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.

1. LEVERAGING CONTRACT FARMING IN AGRICULTURE
FOR TRIANGULAR BENEFIT
Presented by
N.Satheeshkumar
(virusat87@gmail.com)
1

2. Contents
•
•
•
•
•
•
•
•
•
Definition
Need & Importance
History of Contract farming
Area under CF
Clauses of contract
Advantages & Disadvantages
Types
Success stories & Failure
Conclusion
2

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. 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. www.barterindia.in
5

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. 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. 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

10. Partnership
• Farmer – Companies
• Farmer – Government bodies
• Farmer – Individual Entrepreneur
• Farmer – Unequal parties
• Farmer – NGO / Facilitator
10

11. Pre – Arrangements in Contract farming
11

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. 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. 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. Basics of Arrangements
• Commitment by the farmer towards quantity & quality
• Commitment by the industry to procure the produce at fixed
price & time.
15

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. Conditions from Farmer’s side
• Providence of agreed quantities of specific product
• Same quality standard of produce
• Supply at right time
17

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. Conditions from buyer’s side
• Standby commitment of purchase.
• Should support production
• Fit to the pre determined price.
• Timely payment
19

20. Signing the agreement
20

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. 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. Problems faced by Industry
• Land availability constraints
• Social and cultural constraints
• Farmer discontent
• Extra-contractual marketing
• Input diversion
23

24. Problems faced by Government
• Legislative issues
• Issues from the public faced by fraudulent
24

25. Favourable situations
• Physical environment
• Utilities and communications
• Land availability and tenure
• Input availability
• Social considerations
25

26. Government support
• Enabling and regulatory role
• Developmental role
26

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. Types
• Centralized model
• Multipartite model
• Informal model
• Intermediary model
• Nucleus estate model
28

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. Centralized Model
Corporate
Corporate
Extension Arm
Farmer
Farmer
www.fao.org
30

31. Multipartite Model
31

32. Intermediary Model
Corporate
NGO / Lead farmers / Govt body
Farmer
32

33. Informal model
Agri Inputs
Seeds
Corporate
Bank for
Crop loans
Implementing Agency
Fertilizers
Pesticides
Farmer
Insurance
for Crop /
Life
33

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. 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. 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. Impact on society
• Child labour
• Small holder
37

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. 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. Poverty reduction & Equity
• Welfare of small holders
• Equity amongst small holders
• Collective action
• Regional development
40

41. Commercialization of CF
• Income generation
• Dislocation of alternative crops
41

42. Consequences
•
•
•
•
•
•
Effect of contracts
Barriers to entry
Small seed firms
Collective action by farmers
Role of institutions
Vertically integrate the sector
42

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. 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. 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

47. Pepsico’s contract farming
Steps of contract farming
• R&D Activities
• Transfer of technology
• Commercialization
FICCI, 2005
47

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. 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. The Nursery
• Low cost tunnel technology works.
• Land preparation is critical.
• Siting nursery operations on elevated ground.
• Mechanization of operations.
• Proper maintenance.
50

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. 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. 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. 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. Policies needed
• Introduce insurance policies
• Exposure of Agricultural students to CF
• Development of crop and region specific agendas through SAU.
55

56. Factors to failure
• Reluctance of farmers in production
• Clashes & Disagreements
• Violation of agreement when price change
• Weather harshness
• Deviation from commitment
56

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. 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. My special thanks to Dr.K.Vaiyapuri
59