What is Contract farming? - The thing you need to know

What is contract farming?

A farming which is carried out based on the legal agreement between the farmers and the buyers. According to the contract the farmers have to produce the agricultural products based on the willingness of the buyers. The farmers should assure to give them products of their specific quantity and quality in turn they help the farmers in guiding them in all the cultivation practices like dose of fertilizer application , the supply of farm inputs,other technical advices etc., 

It was first introduced in Taiwan in 1895 by Japanese government . In India it was introduced by pepsi company for cultivation of vegetables in Rajasthan in 1927.

In India contract farming is regulated under the Indian contract act, 1872.

Problems faced by farmers 

1. Small and fragmented land holdings

2. Seed

3. Manures, fertilizers, biocides

4. Irrigation

5. Lack of mechanisation

6. Agricultural marketing 

7. Scarcity of capital

Objectives of contract farming 

1. To achieve consistent quality and quantity of produce 

2. To enhance regular supply 

3. To stabilize agro raw materials 

Agricultural policies 

Agricultural produce marketing regulation (APMR) act ,2003 is used to regulate agricultural marketing. This law enhances to regulate and develop contract farming in the state and union territories. So far 21 states have amended for APMR but of now only 13 States have notified to implement the provision. 

21 states are Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Madhya pradesh, Mizoram, Nagaland, Odisha, Punjab, Rajasthan, Sikkim, Telangana, Tripura, Uttarakhand. 

13 states under approval are Andhra pradesh, chhattisgarh, Goa, Gujarat, haryana, Himachal Pradesh, jharkhand, karnataka, Maharashtra, madhya pradesh, odisha, Rajasthan, Telangana. 

NABARD role in contract farming

NABARD  aims in increasing the production of commercial crops and opening large avenue for marketing the farmer's produce , it have developed contract farming arrangements ( within and outside AEZs). 

Crops  suites under contract farming

Tomato, pulp, edible oils, vegetables, baby corn, potato, durum wheat, flowers etc., 

Models in  contract farming 

1. Informal model - transient and speculative contract model depends on the season. This helps in production of vegetables and fruits. The cost of input and processing is very low as it reduce the risk of farmers and buyers. 

2. Intermediary model - the intermediary like collector, farmer organization may directly or indirectly contracts the farmers. Here the farm produce may go through large hands to reach the consumers. 

3. Multipartite model - governmental bodies, private companies and other financial institutions all together contracts the farmers. They take care of all the inputs needed for the cultivation. As it's mainly followed in China. Here the major disadvantage is that it leads to miscommunication between the join agreement parties and the farmers. 

4. Centralized model -the buyers involve in all forms of cultivation practices from land preparation to harvest. It's a form of vertical guidance where the buyer can select large number of farmers for the cultivation of same crop. This is the most common form of contract farming suitable for cultivating crops like banana, rubber, coffee, tea. 

5. Nucleus estate model - buyer sources from his own estate and also from the contracted farmers. The buyers maintains a trail in their estate and train the farmers so as to get assured quality standards. This is especially Followed in tree crops. 

Types of contract farming

1. Limited management contract - in this the farmers get all the inputs needed for cultivation and sell the products to the firm. In this the farmers have no guarantee in the money they spend in the production of the crop. 

2. Full management contact - in this the farmers make a contract with the firm before the cultivation of the crop in the upcoming season. So the marketing of the produce is completely taken care of the firm. Thus it reduces the farmers risk. 

3. Market specification contract - in this type the harvesting plan will be contracted before the production between the  farmers and buyers. This greatly involves the price of crop, quantity, quality, time of delivery. 

4. Resource providing contract - this type provide all the inputs required for production and also marketing for the farmer's produce from the firm or buyer's

5. Management and income guaranteeing contract - in this the buyers take care of all the farm management activities and the marketing of the produce. They also provide some revenues to the farmers as they will get some rights on it. 

Advantages of contract farming 

1. The farmer's get through high knowledge in learning about the use of various resources efficiently and also the new technology in use. 

2. Gets opportunity for diversified farming. 

3. Risk of price is reduced as the predetermined price is legally agreemented. 

4. The farmers can get easy credit from the bank based on the agreements. 

5. This opens the marketing platform to the small farmers which is unavailable to them. 

6. It ensures continuous production of agricultural products with high quality with assured price. 

7. The buyer's can plan their business in Long term as their raw materials are supplied at regular basis. 

Limitations of contract farming 

1. It reduces the bargaining power of the small farmers. 

2. The biased based system which are mainly concern with large farmers. 

3. System of single buyer  with multiple sellers (Monopsony) is followed. 

4. Women have minimum access than men in contract farming. 

5. Sometimes the contract may be informal or verbal and also written contracts often don't provide legal protection to the farmers.