WHAT IS CONTRACT FARMING?
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. Typically, the farmer agrees to provide agreed quantities of a specific agricultural products.
Theory and practice of contract farming
A central processing or exporting unit purchases the harvests of independent farmers.
Most commonly practiced by food processing companies.
2. WHAT IS CONTRACT FARMING?
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. Typically, the farmer agrees to
provide agreed quantities of a specific
agricultural products.
3. THEORY AND PRACTICE OF CONTRACT FARMING
A central processing or exporting unit
purchases the harvests of independent
farmers.
Most commonly practiced by food processing
companies.
4. TWO TYPES OF CONTRACT FARMING SCHEMES
One type produces traditional tropical
commodities,such as sugar,rubber,or oil
palm.
Another type,usually on a smaller scale and
with more private-sector involvement.
5. TYPES OF CONTRACT FARMING
Centralized model
Nucleus Estate model
Multipartite model
Informal model
Intermediary model
6. CENTRALIZED MODEL – OUTGROWER SYSTEM
o Contracting company provides support to the
production of the crop by smallholder
farmers,purchases the crop from the
farmers,and then processes,packages and
markets the product,threby tightly controlling
its quality.
o Eg.
Tobacco,cotton,bannana,coffee,tea,cocoa,ru
bber.
7. NUCLEUS ESTATE MODEL
• Variation of the centralized model
• Close supervision of production
• Eg. Mainly tree crops,but also fresh
vegetables and fruits for export
8. MULTIPARTITE MODEL
Usually involves government statutory bodies
and private companies jointly participating
with farmers
May have separate organizations
responsible for credit
provision,production,management,processin
g and marketing
9. INFORMAL MODEL
o Individual intrepreneurs or small companies
who make simple,informal production
contracts with farmers on a seasonal basis
o Financial management is usually minimal
o Most speculative of all contract farming
models,with risk of default by both promoter
and farmer
o Eg. Vegetables,watermelons,fruits
10. INTERMEDIARY MODEL
Formal subcontracting by companies to
intermediaries(collectors,farmer groups,NGOs)
Intermediaries have their own(informal)
arrangement with farmers
Disconnects links between company and farmer
Risks:
-losing control over prices paid to farmers
-poorer quality standards and irregular
production
11. HISTORICAL BACKGROUND
For the first time it was introduced in Taiwan
in 1895 by Japanese government.
In India it was introduced by Pepsi company
for the cultivation of vegetables particularly
potato and tomato in Rajasthan in 1927.
In Karnataka contract farming was started in
20th century.
12. 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.
13. NATURE OF CONTRACT FARMING
The contracts farming may fall into three categories
Market specification contracts: are pre harvest
agreement that bind the processing firm and the
growth to a particular set of conditions governing the
sale of the crop. The conditions often specify price
and quantity.
Resource-providing contracts: obliges the
processor to supply crop inputs, extension or credit,in
exchange for the marketing agreement.
Production management contracts: binds the
farmer to follow a particular production method a
input regimen,usually in exchange for a marketing
agreement or resource provision.
14. WHY CONTRACT FARMING
o To reduce the load on the central and state
level procurement system.
o To increase private sector investment in
agriculture.
o To bring about a market focus in terms of
crop selection by Indian farmers.
o To generate a steady source of income at the
individual farmer level.
15. o To promote processing and value addition.
o To reduce migration from rural to urban areas
16. 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.
Assured market for the produce.
Contract farming can open up new markets
which would otherwise be unavailable to small
farmers.
17. PROBLEMS FACED BY FARMERS
• Particularly when growing new crops,farmers
face the risks of both market failure and
production problems.
• Farmers may become indebted because of
production problem and excessive advances.
18. BENEFITS TO THE COMPANY
Uninterrupted and Regular Flow of Raw
Material
Protection from Fluctuation in market pricing
Long term planning made possible
Builds long term commitment
Dedicated supplier base
Generates goodwill for the organization
20. 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.
