CONTRACT FARMING IN INDIA PRESENT STATUS, SCOPE, OPPORTUNITY, CONSTRAINTS, IMPORTANCE AND STRATEGIES FOR IT

2. CONTRACT FARMING IN INDIA PRESENT STATUS, SCOPE,
OPPORTUNITY, CONSTRAINTS, IMPORTANCE AND STRATEGIES FOR IT
Speaker
Amit Bishnoi
DEPARTMENT OF AGRONOMY
RAJASTHAN COLLEGE OF AGRICULTURE
MAHARANA PRATAP UNIVERSITY OF AGRICULTURE AND
TECHNOLOGY, UDAIPUR -313001(RAJ.)

3. CONTENTS
1. INTRODUCTION
2. HISTORICAL BACKGROUND
3. MEANING OF CONTRACT FARMING
4. OBJECTIVE OF CONTRACT FARMING
5. NEED FOR CONTRACT FARMING IN INDIA
6. TYPES OF CONTRACTS
7. MODELS OF CONTRACT FARMING IN INDIA
8. ADVANTAGES AND PROBLEMS OF CONTRACT FARMING
A.ADVANTAGES FOR THE FARMERS
B.ADVANTAGES FOR THE SPONSORS
C.PROBLEMS FACED BY THE FARMERS
D.PROBLEMS FACED BY THE SPONSORS
9. SCOPE AND OPPORTUNITIES OF CONTRACT FARMING
10.IMPORTANCE OF CONTRACT FARMING
11. WHY CONTRACT FARMING IN INDIA
12. ISSUES AND CONCERNS
13. FUTURE STRATEGIES OF CONTRACT FARMING
14. DIFFERENT CASE STUDY OF CONTRACT FARMING
15. SUCCESS STORY OF FARMERS
16. SUMMING UP

4. INTRODUCTION
65 percent of Indian population depends directly on agriculture.
 17 per cent of world population
 2.3 per cent of world geographical area
 4.2 per cent of world’s water resources
 Traditional methods of farming
 To step up and adopt commercially, technically and economically viable
agribusiness solutions

5. HISTORICAL BACKGROUND
 For the first time it was introduced in Taiwan in 1895 by Japanese government
Europeans first introduced indigo and opium cultivation in the Bengal Region, under the
East India company rule.
ITC’s contracts with the farmers of Andhra Pradesh for growing Virginia tobacco during
the 1920s
 In India it was introduced by Pepsi company for the cultivation of vegetables
particularly tomato and potato in Panjab in 1927.
 Emergence of seed companies during the 1960s, the green revolution during the 1970s
and finally the tomato farming contracts by PepsiCo in Punjab during the 1990s can be
quoted as some of the milestones in the emergence of Contract Farming in India.
 In Karnataka contract farming was started with the cultivation of gherkin in 20th century

6. 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.

7. OBJECTIVE OF CONTRACT FARMING
 To achieve consistent quality
 To achieve regular supply
 To improve quality of produce
 To stabilize the agro-raw produce
 price is not affected by market
prices

8. Need for contract farming in India:
 Production and marketing are very critical in India.
 Over come inadequate linkages with market.
 Lack of capital, poor infrastructure, technology transfer, etc…
 To avoid post harvest losses.
 Unfavorable conditions for procurement.
 To avoid migrations.

9. TYPES OF CONTRACTS :
1. Marketing contract
 Only purchase at predetermined price.
 No input supply.
2. Partial contract
 Provides only some inputs at predetermined price.
 Purchase of produce.
3. Total contract
 All the inputs at predetermined price.
 Purchase of produce.

10. Models of contract farming in India :
Three models of contract farming
1. Bipartite Agreement model
2. Tri-partite Agreement model
3. Quad-partite Agreement model

11. Bipartite Agreement model:

12. Tri-Partite Agreement Model:

13. Quad-Partite Agreement Model :

14. Status of contract farming in India
 Nearly Five lakh hectares area is under
contract farming in India
 More than 600 national and multinational
companies are in contract farming

15. STATE COMPANY CROP AREA (ha.)
Karnataka
Himalaya Health Care Ltd. Ashwagandha 700
Mysore SNC oil Co. Dhavana 400-500
AVT Naturals Products Ltd. Marigold and caprice Chilli 4000
Natural remedies Pvt. Ltd Coleus 150
20 Pvt. Companies Gherkins 8000
Maharashtra
Tinna Oil and Chemicals Soybean 1,54,800
ION Exchange Enviro farms Ltd. Several fruit, vegetables, cereals and
pulses
19
Madhyapradesh
Cargil India Ltd. Wheat, soybean and Maize 17000
Hindustan Lever Ltd. Wheat 15000
ION Exchange Enviro farms Ltd. Several fruit, vegetables, cereals and
pulses
12098
ITC Soybean 1200
Panjab
NIJJER Agro Food Ltd. Tomato and chilli 250
United Breweries Ltd. Barley 2270
Satnam Overseas, Sukhjit Starch Basmati, Maize 4000
Satnam Overseas, Amira Indian
Food Ltd.
Basmati 14700
PepsiCo India Ltd. Basmati, groundnut, potato and chilli 6000
Nestle India Ltd. Milk 65000000 lit./day
Tamil Nadu
Super Spinning 570 mills Cotton 570
Bhuvi Care Pvt. Ltd. Maize 800
Bhuvi Care Pvt. Ltd. Paddy 200
Appachi Company Cotton 260
Table 1: State wise Contract Farming initiatives by private companies in India
Source: “Nature and Scope of Contract Farming in India” by H.S. Satish (2012)

16. Partial List of Companies Established Contract
Farming In India
 HUL
 ITC
 SUGUNA POULTRY
 VENKATESHWARA
 HATCHERIES
 PEPSICO
 RALLIS
 NESTLE

17. The advantages of contract farming
1. Provision of inputs and production services.
2. Access to credit
3. Introduction of appropriate technology
4. Skill transfer
5. Guaranteed and fixed pricing structures and
6. Access to reliable markets.

18. Benefits to the Farmer:
 Assured markets & returns
 Risk elimination due to price fluctuation
 Timely transport
 Reduces exploitation from middlemen
 Reduces lending from private money lenders
 Adequate input supply
 Employment generation

19. Benefits to the Company:
 Uninterrupted & 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. Problems Faced by the Farmers
i. Possibility of greater risk
ii. Outdated technology and crop incongruity
iii. Maneuvering in quotas and quality specifications
iv. Corruption

21. Problems Faced by the Sponsors
i. Limitation on land availability
ii. Social and Cultural constraints
iii. Farmers disgruntlement
iv. Below quality agro-inputs
v. Sale of crops by the farmers beyond contractual agreement

22. Scope and Opportunities of Contract Farming
Dairy Contract Farming
Poultry Contract Farming
Fruit and Vegetables Farming

23. Dairy Contract Farming

24. Poultry Contract Farming

25. Reported By NSSO, 2010

26. Importance of Contract Farming
Stable income, higher income than non contract farming
Market certainty
 Delivery service for inputs
Ease of obtaining input
Loan made available though financial institutions
Learning new technology
 Infrastructure: road and ditch
 Information, news and networking
Quality development
 Risk uncertainty is less
 Improved access to local markets
Assured markets and prices (lower risks) especially for non-traditional crops
Assured and often higher returns
 Enhanced farmer access to production inputs
Mechanization and transport services
Extension advice, provision of inputs and production services, access to credit
 Introduction of appropriate technology
Skill transfer, guaranteed and fixed pricing structures etc.

27. Why Contract Farming in India ?
Traditional technology
Management practices
Little bargaining power with input suppliers and produce markets
Inadequate infrastructure and market information
Lack of post-harvest
Poor package of produce
Inadequate capital to grow a quality crop
Small farmers not participate in the production of high value crops
Efficient monitoring of production operations
Extension activities
Maximize the profits to the farmers and minimize risk in farming
Users to go in for environmental friendly, value added quality agro products
Farmers find it easy to get under one roof system
Access to crop loans at attractive terms
Alternate cropping system for better monetary returns.

28. Issues and Concerns
1. Soil fertility concerns
2. Environmental issues
a. Bio-diversity issues
3. Food security concerns
4. Seed problems
5. Labour problems
6. Contract disputes
7. Middle man’s influence

29. Future Strategies of Contract Farming
Involvement of Panchayat or Gram sabha
Improve bargaining power of the farmers
The selection of appropriate plant genotype
Minimum necessary infrastructure facilities
Bank finance to small and marginal farmers
Contracts should be managed in clear and participatory manner
Legalization of tenancy
Does not grow beyond certain limit which will destroy biodiversity and agricultural
ecology
CWC and SWC quality standards in respect of various commodities
Updated database of contract farmers along with other relevant details
Agreements written in vernacular language
Liability of the contractor for any environmental losses should be fixed by the
government

30. DIFFERENT STUDY ON CONTRACT
FARMING

31. Wheat
42%
Non Basmati
rice
37%
Basmati
Rice
1%
Sugarcane
11%
Fodder crops
5%
Maize
1%
Others
3%
Non- Contract Farmers (2002)
Wheat
37%
Non
Basmati rice
28%
Basmati
Rice
9%
Sugarcane
7%
Fodder
crops
6%
Maize
3%
Pulses
3%
Oilseeds
6%
Vegetables
1%
Non- Contract Farmers (2007)
Sample study Area Panjab Sharma, 2007
Figure 1. Cropping Pattern Shifts in Sample Non-Contract Farmers
A STUDY ON BASMATI RICE UNDER CONTRACT FARMING
IN PANJAB

32. Wheat
43%
Non Basmati
rice
35%
Basmati
Rice
10%
Sugarcane
4%
Fodder crops
5%
Maize
3%
Others
0%
Contract Farmers (2002)
Wheat
35%
Non Basmati
rice
20%
Basmati
Rice
21%
Sugarcane
6%
Fodder
crops
6%
Maize
1%
Pulses
2% Oilseeds
1%
Vegetables
7% Others
1%
Contract Farmers (2007)
Sample study Area Panjab Sharma, 2007
Figure 2. Cropping Pattern Shifts in Sample Contract Farmers

33. Particulars Foreign contract Domestic contract Non-contract
Baby corn Chilli Baby corn Chilli Baby corn Chilli
Variety PAC Series Confidential PAC Series
PAC Series Chikkaballapur
Yield (kg/acre)
I Grade 1954 4071 2259 4307 1619 2894
II Grade - 214 - 227 - -
Price (Rs/ kg)
I Grade 7 8 7 8 6.6 10.2
II Grade - 5 - 5 - -
Returns (Rs/ acre)
Main product 13678 33638 15814 35591 10669 29374
Byproducts 2871 - 4745 - 2019 -
Gross returns 16549 33638 20558 35591 12688 29374
Total cost of production 8499 26657 9948 24484 9653
Net returns 8050 6981 10610 11108 3035 6101
Cost of production /kg 4.34 6.20 4.40 5.40 5.96
Returns per kg 4.1 7.9 4.7 7.5 1.9 10.2
Returns per rupee invested, Rs 2.0 1.3 2.1 1.5 1.3
Table 1. Net returns realized by contract and non contract farmers for baby corn and chilli in Karnataka
Karnataka Nagaraj et al.2008

34. Crop
Farms
(Rs/ha)
Contract
Farms
(Rs/ha)
Non-contract
farms
Change over
non-contract
Gherkin 77066 - -
Baby corn 64681 - -
Paddy 31602 27257 4345(15.3)
Groundnut 30462 28821 1641(5.7)
Sunflower 28553 30477 -1924(-6.3)
Chilli 20372 - -
Ragi 16671 12250 4421(36.1)
Table 2. Per-hectare income from different crops on contract and non-contract farms
Pantnagar Jagdish and Prakash 2008
Note: Figures within the parentheses indicate percentages change over non-contract farms

35. Particulars
farms
Hired human labour
Contract Non- contract
farms (human-days)
Change over non
-
contract farms,
%
Male 48 (15.5) 22 (19.8) 26* (118.2)
Female 261 (84.5) 89(80.2) 172* (193.7)
Total hired human labour 309 (100) 111 (100) 198* (178.4)
Family labour-use in crop production
Male 197(70.4) 64 (73. 6) 133* (207.8)
Female 83 (29.6) 23 (26.4) 60* (260.9)
Total family human labour 280(100) 87 (100) 193* (221.8)
Family labour-
use in livestock production
Male 41 (21.7) 64 (29.5) -23 (-35.9)
Female 148 (78.3) 153 (70.5) -5 (-3.3)
Total family labour 189 (100) 217 (100) -28 (-12.9)
Total male labour 286 (36.8) 150 (36.1) 136** (90.7)
Total female labour 492 (63.2) 265 (63.9) 227** (85.7)
Total human labour 778 (100) 415 (100) 363** (87.5)
Table 3. Average level of yearly employment on contract and non-contract farms
Pnatnagar Jagdish and Prakash 2008
Notes: Figures within the parentheses indicate percentages to total
The figures within the parentheses indicate percentage change over non-contract farms
* and ** indicate significance at 1 per cent and 5 per cent levels, respectively.

36. Qha-1
Category of farm Farm size
Marginal Small Semi-medium Medium Large Overall
Contract farms
Main product 44.86 45.63 47.16 48.59 50.98 47.03
By product 40.38 42.20 43.05 45.17 46.24 43.16
Non-contract farms
Main product 38.45 40.27 41.17 42.46 44.79 41.11
By product 40.54 42.45 43.72 44.45 45.10 43.17
Difference
Main product 6.41 5.36 5.99 6.13 6.19 5.92
(16.67) (13.31) (14.55) (14.44) (13.82) (14.40)
By product -0.16 -0.25 -0.67 0.72 1.14 -0.01
-(0.39) -(0.59) -(1.53) (1.62) (2.53) -(0.02)
Rajasthan Sitaram and Kumawat, 2015
Figures in parentheses are the percent increase in production on contract farms over non-contract farms
Table 4 Category-wise production of barley on contract and non-contract farms,
2010-11

37. Players Commodi
ties
Type of
Ownership
Sample Size Year of
survey
informati
on
Relevant
to
Economics of
CF
(Net profits
(Rs/ton)/output
per
Acre )
Area of
Study
Studies
CF NCF CF NCF
Milkfe
d-
Verka
Milk&M
ilk
Products
Cooperati
ve 117 134 2005 2004 5278 3960
Punjab-
Ludhiana
And
Rupnagar
districts
Gupta et al.
2006
Nestle
Milk&M
ilk
Products
Corporate
(Multinati
onal)
152 22 2002-
03 2001-02 3651 1821
Punjab-
Moga
district
Birthal et al.
2005
Venkat
eshwar
a
Hatche
ries
Poultry
Corporate
(Domestic
)
25 25 2002-
03 2001-02 2255 2003
Andhra
Pradesh-
Rangareddy
,
Mehboobna
gar
And
Nalgonda
districts
Birthal et al.
2005
Mother
Dairy-
Safal
Vegetabl
es
(spinach)
Cooperati
ve 100 50 2002-
03 2001-02 1791 1007
Delhi and
Sonepat
district in H
aryana
Birthal et al.
2005
Mahag
rapes Fruits Farmers
Group 88 95 2005 2004 14980 9390
Maharashtr
a-Pune,
Nashik and
Sangli
districts
Roy &
Thorat.
2008
Global
Green
Compa
ny
Gherkin Corporate 100
All of
it is
unde
r CF
2004-
05 2002-03
35000
(Rs/ha
)
- Andhra
Pradesh
Rao et al.
2008
Annexure Table A1: Some Studies on Contract Farming In India By Gulati et al. 2008.

38. Success Story of Farmers
Gujarat’s contract farmers reap profits even as potato prices crash
By: Vivian Fernandes (http://www.financialexpress.com/author/vivianfernandes/)March 17, 2015 12:25 A
Those on contract to McCain, a Canadian company which sells tikkies, wedges and
fries under its own frozen foods brand and also supplies to McDonald’s, the US fast-
food chain, are relieved. The Rs 8 a kg guaranteed to them is double the spot
market price. This will recompense for the notional loss they suffered last year when
they had to make do with Rs 7.5 a kg. “Contract farming is good because the risk
factor is zero,” says Kantibhai B Patel, 45, of Iqbalgarh village in Banaskantha’s
Amirgarh taluka. A post-graduate in chemistry, Kantibhai has grown potatoes on most
of his 30 acres, all of it under contract, a practice that he has not broken for about a
decade. Assured of price, he focuses on productivity to increase his income per acre.
Deesa, a town in Gujarat’s northern Banaskantha district, 145 refrigerated potato
warehouses in Deesa, The district’s area under potato rose from 45,000 ha to 52,000 ha.
Govt. decided MSP of Potato is Rs 4 a Kg.

39. SUCCESS STORIES OF COMPANY

41. SUMMING UP
From the ongoing presentation, it can be concluded that the 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.

42. Everything else can wait But not Agriculture
Jawaharlal Nehru