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.
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.”
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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
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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
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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
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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
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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
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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
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15. Basics of Arrangements
• Commitment by the farmer towards quantity & quality
• Commitment by the industry to procure the produce at fixed
price & time.
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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
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17. Conditions from Farmer’s side
• Providence of agreed quantities of specific product
• Same quality standard of produce
• Supply at right time
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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
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19. Conditions from buyer’s side
• Standby commitment of purchase.
• Should support production
• Fit to the pre determined price.
• Timely payment
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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
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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
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23. Problems faced by Industry
• Land availability constraints
• Social and cultural constraints
• Farmer discontent
• Extra-contractual marketing
• Input diversion
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24. Problems faced by Government
• Legislative issues
• Issues from the public faced by fraudulent
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25. Favourable situations
• Physical environment
• Utilities and communications
• Land availability and tenure
• Input availability
• Social considerations
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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
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28. Types
• Centralized model
• Multipartite model
• Informal model
• Intermediary model
• Nucleus estate model
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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
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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
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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
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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
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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)
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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)
47. Pepsico’s contract farming
Steps of contract farming
• R&D Activities
• Transfer of technology
• Commercialization
FICCI, 2005
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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
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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
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50. The Nursery
• Low cost tunnel technology works.
• Land preparation is critical.
• Siting nursery operations on elevated ground.
• Mechanization of operations.
• Proper maintenance.
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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
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52. Contract farming Vs A price support mechanism
Contract farming
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Planting material supplies
Technology transfer
Assured price
Assured quantity
Free equipment
Partnership approach
Builds commitment
Long term
Price support
•
•
•
•
•
•
•
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Usually none
None
Minimum guaranteed
No assured quantity
No free equipment
Usually adversarial
Builds mistrust
Short term
www.fao.org
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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
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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
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55. Policies needed
• Introduce insurance policies
• Exposure of Agricultural students to CF
• Development of crop and region specific agendas through SAU.
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56. Factors to failure
• Reluctance of farmers in production
• Clashes & Disagreements
• Violation of agreement when price change
• Weather harshness
• Deviation from commitment
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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
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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.
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