2. meaning
Contract farming may be defined as agricultural
production carried out according to prior
agreement in which the farmer commits to
producing a given product in a given manner
and the buyer commits to purchasing it.
Often, the buyer provides the farmer with
technical assistance, seeds, fertilizer, and
other inputs on credit and offers a guaranteed
price for the output (Minot N, 2007).
3. • Glover and Kusterer (1990) define contract
farming as those contractual arrangements
between farmers and other firms, whether
oral or written, in which non-transferable
contracts specify one or more conditions of
marketing and production
4. History
Contract farming was traced back to Colonial
period.
For the first time it was introduced in Taiwan in
1895 by Japanese government
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
5. 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.
6. objectives
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. 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
9. 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
10. Benefit to the government
• There will be increase in the level of
employment
• There will be increase in the national income
• There will be no need for the government to
give subsidies
• There will be increase in agricultural
productivity
11. advantages of contract farming
Provision of inputs and production services.
Access to credit
Introduction of appropriate technology
Skill transfer
Guaranteed and fixed pricing structures and
Access to reliable markets.
12. Nature of contract farming
The farming contracts 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. These conditions often specify price,
quality and timing.
• Resource –Providing Contracts :- obliges the processor to supply crop
inputs, extension or credit, in exchange for a marketing agreement.
• Production management contracts – binds the farmer to fallow a
particular production method a input regimen, usually in exchange for a
marketing agreement or resource provision.
13. Models of contract farming
Three models of contract farming
1. Bipartite Agreement model
2. Tri-partite Agreement model
3. Quad-partite Agreement model
17. PRECONDITIONS FOR SUCCESS
A profitable market
Sponsor Must have identified a market for the planned production
Sponsor Must be sure that such a market can be supplied profitably on a long-
term basis
Farmer Must find potential returns more attractive than returns from
alternative activities and must find the level of risk acceptable
Farmer Must have potential returns demonstrated on the basis of realistic yield
estimates
18. Government Support- 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.
19. Government Support-Developmental Role
Provision of agricultural extension services to
ventures that do not employ their own field
staff.
At the national level, it is a precondition that
specialized services are available to provide
institutional support to production, processing
and marketing
20. TYPESOFCONTRACTS
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
22. PARTIAL LIST OF COMPANIES ESTABLISHED
CONTRACT FARMING IN INDIA :
HUL
ITC
SUGUNA POULTRY
VENKATESHWARA
HATCHERIES
PEPSICO
RALLIS
NESTLE
23. State-wise Contract Farming Initiatives by Private
SectorSTATE CROP COMPANY AREA
KARNATAKA ashwagandha Himalya health care
ltd
700
KARNATAKA dhavana Mysore S N C oil
company ltd
400-500
KARNATAKA Merigold and chilli AVT NATURAL
PRODUCT LTD
4000
KARNATAKA coleus Natural remedy pvt
ltd
150
KARNATAKA gherkin 20 Pvt companies 8000
MAHARASHTRA soyabean Tinna oil &
Chemicals
154800
MAHARASHTRA Several fruit veg
and cereal
Ion exchange
Enviro farms
ltd(IEEFL)
19
MADHYA PRADESH Wheat maize
soyabean
Cargil india ltd 17000
24. Contd.....
State Crop
Madhya Pradesh Wheat, Maize &
Soybean
Cargil india ltd 17000
Madhya Pradesh Wheat Hindustan lever ltd 12098
Madhya Pradesh Fruits,
Vegetables,
Cereals, Spices &
Pulses
Ion exchange
environ farm ltd
1200
Madhya Pradesh Soybean ITC 250
Punjab Tomato & Chilly NIJJER agro food ltd 2270
Punjab Barley United breweries
ltd
4000
Punjab Basmati, Maize Satnam overseas
and sukhjit starch
ltd
4000
25. State Crop Company Area(ha)
Punjab Basmati Satnam Overseas,
Amira Indian
Foods Ltd
14700
Punjab Basmati ,
Groundnut, potato
&chilli
Pepsico Indian
Ltd
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
29. Per hectare income from different crop from contract farm and
non contract farm in karnataka (Jagdish and prakash 2008)
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)
30. Average level of yearly employment on contract and non-
contract farms (Jagdish and Prakash 2008)
Particulars farms Contract Non- contract
farms (human-days)
Hired human labour
Male 48 (15.5) 22 (19.8)
Female 261 (84.5) 89(80.2)
Total hired human labour 309 (100) 111 (100)
Familylabour-
use in crop production
Male 197(70.4) 64 (73. 6)
Female 83 (29.6) 23 (26.4)
Total family human labour 280(100) 87 (100)
31. Success Story of Farmers
Gujarat’s contract farmers reap profits even
as potato prices crash
• 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.
32. • 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.
33. SUCCESSFUL INITIATION IN INDIA
Contract farming in wheat is being practiced
in Madhya Pradesh by Hindustan Lever Ltd
(HLL), Rallis and ICICI
34. Appachi’s integrated cotton company model –Coimbatore, Tamil
Nadu backed by a model called the Integrated Cotton Cultivation
(ICC), which guarantees a market- supportive mechanism for
selling the produce to growers.
Contract farming in ‘Gherkin’ in Karnataka Andhra Pradesh and
Tamil Nadu .In Karnataka alone approximately 30,000 small and
marginal farmers have taken up contract farming of gherkins.
Karnataka exported 50,000 metric tons of gherkins valued at
Rs. 143 crores during 2004-05
35. PepsiCo inDIA
• Pepsi co is world leader in convenient food
and beverages
• Pepsi co India snacks (frito lays) is one the
largest convenient food company in India.
Entered in 1989
• Has 3 state of the art snack food plant in India
• directly employ more than 4600 people and
indirectly 6000
36. • Focussing on Potato, Citrus, Corn, Paddy and
Barley
• Started investment and partnership with PAU
to develop agro-tech program Punjab farmers
• Number of farmers benefitted by pepsico has
increased from 800 in 2003 to 11000 in 2013
• PepsiCo contract farmer are getting significant
benefits in insurance bank blight control
package and attractive price
37. Nestle India’s Success
• Nestle milk processing factory was started in
India in 1959 in moga.
• it has grown from 4600 farmers providing
2000T of milk to 100000 farmers in 2600
villages producing more than 300000T
• Field camp run Nestle Agricultural Services
have help farmers improve their farming
practices and milk qualities.
38. • Village Women Development Programme has
trained 30000 women dairy farmers.
• Moga factory has also helped-
Set up drinking water facilities in 91 schools
benefiting more than 33000 students
Introducing local tree planting programme
Fund a tuberclosis clinic
39. Kay Bee’s contract farming
• KAY BEE EXPORTS is located at Navi Mumbai
in the state of Maharashtra
• Kay Bee Exports is a leading company, exporting
vegetables such as okra, chili, Baby corn,
Bottleguard as well as fruits like pomegranate and
mango to the European market
• with exports of more than 5000 tonnes per annum.
Food Chain Partnership agreement between
Bayer Crop Science and Kay Bee was signed
the 2009
40.
41. Problems of contract farming
PROBLEMS FACED BY FARMERS
Possibility of greater risk
Outdated technology and crop incongruity
Maneuvering in quotas and quality
specifications
Corruption
42. • PROBLEMS FACED BY SPONSORS
• Limitation on land availability
• Social and Cultural constraints
• Farmers disgruntlement
• Below quality agro-inputs
• Sale of crops by the farmers beyond
contractual agreement
43. Scope and Opportunities of Contract Farming
Dairy Contract Farming
Poultry Contract Farming
Fruit and Vegetables Farming
44. diary
• Operation Flood (1970-1996) was a major breakthrough in
the Indian dairy sector that rendered dairying a profitable
occupation for millions of farmers, resulting in a significant
impact on the livelihoods of small and marginal farmers.
• with the amendment of the MMPO in March 2002, a
number of private companies have entered the dairy
market and are scaling up their procurement and
processing activities.
• Recently, Reliance has ventured into dairying, also starting
its operations from Punjab, and there are reports of it
rapidly expanding procurement volumes of liquid milk and
network of contract farmers.
•
45. poultry
highly susceptible to production and marketing risks
which periodically affect profitability
to minimize the risks to the producers and sustain
the growth and profitability of the industry, some
large poultry firms began vertically integrating
breeding, hatchery, feed, and veterinary
enterprises with broiler production for example,
Venkateshawara Hatcheries Ltd., Suguna Poultry
Farm Ltd., and Godrej Agrovet Ltd.)
46. Fruit and vegetable
• Mother Dairy, organized as a cooperative, is one of oldest players in
this sector, entering into retailing of fresh fruit and vegetables and
some processed items under the ‘Safal’ brand in Delhi in 1988
• Mahagrapes is an example contract farming led by a farmer group
in Maharashtra.
• In an example of a public-private partnership, the Council for Citrus
and Agri Juices in Punjab has ventured into contract farming of
citrus orchards to supply “Tropicana” juices, a product of Pepsico
• Sam Agritech is a private company in Andhra Pradesh engaged in
contract farming for grapes, pomegranates, mangoes, chikoos, and
exotic vegetables. Initially, Sam Agritech contracted with large
farmers based on the condition of their orchards and other details,
but now is tying up with small farmers as well.
48. Challenges ahead for contract farming in india
1. Diversion of inputs to other purpose.
2. Default of the farmer.
3. Ill effects of technology disseminated.
4. Monopsony in the locality by the company.
5. Farmers bear most of the risk.
6. scope for corruption.
7. Manipulation of quotas and quality
specifications
49. Future strategies of contract farming
• provisions of institutional arrangement to record
all contractual arrangements should be made
effective
• contract farmers association or cooperatives at
the plant level should be improved to improve
bargaining power of the farmers and the
sponsors and promote equality of partnership
• selection of appropriate plant genotype is one of
the crucial factors for Contract Farming
