Contract farming is an agreement between farmers and processing/marketing firms where farmers grow and supply agricultural products under certain conditions, often at predetermined prices. Historically, contract farming began in the 1920s in India when ITC introduced tobacco cultivation. It provides benefits like inputs and credit for farmers, while ensuring regular supply and price stability for companies. The government aims to facilitate connections between farmers and businesses through contract farming as well as research support, while avoiding overregulation. Examples include poultry, flower, and tomato contract farming projects in India.

1. CONTRACT FARMING
Prepared by :
Bhabani Shankar Dash
IIMT, Bhubaneswar
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2. CONTEXT:
Meaning of Contract farming
History of Contract farming in India
Advantages for farmers
Benefits to the Company
Govt. support
Practical examples
Conclusion
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3. Meaning of Contract Farming:
It is an agreement between
farmers & processing and marketing
firms for the production and supply of
agricultural products under certain
agreement, frequently at
predetermined prices.
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4. History:
Contract farming was traced back to
Colonial period.
IN 1920’s ITC introduced cultivation of
Virginia tobacco in Coastal Andhra
Pradesh on a fair contract farming
system.
In 1990’s PEPSICO introduced tomato
cultivation in Punjab for the
establishment of its paste
manufacturing. This was sold to
Hindustan Lever in 2000. 4

5. Advantages of Contract farming
for farmers:
1. Inputs and production services are often
supplied by the sponsor
2. This is usually done on credit through
advances from the sponsor
3. Contract farming often introduces new
technology and also enables farmers to learn
new skills
4. Farmer’s price risk is often reduced as many
contracts specify prices in advance
5. Contract farming can open up new markets
which would otherwise be unavailable to
small farmers
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6. Benefits to the Company:
1. Uninterrupted & Regular Flow of Raw
Material
2. Protection From Fluctuation In Market
Pricing.
3. Long Term Planning Made Possible.
4. Builds Long Term Commitment
5. Dedicated Supplier Base
6. Generates Goodwill For the
Organization
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7. GOVERNMENT SUPPORT
The enabling and regulatory
role
Suitable laws of contract and other laws are required as
well as an efficient legal system
Governments need to be aware of the possible
unintended consequences of regulations and should
avoid the tendency to over regulate
Governments should provide services such as research
and sometimes, extension.
The developmental role
• Governments can take steps to bring together
agribusiness and suitable farmers.
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8. Practical examples:
In order to reduce the risk to the producers and sustain
the profitability in the industry some of the major firms
like SUGUNA hatcheries , Venkateswar hatcheries
bagan intigrating their activies with that of the broiler
producers through the contract farming.
Ryots have raised the flower on 125 acres under
contract farming in Thanjavur district The four-month
flower crop has paid rich dividends to growers in Vallam
and Sengipatti.
The company uses marigold for taking an
extract Oleoresin, which was used in nutraceutical
industry.Carotin rich extract from marigold can cure eye
diseases.
The extract is being exported. AVT Natural
Products Limited has been raising marigold in a big
way in Sathyamangalam area of Erode district,
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9. CONTINUES..
Till today, PepsiCo India's project with
the Punjab Agro Industries
Corporation and Punjab Agriculture
University remains one of the most
ambitious contracts farming projects in
the country. "The programme focuses
on evolving agricultural practices to
help Punjab farmers produce crops
that would make Indian products
internationally competitive," says the
spokesperson.
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10. ISSUES & CONCERNS:
Soil fertility concerns
Environmental issues
Food security concerns
Seed problems
Labour problems
Contract disputes
Middle man’s influence
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11. CONCLUSION:
India, given the diverse agro climatic
zones, can be a competitive producer
of a large number of crops.
There is a Need to convert our factor
price advantage into sustainable
competitive advantage.
Contract farming offers one possible
solution.
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