BOON OR BANE
NEERAJA SASIDHARANNEERAJA SASIDHARAN
ASPEE AGRIBUSINESS MANAGEMENT INSTITUTEASPEE AGRIBUSINESS MANAGEMENT INSTITUTE
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
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.
OBJECTIVE OF CONTRACT
To achieve consistent quality
To achieve regular supply
To improve quality of produce
To stabilize the agro-raw
price is not affected by market
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
• Pepsi foods ltd. in PunjabPepsi 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 modelAppachi’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 DepartmentCadbury India Ltd. Tamil Nadu Horticulture Department ( Cocoa( Cocoa
BOON OR BANE??
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
Guaranteed and fixed pricing
Assured market for produce;
Exposure to world class agro
technology with inputs;
Middlemen are minimized
Land availability constraints,
social and cultural constraints
Contractor may enjoy
Extra contractual marketing
and input diversion by farmers.
Unsuitable technology and
Manipulation of quotas and
Absence of laws to discourage
defaults in contractual6
In existing model, farmers are ‘price takers’ and sponsors are ‘priceIn existing model, farmers are ‘price takers’ and sponsors are ‘price
makers’, but in order to establish an agrarian economy that ensuresmakers’, but in order to establish an agrarian economy that ensures
food security to a population of over a billion, raw material for itsfood security to a population of over a billion, raw material for its
expanding industrial base, surpluses for exports, and a fairexpanding industrial base, surpluses for exports, and a fair
rewarding system for the farming community, contract farming isrewarding 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 otherThus successful cases should be encouraged so that other
enterprises emulate them and agriculture can gain prosperityenterprises emulate them and agriculture can gain prosperity.