on contract basis.
 Export Development Board - Inputs and extension services.
 Purchase crops or animal products in contract basis.
Cargills Ceylon (PLC)
Keels super PLC
Milco Company
Fig 6:Cargills Ceylon
(PLC)
Fig 7:Keels super PLC
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7. • Centralized model
• Nucleus estate model
• Multipartite model
• Informal model
• Intermediary model
MODELS OF CONTRACT
FARMING Fig 7:
Fig 8:
Fig 10:
Fig 9: Triparty contract
model
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8. Problems faced by farmers
Particularly when growing new crops, farmers face the risks of
both market failure and production problems
Farmers may become indebted because of production problem
and excessive advance
Delayed payment for crop produce
Lack of credit for crop production
Scarcity of eater for irrigation
Erratic farmer supply and difficulty in meeting
quality requirements
Fig 11: Crop loss due to
elephant attack
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9. Issues and concern
Soil fertility concern
Environmental issues
Food security concerns
Seed problems
Labor problem
Middle man’s influence
Fig 12: Low price for
harvested yield
Fig 13: Middlemen
influence
Fig 14:
environmental issues
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10. SUMMARY
Contract farming is the agricultural production carried out
according to an agreement between a buyer and farmers
Typically, the farmer agrees to provide agreed quantities of a
specific agricultural products.
There is need to convert our factor price advantage into
sustainable competitive advantages.
 Good strategy to overcome seasonality and quality issues in
raw material supply.
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11. • www.ips.lk>contract-farming
• www.harti.gov.lk
• www.dailynews.lk>2020/01/27
• www.slideshare.net
• De Silva C. A. The growing role of contract farming in
Agrifood systems development: Working document 9,
agricultural management and marketing finance services.
• Rehber E. Contract farming, ICFAI press, 2007.
• Singh S. Contract farming, Stewart review, vol: 3,
Number 3, June 2007.
REFERENCE
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