Contract Farming

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CF IS REQUIRED TO BOOST THE PRODUCTION AS WELL AS STREGTH OF FARMER.HATS UP TO PUNJAB,KARNATAKA THEY DID A SPLEDID JOB.

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Contract Farming

  1. 1. Effects rise in food prices and financial crisis Because of high food prices, the import bill for cereals of entire globe rose substantially by 49 percent in 2008 alone. The financial crisis led to a slow down in economic growth from 6.0% in 2007 to 5.1% percent in 2008.
  2. 2. Ratio of Share of Agri-enterprise and Agriculture in GDP <ul><li>Empirical data show that: </li></ul><ul><li>In agricultural countries that have not </li></ul><ul><li>Undergone a structural transformation, </li></ul><ul><li>63% of the value added in the agri </li></ul><ul><li>food system was created on the farm. </li></ul><ul><li>In the USA, by contrast, farming </li></ul><ul><li>accounted for only 7 percent, </li></ul><ul><li>with the remaining value being created </li></ul><ul><li>By input producers, agro-industries, </li></ul><ul><li>transport firms, retailers, restaurants, </li></ul><ul><li>and others in the agribusiness system. </li></ul>Share in GDP Agriculture (1) Agri-enterprise (2) Ratio of (2) to (1) Agriculture Based Countries 0.39 0.22 0.57 Transforming Countries 0.16 0.32 1.98 Urbanized Countries 0.08 0.27 3.32 USA 0.01 0.13 13.00
  3. 3. WELL COME TO THE WORLD OF CONTRACT FARMING
  4. 4. <ul><li>Contract farming can be defined as 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 or products. </li></ul><ul><li>Farmers have a guaranteed market outlet, reduce their uncertainty regarding prices, and often are supplied with loans in kind, through the provision of farming inputs such as seeds and fertilizers. </li></ul><ul><li>Purchasing firms benefit from having a guaranteed supply of agricultural products that meet their specifications regarding quality, quantity, and timing of delivery. </li></ul><ul><li>The most common clauses concern: </li></ul><ul><ul><li>General reciprocal obligations: the overall responsibilities of the contracting partners. </li></ul></ul><ul><ul><li>Specification of the agricultural product to be produced / sold under the contractual obligation. </li></ul></ul><ul><ul><li>Production technology to be used, involving items such as seed variety, soil preparation and cultivation methods, plant or animal disease controls, transportation procedures, storage and quality standards, among others. </li></ul></ul><ul><ul><li>Conditions for purchase, payment obligations, timing, and modality of delivery. </li></ul></ul><ul><ul><li>The system to determine the final prices to be paid to farmers, frequently considering effects of variations in product quality and any applicable loan repayments associated with the provision of inputs or services </li></ul></ul><ul><ul><li>Choice of a jurisdiction to govern the contract, from the legal standpoint. If the two parties are located in states or municipalities that are not in the same legal jurisdiction, then only one should be chosen to be applied. </li></ul></ul><ul><ul><li>Reference to a dispute settlement mechanism or to an arbitrator to resolve disagreements, which is always preferable to legal action. </li></ul></ul>
  5. 5. Clear overview on Contract farming before proceeding what to do and what output Contract terms and conditions should be sketched out properly Threats and weakness has to be drawn to make alternative Internal SOP, Farming Standards, Control System Farmer Entrance and Exit Application, Approval Procedure Well prepared Soft copy with summary Movie on Local language befit analysis & USP
  6. 6. Entry of Big Blue chip corporate in Agribusiness, works as a catalyst in the global Agribusiness, to full fill their demand, concept of contract farming came into lime light. Contract farming refers to production and supply of agricultural produce under advance contract, in which supplier has agreed to produce certain agro produce quantity under pre decided price. <ul><li>These Contract are three types </li></ul><ul><ul><li>Contract of Procurement where buy and supply terms and conditions are mentioned. </li></ul></ul><ul><ul><li>Partial Contract where agro firm supplied some of the inputs to farmer and produces are </li></ul></ul><ul><ul><li>purchased by agro firm on pre decided price. </li></ul></ul><ul><ul><li>Total Contract where Agro Firm supplied all the inputs to farmer to cultivate crop on his own land. </li></ul></ul><ul><ul><li>In this case farmer has to bear only land and labor. </li></ul></ul><ul><li>Types of Contract Farming Model practiced Global </li></ul><ul><ul><li>Bi-Partite Contract farming Model </li></ul></ul><ul><ul><li>Tri-Partite Contract farming Model </li></ul></ul><ul><ul><li>The Quad-Partite Contract farming Model </li></ul></ul><ul><ul><li>Six-Partite Contract farming Model (CF) </li></ul></ul>
  7. 7. Aggregator Contract Farmer Contact Farmer Food Processors Organized Retail Exports PH PROCESSING HUB FARMER'S GROWTH CONSORTIUM
  8. 8. Need for Contract Farming <ul><li>The present farm-firm linkages of contract farming model integrates production and marketing and are very critical for high value agricultural commodities </li></ul><ul><li>Overcome inadequate linkages with markets </li></ul><ul><li>Presence of fragmented land holdings </li></ul><ul><li>Lack of capital, poor infrastructure, inadequate information dissemination, etc </li></ul><ul><li>Loss/wastage of large quantities of fruits and vegetable </li></ul><ul><li>Agri-based and food industry’s inability to acquire timely and adequate good quality agricultural produce </li></ul><ul><li>Closing down of marketing boards </li></ul><ul><li>Changes in consumption habit </li></ul><ul><li>Increasing number of fast-food outlets </li></ul><ul><li>The growing role played by supermarkets </li></ul><ul><li>Continued expansion of world trade in fresh and processed products </li></ul>
  9. 9. The Key Functions Rendered by Corporate in Contract Farming Extension Services Procurement <ul><li>Recruitment & Training Execution of </li></ul><ul><li>technology transfer </li></ul><ul><li>Selection of Farmer & Contracting </li></ul><ul><li>Farmer Training & Education </li></ul><ul><li>Provision of Implements </li></ul><ul><li>Provision of Agricultural Inputs </li></ul><ul><li>Nursery & Seed Supplies </li></ul><ul><li>Post Transplantation Care </li></ul><ul><li>Maturity & Harvest Prediction </li></ul><ul><li>Farmer Training on Harvesting & Quality </li></ul><ul><li>Control </li></ul><ul><li>Management of the Quota Slip System. </li></ul><ul><li>Produce Collection </li></ul><ul><li>Quality Inspection </li></ul><ul><li>Transportation of the produce to the </li></ul><ul><li>Processing unit </li></ul><ul><li>Management Information System </li></ul><ul><li>Management of Farmer Payments </li></ul>
  10. 10. POSITIVE LESSONS <ul><li>Can be effective in linking the small farm sector to sources of extension advice, mechanization, seeds, fertilizer and credit, and to guaranteed and profitable markets for produce </li></ul><ul><li>Private agribusiness will usually offer technology more effectively than government agricultural extension services, because it has a direct economic interest in improving farmers' production </li></ul><ul><li>Skills transferred can include the efficient use of farm resources, carrying out field activities according to a strict timetable, improved methods of applying chemicals and fertilizers, and a knowledge of the importance of quality and of the demands of export markets and good record keeping </li></ul><ul><li>Reduce price uncertainty to farmers </li></ul><ul><li>Companies gain access to crop production on land that would otherwise be unavailable, with the additional advantage of not having to buy or lease it. </li></ul><ul><li>Enables them to share risks, find reliable supplies of raw materials for processing plants, and guarantee that their products conform to quality standards </li></ul><ul><li>Can contribute to both increased income for farmers and higher profitability for sponsors </li></ul>
  11. 11. RISKS FOR FARMERS <ul><li>Uncertainty involved in growing new, unfamiliar crops and </li></ul><ul><li>producing for markets that might not always live up to their </li></ul><ul><li>expectations - or their sponsors' forecasts. </li></ul><ul><li>Loss of bargaining power vis-à-vis a large agro-industry, </li></ul><ul><li>monopolistic market power and exploitative terms. </li></ul><ul><li>Manipulation of quality standards by the sponsor in order to reduce </li></ul><ul><li>purchases. </li></ul><ul><li>Debt caused by production problems, poor technical advice, </li></ul><ul><li>significant changes in market conditions, or a company's failure to </li></ul><ul><li>honor contracts. </li></ul>
  12. 12. RISKS FOR SPONSORS <ul><li>Insecurity of the access to land </li></ul><ul><li>Farmers’ inability to meet strict timetables and regulations because of social obligations or religious practices </li></ul><ul><li>“ Extra-contractual marketing&quot; - farmers breaking the contract and selling their produce on alternative markets – sometimes encouraged by rival sponsors </li></ul>
  13. 13. KEY PRECONDITIONS FOR SUCCESS <ul><li>A profitable market </li></ul><ul><ul><ul><ul><ul><li>For the sponsor an identified market for the planned production that such market can be supplied profitably on a long-term basis </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>The farmer must find the potential returns attractive on the basis of realistic, demonstrated yield and acceptable risks </li></ul></ul></ul></ul></ul><ul><li>The physical and social environments </li></ul><ul><ul><ul><ul><ul><li>The physical environment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Utilities and communications </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Land availability and tenure </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Inputs availability </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Social considerations </li></ul></ul></ul></ul></ul><ul><li>Government Support </li></ul><ul><ul><ul><ul><li>Suitable laws of contract and an efficient legal system </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Awareness of unintended consequences of regulation and avoid tendency to over-regulate </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Provision of research and extension </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Take steps to bring together agribusiness and suitable farmers </li></ul></ul></ul></ul>
  14. 14. Agricultural cooperatives functioning in almost all countries of the region Various forms: formal and informal farmers’ organizations, production groups, producer cooperatives, collectives, marketing cooperatives, agricultural credit cooperatives, multipurpose and single-purpose cooperatives Started mostly with government assistance and initiative or as a result of development projects The success spectrum varies from country to country. Many suffer from managerial problem, lack of membership participation, heavy participation and influence of government, little involvement of members in decision making Primary cooperatives suffer from weaknesses and deficiencies due to small size and low membership The success spectrum varies from country to country. Many suffer from managerial problem, lack of membership participation, heavy participation and influence of government, little involvement of members in decision making Primary cooperatives suffer from weaknesses and deficiencies due to small size and low membership COOPERATIVES IN ASIA
  15. 15. State-wise Contract Farming 260 Appachi Cotton Company Cotton 200 Bhuvi Care Pvt Ltd Paddy 800 Bhuvi Care Pvt Ltd Maize 570 Super Spinning Mills Cotton Tamilnadu 6000 PepsiCo India Ltd Around Basmati, Potato, tomato, Groundnut& chilly 14700 Satnam Overseas, DD Intl Incorp, Amira Foods India Ltd, Basmati 4000 Satnam Overseas, Sukhjit Starch(MahindraShubhlabh Services Ltd) Basmati, Maize 2270 United Breweries Ltd Barley 250 Nijjer Agro Foods Ltd Tomato & Chilly Punjab 1200 ITC_IBD Soybean 1299 Ion Exchange Enviro Farms Several Fruits, vegetables, Pluses 15000 Hindusthan Lever Ltd (HLL) Wheat Madhya Pradesh 19 Ion Exchange Enviro Farms Ltd Several Fruits, Vegetables, Cereals, Spices & Pulses 134800 Tinna Oils and Chemicals Soybean Maharashtra 150 Natural Remedies Coleus 8000 20 Pvt Companies (Globa Green Company Pvt Ltd,Unicorn Agrotech Ltd, Green,Agro ParkPvt Ltd,Ken Agritech Pvt Ltd,etc) Gherkins 4000 AVT Natural Ltd Marigold & Caprica 500 Mysore S N C Oil Company Dhavana 700 Himalaya Health Care Ltd Aswagandha Karnataka Area (ha) Company/Corporate Crop State
  16. 16. COOPERATIVES IN ASIA:SELECTED EXAMPLES <ul><li>India </li></ul><ul><ul><li>One of the oldest in the region and largest in the world in terms of the </li></ul></ul><ul><ul><li>number of cooperatives and membership; around 504,000 cooperatives </li></ul></ul><ul><ul><li>in 1998 serving 209 million people of which 65% agricultural </li></ul></ul><ul><ul><li>cooperatives with 137 million </li></ul></ul><ul><ul><li>Vertically integrated through respective federations at district, state and </li></ul></ul><ul><ul><li>national levels </li></ul></ul><ul><ul><li>Active in agro-processing – 320 cooperative sugar factories producing </li></ul></ul><ul><ul><li>more of 60% of sugar produced in the country; around 90,000 dairy </li></ul></ul><ul><ul><li>cooperatives making India the largest producer of milk; specialized </li></ul></ul><ul><ul><li>cooperatives for oilseeds, rubber, horticulture and fertilizer </li></ul></ul><ul><ul><li>Strongly backed by cooperative education and staff training – largest in </li></ul></ul><ul><ul><li>the world training managers and providing member education </li></ul></ul><ul><li>Bangladesh </li></ul><ul><ul><li>More than 40,000 traditional cooperatives and more than 100,000 </li></ul></ul><ul><ul><li>farmers’ cooperatives </li></ul></ul><ul><ul><li>Not very successful due administrative interference and control, lack of </li></ul></ul><ul><ul><li>managerial skills, small size and low membership </li></ul></ul>
  17. 17. Counti <ul><li>Republic of Korea </li></ul><ul><ul><li>Vertically organized into three levels: township level primary </li></ul></ul><ul><ul><li>cooperatives, city/county cooperatives and national federation </li></ul></ul><ul><ul><li>(NACF) </li></ul></ul><ul><ul><li>Regional primary cooperatives engaged in grain production; </li></ul></ul><ul><ul><li>special primary cooperatives for fruits and vegetables </li></ul></ul><ul><ul><li>Almost all farmers affiliated with the cooperatives; 2 million </li></ul></ul><ul><ul><li>members at the end of 1997; number of regional cooperatives </li></ul></ul><ul><ul><li>reduced due to amalgamation drive to achieve economy of </li></ul></ul><ul><ul><li>scale </li></ul></ul><ul><ul><li>Member-cooperatives perform marketing of agricultural </li></ul></ul><ul><ul><li>products, supply of farm inputs and consumer goods, </li></ul></ul><ul><ul><li>agricultural extension, banking and credit and insurance </li></ul></ul><ul><ul><li>NACF has 40% share of local agricultural marketing and runs </li></ul></ul><ul><ul><li>one of the largest deposit banking operation in the country </li></ul></ul>
  18. 19. CHANGING SCENERIO OF SUPPLY CHAIN
  19. 20. IMPACTS ON AGRICULTURE AND AGRICULTURE LENDING <ul><li>Corporate investment in retail is likely to be multifaceted . </li></ul><ul><li>On Supply chain starting from the farmers to the SME goods to </li></ul><ul><li>consumers. </li></ul><ul><li>Agricultural front , the organized retailers are providing farmers </li></ul><ul><li>with inputs. </li></ul><ul><li>Has increased the net realizations of farmers with </li></ul><ul><li>disintermediation for middlemen. </li></ul><ul><li>To provide the cheapest & best produce, organized retail could help </li></ul><ul><li>the Indian farmers directly & banks indirectly in agri. Lending . </li></ul><ul><li>Investment into cold storage chain will result in significant </li></ul><ul><li>efficiency on supply chain. </li></ul><ul><li>Entry of retail giants leads to </li></ul><ul><li>-greater investment in farm technology (Bharti, Pepsi,Reliance) </li></ul><ul><li>-Aggregate demand for bank credit </li></ul><ul><li>-Help bankers in credit expansion & monitoring . </li></ul><ul><li>Contract farming spreads very fast </li></ul><ul><li>- Farmers to get better price </li></ul><ul><li>- Improves farm production through modern techniques </li></ul>
  20. 22. WELL THIS IS NOT END BUT BEGINNING, A LOT HAS TO BE DONE IN THE ERA OF CONTRACT FARMING, LET’S JOIN HAND TOGETHER, START THINKING ABOUT GLOBAL FOOD & AGRI SYSTEAM THANKS FOR YOUR KIND ATTENTION AND TIME BISWARANJAN MOHANTY AGARIAN

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