The presentation includes a brief discussion of contract farming in India. Levels of benefits acquired and problems faced by farmers are assessed and presented for better understanding of the status of contract farming.

1. An Overview of Contract Farming in India
PRESENTED BY:
PRADEEP KUMAR OJHA

2. What is contract farming ?
 An agreement between a farmer and a
‘sponsor’ or any third party, prior to the
production or rearing of any farm
produce of a predetermined quality, in
which the sponsor agrees to purchase
such produce from the farmer and
provide farm services.
Price
Time
Quantity
Quality
Source: The Farmers (Empowerment and Protection) Agreement on Price
Assurance and Farm Services Act, 2020

3. Why contract farming is important?
 Spurious input supply.
 Inadequate and costly institutional credit.
 Lack of capital to introduce new technology.
 Lack of extension services for commercial crops.
 Exploitation in marketing of their produce.
 Lack of availability desired raw-materials
 Difficulty in buying raw-materials in open market operation.
Major problems of small and marginal farmers in India
Major problems faced by Agro-based Industries

4. Triangular Benefit in Contract Farming
Contract
Farming
Farmer
Industry Government
• Gets assured price for his produce.
• Gets necessary inputs in time.
• Apply new technology to boost production.
• Gets technical guidance.
• Get required raw materials with standard quality in time.
• No need to visit different markets for buying raw materials.
• Shares risk with the farmers.
• Generates employment
• Reduces government’s burden.
• Generates foreign exchange.
Farmers
Industry
Government

5. History of contract farming in India
Period Events
1860’s
• Plantations for tea & coffee in North-east and the Southern parts of the country;
indigo & poppy cultivation in plains
1930’s • ITC started Virginia tobacco contract farming in Andhra Pradesh
1948-50
• Sugar co-operatives emerged in Maharashtra and milk co-operatives in Gujarat
incorporating many elements of contract farming
1950’s • Emergence of seed business based on contracts
1980’s
• Poplar introduced through contract farming in Northern India
• Tomato contract farming introduced in Andhra Pradesh and Karnataka
• ITC stopped contract farming operations due to Government legislation in 1984

6. Cont…
1990’s
• Tomato contract farming started in Punjab by PepsiCo
• Chillies, groundnut, basmati paddy and potato contract farming started in Punjab
• Gherkin and poultry contract farming introduced in Southern India
• Palm fruit contract introduced in Andhra Pradesh and other states
2000
onwards
• Marico introduced safflower contract farming in 2001
• Variant of contract farming introduced for various crops and poultry in many parts of
India
• Contract farming accepted in new Policy Framework in 2003-04.
• The emergence of specialized contract farming firms (Pepsi Co, Siddhivinayak) which
carry out contract farming to provide the raw materials to other companies.
Source: Adapted from (Deshpande, Contract farming as means of value added agriculture, 2005); (Dev &
Rao, 2005); (Singh & Asokan, 2005)

7. Typology of contract Farming
-Source: Mighell and Jones (1963)
 Pre-harvest agreement between producers and contractors on the sale of the crop/animal
at specified time and location.
 Farmer maintains most of the decision rights over his farming activities.
 Farmer bears most of the risk of his production activities.
Market-specification (or marketing)
contract
Production-management contract
Resource-providing contract
(i) Market-specification (or marketing) contract

8.  Provides a market outlet for the product, but he also provides key inputs.
 Decision-rights and risk is transferred from the farmer to the contractor depends
on the actual contract.
 Farmer agrees to follow precise production methods and input regimes specified by the
contractor.
 A substantial part of his decision rights over cultivation and harvesting lies with the
contractor.
 Contractor takes on most of the market risks.
(ii) Production-management contract
(iii) Resource-providing contract

9. Models of contract Farming
Centralized Model
Nucleus Estate Model
Multi-partite Model
Informal Model
Intermediary Model
-Eaton and Shepherd (2001), in their FAO manual for CF

10. Centralized Model
Corporate
Farmer
Supply of
inputs
Supply of
produce
 Contracting company buys produces from a large number of small farmers.
 Is used for tree crops, annual crops, poultry, dairy. Products often require a
high degree of processing, such as tea or vegetables for canning or freezing
and dairy products.
 Is vertically coordinated, with quota allocation and tight
quality control.
 Sponsors’ involvement in production varies from minimal
input provision to the opposite extreme where the sponsor
takes control of most production aspects.
Source: Kumar et al., 2019

11. Management &
Administration
Technical Staff
The Project
Farmers
SPONSORS
• Climate Factors
• Farmers Response
• Management Quality
• Technology Quality
• Financial Incentives
• Support of the
Government
• External Influences
Source: Charles Eaton and Andrew W. Shepherd (2001), Contract farming partnership for growth,
FAO Agricultural Service Bulletin 145, page no, 49.
Vertical Coordination

12. Nucleus Estate Model
Corporate
Farmer
Own Farm
Supply of
inputs
Supply of
produce
Transfer of
technology
 For guaranteed resource input for the
processing plant.
 Sometimes used only for research or
breeding purposes.
 Is often used with resettlement or
transmigration schemes.
 It is a variation of the centralized model
where the sponsor also manages a central
estate or plantation.
Source: Kumar et al., 2019

13. Multi-partite Model
Company
Public/
Private body
Farmer
• A joint venture between a statutory body and a private company/ public body contracts
with farmers.
• Also public or private providers of credit, extension services, and
inputs may be part of the arrangement.
• Multipartite structures are common in China where
government departments as well as township
committees had set up joint ventures with domestic
and foreign investors to establish a processing unit and
to enter a CF arrangement with local farmers.
(Sonntag et al.,2005)
Source: Kumar et al., 2019

14. Source: Charles Eaton and Andrew W. Shepherd (2001), Contract farming partnership for growth, FAO
Agricultural Service Bulletin 145, page no, 49.

15. Informal Model
Corporate
Implementing Agency
Farmer
Agri inputs
seeds
Insurance
for crop
Fertiliser
pesticides
Bank for
crop loan
 At least three parties to the
Contract farming.
 It can be considered as a
combination of the centralized and
informal models.
 Practice for the crops require
minimal processing.
 Common practice throughout
Southeast Asia.
Source: Kumar et al., 2019

16. Intermediary Model
Sponcer
NGOs/ Farmer Groups /
Collectors
Farmer
 Sponsors generally lose linkages of farmers and
linked with intermediaries.
 Sponsors run the risk of losing control of
production and quality as well as prices received
by farmers.
 If the processors/sponsors are not unduly
bothered about quality and concerned only with
quantity, this model may work.
Source: Kumar et al., 2019

17. Advantages to the farmers
 Inputs and production services are often supplied by the
sponsor.
 This is usually done on credit through advances from the sponsor.
 Contract farming often introduces new technology and also
enables farmers to learn new skills.
 Farmers’ price risk is often reduced as many contracts specify
prices in advance.
 Contract farming can open up new markets which would
otherwise be unavailable to small farmers.

18. Problems faced by farmers
 When growing new crops, farmers face the risks of both market
failure and production problems.
 Inefficient management or marketing problems.
-Quotas are manipulated so that not all contracted
production is purchased.
 Sponsoring companies may be unreliable or exploit a monopoly
position.
 The staff of sponsoring organizations may be corrupt,
particularly in the allocation of quotas.
 Farmers may become indebted because of production problems
and excessive advances.

19. Advantages to the sponsors
 Contract farming with small farmers is more politically acceptable than, for
example, production on estates.
 Working with small farmers overcomes land constraints.
 Production is more reliable than open-market purchases and the sponsoring
company faces less risk by not being responsible for production.
 More consistent quality can be obtained than if purchases were made on the open
market.

20. Problems faced by sponsors
 Social and cultural constraints may affect farmers’ ability to produce to managers’
specifications.
 Poor management and lack of consultation with farmers may lead to farmer discontent.
 Farmers may sell outside the contract (extra-contractual marketing) thereby reducing
quantity processed in the factory.
 Farmers may divert inputs supplied on credit to other purposes, hereby reducing yields.

21. Role of Government in safeguarding CF
• Model APMC Act
2003
• The State /UT Agricultural Produce and
Livestock Contract Farming (Promotion &
Facilitation) Act
2018
• The Farmers (Empowerment and Protection)
Agreement on Price Assurance and Farm
Services Act
2020

22. Model APMC Act, 2003
 Contractual agreements were recorded with the APMCs.
 APMC resolve disputes arising out of these contracts.
 Market fees and levies were paid to the APMC to undertake contract farming.
 Twenty states had amended their APMC Acts to provide for contract farming,
while Punjab had a separate law on contract farming.
 Only 14 states notified rules related to contract farming, as of October 2016
Source: Kodidala (2018)

23. The State /UT Agricultural Produce and Livestock Contract
Farming (Promotion & Facilitation) Act, 2018
 Establishment and incorporation of Contract Farming (Promotion and Facilitation) Authority.
 Registering and Agreement Recording Committee at district/ taluka/ block level.
 The Agreement shall be prepared in local language clearly understandable to the Producer
and shall be in such legally acceptable.
 Sponsor prohibited from raising permanent structure on Producers’ land or premise.
 No title, rights, ownership or possession shall be transferred or alienated or vest in the
Sponsor etc.
 the delivery of any farming produce is to be taken by the Sponsor at the farm gate, he shall
take such delivery within the agreed time.
 Minimum period of the Agreement shall be for one crop season or one production cycle of
livestock and the maximum period shall be five years.
 The Authority shall levy and collect facilitation fee from the Sponsor not exceeding 0.3 per
cent ad valorem on contracted produce.
 Linkage of farming agreement with insurance or credit.
Source: Department of Agriculture, Cooperation and farmers’ Welfare, Agricultural
Marketing acts and rules

24. The Farmers (Empowerment and Protection) Agreement on Price
Assurance and Farm Services Act, 2020
 where the farming agreement relates to seed production, payment of not less than
two-third of agreed amount should be made at the time of delivery and the
remaining amount after due certification, but not later than thirty days of delivery.
 Dispute settlement:
 If Sponsor fails to make payment of the amount due to the farmer, such penalty
may extend to one and half times the amount due.
 If the order is against the farmer for recovery of the amount due to the Sponsor on
account of any advance payment or cost of inputs such amount shall not exceed
the actual cost incurred by the Sponsor.
 No order for recovery of amount shall be passed against the farmer.
Conciliation board Sub-Divisional Magistrate Appellate Authority
Source: Department of Agriculture, Cooperation and farmers’ Welfare, Agricultural
Marketing acts and rules

25. Scope of Contract Farming in India
• Himalaya
Healthcare Ltd.
• Suguna Foods
• Sneha Farms Pvt.
Ltd.
• Pepsico India ltd.
• ITC
• Nestle india ltd.
• PVR Aqua
• A S Agri & Aqua LLP
• Pepsico India ltd.
• NIJJER Agro foods Ltd

26. Crops
states, contract farming is in
operation
CF schemes
Ownership
Services
provided
Banks
involved
Organization form
Tomato PN, HY, J&K, HP,
UK, TN, GUJ
Pvt. E, I, T - 3 or 2
Potato HP, PN, WB, JHA Pvt. C, E, I, T SBI, ICICI 2 or 3
Gherkin AP, KA, TN Pvt. E, I and T NABARD 2
Basmati Rice PN, MP, HY Pvt. E, I, and T -
Seeds AP, PN, HY, MH,
MP
Pvt./Pub E & Seed - 3 or 5
Cotton TN, KA, MH, AP, GUJ, OD Pvt./Pub E, I - 1 or 2 or3
Chili PN, KA, TN Pvt. E, I and T - 1or 3
Oil Palm AP, KA Pvt. C and E
Syndicate
Bank
3
Poultry AP, KA, TN, OD Pvt. I, E and C SBI 3
Cheese/Milk HP, PN Pvt. C, T NABARD 3
Jatropa
RA, CH, GUJ, TN, MH, AP
Pvt. T, I
SBI, Vysya
Bank
3 or 1
Medicinal Plants TN, UK Pvt. T, I, and C SBI 3
Wheat MP Pvt. T, and I - 1 or 2
Barley KA,PN Pvt. T, I and E - 2
C – credit
E –extension
I –inputs
T –technology
1 –nucleus estate
2 –centralized model
3 –multipartite model
4 –informal
5 – Intermediary
(Braja Bandhu Swain, 2016)
Crops under Contract Farming in India

27. Area under contracting farming in different states of India
States Corporates Crops Area (ha)
Punjab
NIJJER Agro Foods Ltd. Tomato and Chilli 250
United Breweries Ltd. Barley 2270
PepsiCo India Ltd.
Basmati, Groundnut, Potato
and Chilli
6000
Nestle India Ltd. Milk 650 lakh kg/day
Satnam Oversease,
Sukhjit Starch
Basmati and Maize 4000
Satnam Oversease,
Amira Indian Foods Ltd.
Basmati 14700
Madhya Pradesh
Cargil India Ltd. Wheat, Maize and Soybean 17000
Hindustan Lever Ltd. Wheat 15000
Ion Exchange Enviro
Farms Ltd.
Several Fruits, Vegetables,
Cereals and Pulses
12098
ITC Soybean 1200
Source: Satish, 2012, Kadrolkar, 2016, Ray et al, 2020

28. Contd…
States Corporates Crops Area (ha)
Maharashtra
Tinna Oil and Chemicals Soybean 154.8
Ion Exchange Enviro Farms
Ltd.
Several Fruits,
Vegetables, Cereals and
Pulses
19
Karnataka
Himalaya Healthcare Ltd. Ashwagandha 700
Mysore S N C Oil Co. Dhavana 400-500
AVT Naturals Products Ltd.
Marigold and Caprica
Chilli
4000
Natural Remedies Pvt. Ltd. Coleus 150
20 Pvt. Co. Gherkins 8000
Tamil Nadu
Super Spinning 570 Mills Cotton 570
Appachi Co. Cotton 260
Bhuvi Care Pvt. Ltd. Maize and Paddy 1000
Source: Satish, 2012, Kadrolkar, 2016, Ray et al, 2020

29. Case Studies

30. Case Study - 1
Title: ContractFarming inAndhraPradesh: ACase
of RiceSeedandGherkinCultivation
Author: Braja Bandhu Swain (2011)

31. Agreement of Contract in Gherkin and Rice Seed Contracting

32. Differences in Characteristics between Contract and Non-contract Farm
Households
Characteristics Total Farmers CF Non-CF
No of farm households 140 73 67
Non-farm income ( in rupees per year) 22,320 17,737 27,313
Average Land (areas in acres) 6.23 7.42 4.93
Average Irrigated land (area in acres) 1.65 2.49 0.75
Total investment for agriculture (Rs) 42,367 65,524 17,136
Access to formal credit (yes = 1, no =
0)
0.61 0.79 0.42
Gherkin growing farmers

33. Characteristics Total Farmers CF Non-CF
No of farm households 155 86 69
Non-farm income ( in rupees per year) 25,130 28,465 20,974
Average land owned (area in acres) 4.91 5.54 4.13
Average irrigated land owned (area in
acres)
4.04 5.11 2.71
Total investment for agriculture (Rs) 1,27,142 1,52,912 52,023
Access to formal credit (yes = 1, no = 0) 0.79 0.79 0.8
Rice seed growing farmers
Differences in Characteristics between Contract and Non-contract Farm
Households

34. Particulars Contract farmers Non-contract farmers
Rice seed: On-farm gross income
Per year 1,89,708 91,689.57
Per acre 23,950.23 20,052
Non-farm gross income
(per year)
28,465 20,974
Total 2,18,173.21 1,12,663.5
Gherkin: On-farm gross income
Per year 1,24,407 59,106
Per acre 16,308 11,851
Non-farm gross income
(per year) 17,737
27,313
Total 1,42,144.4 86,419.85
Average Annual Gross Farm and Non-Farm Income of Contract and
Non-contract Farmers

35. Constraint and Problems Faced by Contract Farmers
Constraints and Problems
Percentage of Gherkin
Farmers agrees
Percentage of Rice
Seed Farmers agrees
Not procured output as per contract agreement 63.01 30.23
Because of quality differentiation company did
not procure output
57.53 29.07
Difficulty in meeting quality requirements 27.40
Inputs at higher price 17.81
Poor extension service 23.29 16.28
Crop failure 87.67 5.81
No proper transportation 2.74 4.65
Rejected after procurement 26.74
Low price 26.03
Delay payment 42.47 62.79

36. The Impact of Contract Farming on Local Economy
Contract Farming
Environment
degradation
Food insecurity Income inequality
More employment
generation
Crop under contract
farming is labour
intensive crop
Excess water
exploitation and
abuse of fertiliser
and pesticide
monoculture
Contract farmers
ignores food crops
Contract farmers
have higher income
than non-contract
farmers

37. Case study - 2
Topic: Contract farming practice in Indian
Punjab: Farmers’ perspective
Author: Nivedita Sharma (2014)

38. Contract terms
Pagro Foods
Limited
Fieldsfresh
Pvt. Ltd
Technico
Agritech Ltd
Pepsico Foods
Pvt. Ltd.
Mahindra
ShubhLabh
Services Ltd.
Farmers’ Response
(% of farmers)
Written contract Yes Yes Yes Yes Yes
Written- 44.70
Oral-55.30
Language Eng. Eng & Pbi Eng. Eng.
Eng. (translated
to Pbi on
demand)
Eng-96.50 Pbi-
1.70
Both-1.80
Copy provided Yes Yes Yes Yes Yes
Yes-28.70
No-71.30
Agricultural
practices
Prescribed by the
company
Prescribed by
the company
Prescribed
by the
company
Farmers’ own +
prescribed by
the company
Prescribed by the
company
Own-15.70
Company’s- 33.30
Both-51.00
Extension services
provided Yes Yes Yes Yes Yes
Yes-22.30
No-77.70
Contract Terms of Various Companies

39. Contract terms
Pagro Foods
Limited
Fieldsfresh
Pvt. Ltd
Technico
Agritech
Ltd
Pepsico
Foods Pvt.
Ltd.
Mahindra
ShubhLabh
Services Ltd.
Farmers’
Response (% of
farmers)
Credit facility No No
Yes
(Through
HDFC
bank)
Yes (Through
SBI)
Yes (Through
HDFC, ICICI,
Kotak
Mahindra)
Yes-18.70
No-81.30
Compensation if
MP is higher
Yes No No No No
Yes-1.00
No-99.00
Weather Insurance No No No
Yes (By
ICICI)
Yes
Yes-19.30
No-80.70
Compensation for
natural calamity
No No Yes Yes No No-100.00
Legal provision
for dispute No No Yes Yes Yes No-100.00
Contd…

40. Marketing problems
Henry Garret Ranking
mean score Ranks
Contract Farmers Contract Farmers
Default in
procurement 14.51 II
Low prices 42.01 I
Poor quality output 3.59 V
Distant market 2.38 VII
Late payment 10.26 IV
Excessive grading 10.46 III
Other@$ 2.69 VI
Henry Garret Rankings of Contract Farmers for the
Marketing Problems

41. Factors for benefits of CF Henry Garret Ranking
score Ranks
Assured market 56.19 I
Assured price 26.98 II
Profitable 26.18 III
Diversification 3.00 VIII
Extension services 11.23 V
Economical 1.12 X
Quality seeds 7.17 VII
Technical know-how 9.24 VI
Fixed income 11.39 IV
Other* 2.20 IX
Henry Garret Rankings of Contract Farmers for
the Benefits of CF

42. Conclusion
Though contract farming can create a win-win situation for
both sponsor and farmer, the success of contract farming
mainly depends up on the contract relationship and extent of
trust between both the parties. So effort is needed to be made
by the governing institutions to minimize negative impacts
of contract farming business. So that future of contract
farming will be bright in India.