Contract Farming In India

Contract Farming in India for Vegetables, Herbs, Flowers

Contract farming is defined as a system for the production and supply of agricultural produce under a forward Contract between producers, suppliers, and farmers. Contract farming is being practiced in many countries of the world including India. Contract farming arrangements for different types of crops like sugarcane, cotton, vegetables, coffee, tea, and food grains are already in vogue.

What is Contract Farming?

Contract farming is an agreement between farmers and cooperative firms for the supply and production of agricultural goods. Agricultural farmers are facing a new problem in accessing the market and fully achieving profitability. Therefore, Contract farming was introduced in the market to reduce this issue, and to keep the profit balance for farmers and corporations. The agro-based industries need adequate inputs for good quality agricultural produce.

Generally, it is a detailed partnership Contract between farmers and processing companies, where the farmers are required to supply the agreed quantity and then, the quality of the crops in a specified period. As well as in return the cooperative company agrees to buy the crop from the farmers at a predetermined price on which they both have agreed to make the deal. It can provide a linkage between the farm and the industry. Other reasons for the introduction of Contract farming;

Contract farming reduces the financial burden on central and state governments.
Private investment in agriculture will increase.
It is needed to bring about a market focus in terms of crop selection by farmers.
It will generate gainful employment in rural regions.
Contract farming will reduce the migration of labor from rural areas to urban areas.

Contract farming begins with pre-season Contracts with farmers, thus enabling a commitment to a fair price. Then, provide farmers with the highest quality seeds that are suitable for growing in particular climatic conditions to produce yields. To achieve this, work with internationally renowned seed companies to select the best quality seeds.

There are no standard methods in Contract farming in agriculture. Generally, there are mainly three types of Contracts in agriculture;

(i) Firstly, procurement Contracts, under which only sale and purchase conditions are specified,

(ii) Partial Contracts, wherein only the Contracting firms supply the inputs and produce is bought at pre-agreed prices and,

(iii) Total Contracts are the Contracting firm that supplies and manages all the inputs.

The importance of each Contract type changes from product to product and these types are not mutually exclusive. It has reduced biodiversity and has led to the destruction of forests and the support for wildlife.

Contract farming is unlikely to touch the small and marginal farmers in India and also includes many women farmers to help in accessing better inputs. Only mid-sized farms of certain acreage are roped in for Contract farming.

Contract farming is also restricted to a few products which are in demand for the agri-processing industry and it is also well suited for perishable products. Farmers of such products are in much greater necessity of help in the quick marketing of crops. It can help India save its fresh fruits and vegetables through cold chain solutions that include refrigerated trucks for transportation.

Normally, it refers to varied formal and informal agreements between producers and processors or buyers. It mainly includes loose buying arrangements and supervised production with input provision, with tied loans and risk coverage. The essence of an arrangement is the commitment of the producer/ seller to provide an agricultural commodity of a certain type, a price, and in the quantity necessary by a known and committed buyer.

Goals of Contract Farming in India

The main objectives of Contract farming are given below;

Contract farming helps farmers in generating a permanent source of income for every farmer.
It generates employment opportunities in rural areas, farmers are getting paid for working in the field and other agricultural works.
Contract farming reduces the load on central and state-level occupation systems.
With the help of Contract farming, the investments of the private sector in agriculture are increasing.
It brings the market focus to crop selection by Indian farmers.
Contract farming overcomes the migration level of rural people in India who shift to urban areas due to the condition of unemployment.
Contract farming generates a steady source of income at the individual farmer level.
It promotes processing & value addition.
Contract farming mainly helps to generate gainful employment in rural communities.
To promote rural self-reliance by pooling locally available resources and expertise to meet new tasks.

Benefits of Contract Farming in India

The existing literature on Contract farming identifies major areas where Contract farming can provide advantages. It can provide access to markets, credit, and inputs that they would otherwise be excluded from. Also, it can lead to improvements in income reducing some of the risks farmers face from production and price fluctuations. From the point of view of purchasers, it provides greater control over volume and quality consistency; to a certain extent, and also it can lower certain transaction and production costs that purchasers face.

Contract farming has several benefits for the farm producers as well as for the agro-processing firms.

Producer/farmer

It makes small-scale farming competitive – small farmers can access technology, credit, marketing channels, and data while lowering transaction costs.
Contract farming reduces marketing and transaction costs.
Contract farming reduces the risk of production, price, and marketing costs.
It ensures higher production of better quality crops, financial support in cash, and technical guidance to the farmers in India.
It helps to improve the skills of farmers as they learn to use several resources efficiently and get in touch with new technology in some cases.
Farmers get the opportunity for diversification of crops, and price risk is reduced as many Contracts specify prices in advance.
The farmers can get easy credit from the Bank under Contractual agreements.
It mainly ensures a consistent supply of agricultural produce with quality at the right time and at a lesser cost.

Agri-based firms

Contract farming utilizes its installed capacity and responds to the food quality concerns of the consumers.
It makes direct private investment in agricultural activities.
Also, the price fixation is done through negotiating between the producers and firms.
The Indian farmers enter into Contract production with an assured price under terms and conditions.

Agricultural Produce Suitable For Contract Farming in India

The agricultural practices under Contract farming are Tomato pulp, Organic dyes, Poultry, Pulpwood, Mushrooms, Dairy processing, Edible oils, Exotic vegetables, Baby corn cultivation, Medicinal plants, Potatoes, Papaya, Stevia, Aloe Vera, Tulsi, Onions, Durum wheat, Fruits, Flowers, and Orchids, etc.

NABARD’s Initiatives in Contract Farming in India

NABARD gives potential benefits of Contract farming in the agriculture sector by supporting the banking sector and developing a special refinance package for Contract arrangements aimed at increased commercial crop production.

The several initiatives undertaken by NABARD in this direction are;

Financial Interventions and special refinance packages for financing farmers for Contract farming
100% refinance to disbursements made by CBS (Core Banking Solution), SCBs, RRBs, and select State Cooperative Agriculture and Rural Development Banks (SCARDBs) (having net NPA less than 5%)
Term facility for repayments (3 years)
Under Contract farming fixation of the larger scale of finance for crops.
Extension of refinancing for Contract farming under automatic refinance facility.

Contract Farming in India for Floriculture Crops

Contract farming, known as Collective farming, helps the farmer and the agribusiness firms as the farmers get readymade markets and sell products at a pre-agreed price and time. Generally, floriculture has great potential in India. Contract farming of floriculture crops is a labor-intensive industry. It is highly perishable from quality parameters and price fluctuations.

In India, various flowers like Carnations, Roses, Tulips, and many more. The Indian Government has identified Floriculture as the Sunrise Industry. The new seed policy has made it feasible to import planting materials of international standards. Floriculture crops like Roses, Gerberas, Carnations, Tulip, etc, are now extensively grown in greenhouses. The open field crops are Chrysanthemum, Gallardia, Lily Aster, Tuberose, Marigolds, etc.

Contract Farming In India in Punjab

Contract farming models at present are gaining importance in developing countries in India.
In India, Contract farming by national and multinational companies (MNCs) is increasing daily.
The Punjab government adopted contract farming to promote diversiﬁcation in the state.
Under Contract farming, the companies in Punjab provide their seeds, machines, and technical know-how. But despite all such support, if the farmer’s crop is not as per their standard, they make several cuts and do not provide the rate they promised to the farmers.
In Punjab, some important crops that grow best are Basmati, best potato, maize, fruits, vegetables, melons, etc., and the government supports farmers as per the demand in the domestic and international markets.
Suppose the government wants to write a successful story of Contract farming. In that case, the government keeps a check on the private companies. It should set up research and development units in the crops to be grown in any region along with researched good markets for every grown crop under Contract farming.

Different Models of Contract Farming In India in Punjab

During field investigations, two types of Contract farming models are found in Punjab i.e. the Bi-Party Model and the Tri-Party Model. Four companies have been selected to study the different models of Contract farming. These are the following;

The operational mechanism in Contract farming is selected in two districts of Punjab they are Jalandhar and Bhatinda. The details of these models and the type of Contracts of the companies with the farmers are as follows;

Bi-Party Model

PepsiCo India Ltd.
Markfed
Field Fresh

Tri-Party Model

UBL Group (United Breweries Limited)

Contract Farming in India in Tamilnadu

In case you miss this: Growing Organic Sweet Potatoes.

Contract farming is a system in which crop production and supply of agricultural produce are done under forwarding or prior Contracts.
Tamilnadu was the first state to enact a law on Contract farming. It is a written agreement between a farmer and a buyer for producing agricultural produce.

Contract Farming in India in Karnataka

In Karnataka, Contract farming has long-term benefits for growers and purchasers. In India, a sizable part of the farming community falls under the small and marginal farmers’ category.
Therefore, Contract farming becomes increasingly important as it allows their agricultural produce to be purchased by multinationals, small companies, government agencies, farmers’ cooperatives, and individual entrepreneurs.
Contract farming differed from the design and functioning of The methods obtained today. The liberalization of seed policy has enabled the import of new varieties of plants, both hybrids and high-yielding, by corporate bodies through joint ventures.
Karnataka’s agrarian structure is conducive to promoting Contract farming in the country.
Indian farmers have been given guidance through company-employed field assistants and field officers with expertise in agriculture.

Benefits for Contract Farmers in Karnataka

Below are the benefits of Contract farmers in Karnataka.

1. Gherkin crop is grown throughout all seasons.

2. It provides employment opportunities to the family members of landholders and landless laborers in rural areas.

3. It is cultivated in Tumkur, Bellary, Hassan, Davanagere, Chitradurga, Kolar, etc.

4. Pre-fixed prices for the crop eliminate risks from the gherkin growing community.

5. Companies provide all inputs such as seeds, fertilizers, pesticides, and a package of practices (except staking materials (sticks), jute thread, and plastic thread) to Contract farmers.

6. The income generated from this crop can be used to repay loans borrowed from different sources.

Contract Farming in India in Andhra Pradesh

Contract farming will be formed for every Contract to facilitate inputs selection, feeds, good agriculture practices, packing and delivery of products, and pre-production, production, and post-production activities of the Contracted produce. As per the agreement, the producer can sell the agricultural produce at a specific price in the future to the buyer.

Andhra Pradesh allows farmers and buyers to enter into pacts in Contract farming. The government of Andhra Pradesh has issued a preliminary order allowing the agriculture producer and buyer to enter into agreements. The producer and buyer in Contract farming will be at liberty to mutually decide the terms of the agreement.

Contract Farming in India in Bihar

Bihar’s policymakers expected private investments to rely on increased Contract farming companies. Farmer’s willingness to accept modern technologies and Contract farming practices provides encouraging trends for investment in the agriculture sector.

The seed is the most critical input in modern agriculture, and it is the carrier of modern technology. There is an apparent need to step up investment in both the public and private sectors. So, the objective of the seed production program involves increasing the seed replacement rate and promoting hybrid seeds and crop varieties, which are new and adapted to the agro-climatic conditions of the state. Seed production on government farms will be revived.

Contract farming will be encouraged for fruits and vegetables. Indian farmers will be organized along the enterprises to establish an economy of scale and to act as a collective voice to safeguard their interests. Then, this will include excursions into processing and marketing centers of excellence in the country, forming farmer interest groups, and federating them at various levels.

Contract Farming in India in Uttar Pradesh

In India, Contract farming in Uttar Pradesh seems to offer solutions to many problems in agriculture. It is supposed to help agriculture by strengthening the backward linkages. Barring these deficiencies that can be overcome, the conditions are excellent in Uttar Pradesh. In the subsequent section, it overcomes these difficulties and what would be the requirements for such farming to begin in Uttar Pradesh.

Contract farming schemes will provide help to the farmers to get a better price for their production. Also, it will minimize post-harvest losses to a great extent.

Details of Contract Farming in India for Doubling Farmer’s Income

The important features of this farming scheme are as follows;

Usually, a contract farming scheme is a key driver in doubling farmers’ income.
The state government will provide an assured market and better prices to farmers.
UP government will bring the Contract farming law to protect farmers from changing prices of perishable items.
This law will ensure the better price of agricultural products to the farmers.
Hence, farmers will get advance agreements and ensure supply for companies to increase investment.
Agricultural Produce Marketing Commodities (APMC) Act will allow the privatization, opening, and beginning of e-trading to increase farmer’s income.

Contract Farming in India in Gujarat

Gujarat is rich in resources, and it is making rapid progress in the agriculture sector by developing infrastructure, irrigation, electricity, and productivity. Some safeguards for farmers as well as buyers in the “Contract Farming” Scheme in Gujarat;

APMC is a Facilitator – An agricultural produce market committee having a long-standing relationship of trust with local farmers shall play the facilitative role in mobilizing farmers and making them understand the concept of the clauses of the Agreement. APMCs in Gujarat are strong, having multiple facilities in the yard.

Period of Contract – The Contract can be seasonal, 1 year, or up to 5 years. But in the case of long-term crops, it can extend for more years as mutually agreed between farmer and purchaser.

Technical and Financial support – The farmers can get many advantages from technical research done by the sponsor and also get financial support in the form of seeds, fertilizer, and harvesting techniques.

Details of Commodity – This agreement contains important details about the type and quality of the commodity, crop insurance, payment terms, etc, for the smooth transaction of the deal and preventing future decent.

Strengths in Contract Framing

Progressive and hardworking farmers.
Better electricity availability for irrigation.
Fertile land is suitable for several crops.
Good network and rapid transportation.

Contract Farming in India in Odisha

Contract farming will improve the production and marketing of agri-produce and livestock in an efficient manner leading to farmers’ welfare and increased income. It cannot be realized by way of sale or lease of the land in respect of which the agreement has been entered into. It has clear provisions that no title rights will be transferred to sponsors. The Contract farmers will get support from the company for improving production and productivity by way of land, soil management, seeds, saplings, fingerlings, inputs, feed and fodder, technology, and other services related to as specified in the agreement.

Odisha has multiple marketing channels operation through Contract farming, joining Uttar Pradesh, Madhya Pradesh, Karnataka, and Gujarat, who over the last one-and-a-half months have changed existing agricultural marketing laws for comprehensive reforms in the agricultural sector.
The Odisha farmers have also entered the arena of Contract farming over the years. Then, the farmers’ inclination towards instant cash and the assured market has lured them to Contract to farm. This has resulted in more and more farmers entering the procedure and utilizing their land for Contract farming instead of traditional farming practices. The widespread practice of crops like cotton, maize, rubber, lemongrass, and groundnuts indicates that Odisha favors Contract farming.
The ordinance aims at developing mutually efficient Contract farming between sponsors and farmers.

Contract Farming in Telangana in India

Contract farming is an important aspect of agribusiness, and multinationals, smaller companies, government agencies, or individual entrepreneurs purchase the products. It should be stressed that the decision to use the Contract farming modality must be a commercial one. It is not a development model to be tried by aid donors, governments, or non-governmental organizations (NGOs) because rural development approaches have failed.

Telangana government undertakes Contract farming based on the client’s requirements for producing several agro commodities, maize, sweet corn, pulses, vegetables, lemons, organic rice, fruits, flowers, herbs, henna, aromatics, medicinal plants, seasonal honey collection, and toddy palm, etc.

Conclusion

If you live in India and plan to learn about Contract farming, this article might be useful for understanding the Contract farming concept for different crops and other agricultural products.

1 COMMENT

talha March 6, 2021 At 8:36 pm

can you help me with doing tie ups with the corporates for contract farming.
i have 50 acres of land in west uttar pradesh

Contract Farming In India – For Crops, Vegetables, Fruits, Herbs

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