Contract Farming

What is contract farming?

A system for the production and supply of agricultural produce under forward contracts A commitment to provide an agricultural commodity in a pre-agreed price, quality, quantity and time.
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Types of contract farming

Three types : 1. Procurement contracts only sale and purchase conditions are specified (Marketing) 2. Partial contracts only some of the inputs are supplied by the contracting firm and produce is bought at pre-agreed price (Production) 3. Total contracts all inputs are supplied by the contracting firm, farmer becomes just a supplier of land and labour (Production).
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Factors resulting emergence of agribusiness and contract farming

Failure of govt. to support agriculture A part of internationalization process in agriculture involving globalization of production, capital and trade Support for contract farming under Structural Adjustment Programme Its promotion by international development agencies To ensure quality, timely and cost effective availability of raw materials and captive farming not being a viable option.
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Growth of Agribusiness : A perspective

It is essentially a process of industrialization of agriculture and rural production through: Appropriationism : a process of exploitation of land and other biological sources of supply by the application of modern technology to get cheaper raw material Substitutionism : a process tries to move agribusiness away from direct dependence on land and other direct source of raw materials applying technology to create new products The application of bio-technology accelerate this process and leads to bio-industrialization.
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Why contract farming is attractive to farmers? Attracting to farmers seeking additional sources of capital and more certain price Access to new technology and inputs which may be outside the farmers reach.
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Why contract farming is attractive to agribusiness farms?

Provides assured and stable quality raw material supplies Contract farming is similar to subcontracting in the industrial sector Contracts make smaller demands on capital resources, impose less of an additional burden of labour relations, ownership of land, and farm production activities compared with that under captive farming Allows to access unpaid family labour and state funds directed at farmers.

Contract farming: critics viewpoint

One mode of capitalist exploitation of farming sector Farmers had little bargaining power compared with that of companies Resulted monopolistic concentration in the international food processing and food manufacturing industries.
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Farmers

Agribusiness companies

Consumers

Critics viewpoint..
Causes environmental degradation Shifts farm production in favor of export oriented and cash crops at the cost of basic food crops for the poor Favouring large farmer, contracting may encourage a socially undesirable dual agricultural development Leads to gender inequalities
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Contract farming in India

Govt. of Indias National Agriculture Policy envisages that private sector participation will be promoted through contract farming Several state govts. in Andhra Pradesh, Tamil Nadu, Karnataka, Gujarat and Punjab are actively promoting contract farming. Other state govts. are under active pressure to change their policy towards contract farming.

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Conclusion
The case studies of contract farming reveal that though contracting has initially led to higher incomes for the farmers and more employment for labour, it is not smooth sailing for firms and is unlikely to be sustained due to lack of trust between firms and farmers and the tendencies toward agribusiness normalization by firms What is needed is not less of the state, but a better state for promotion and regulation of economic activities, and new organizations and institutions for sustainability of agricultural development. ***