CONTRACT FARMING

Group 9
Abhijeet Ingle, Devyalok Yogeshwar, Kunal Bhasney, Prashant Sharma, Abhishek Lodhi, Rajesh Pal, Abhilash Pandey

Historical Background
For the first time it was introduced in Taiwan in 1895 by Japanese government. In India it was introduced by Pepsi company for the cultivation of vegetables particularly tomato and potato in Hosiarpur taluk of Rajasthan in 1927.

In Karnataka contract farming was started with the cultivation of gherkin in 20th century

Contract Farming is an institutional

arrangements in which both producers

and the processors/exporters enter into

a contract to supply and purchase,

respectively, a specified quantum of

commodity, at a pre-determined price

and for a specified period of time.

CONTRACT FARMING
Contract Farming is defined as a system of production and supply of agricultural/ horticultural produce under forward contracts between producers/ suppliers and buyers. Commitment of the producer to provide an agricultural commodity of a certain type, at a time and a price, and in a quantity required by a known and committed buyer. The farmer is required to plant the contractor's crop on his land, and to harvest and deliver to the contractor a quantum of produce, based upon anticipated yield.

 The contractor supplies the farmer with selected inputs, including the required technical advice.
Thus, the contractor supplies all the inputs required for cultivation, while the farmer supplies land and labor.

The terms and nature of the contract differ according to variations in the nature of crop grown, agencies, farmer, and technologies and the context in which they are practiced.
Contract farming usually involves mainly three basic elements; pre-agreed price, quality & quantity.

Why Contract Farming ?

> To reduce the load on the central & state level procurement system. > To increase private sector investment in agriculture. > To bring about a market focus in terms of crop selection by Indian farmers. > To generate a steady source of income at the individual farmer level.

TYPES OF CONTRACTS

Procurement contract- purchase the farm produce, no support. Partial contract- Purchase & supply of inputs. Total contract- Purchase & supply of inputs along with technical support

HUL, RALLIS AND ICICI BANK

For example, contract farming in wheat is being practiced in Madhya Pradesh by Hindustan UniLever (HUL), Rallis and ICICI Bank. Under the system, Rallis supplies agriinputs and know-how, and ICICI Bank provides farm credit to the farmers. HLL, the processing company, which requires the farm produce as raw material for its food processing industry, provides the buyback arrangement for the farm output. In this arrangement, farmers benefit through an assured market for their produce in addition to timely, adequate and quality input supply including free technical know-how; benefits through supply-chain efficiency; while Rallis and ICICI Bank benefits through assured clientele for their products and services.

Assistances
For Farmers:
*R&D assistance *Soil Testing, Hybrid Seeds, Fertilizers, Pesticides *Evaluation of farmers economics model Technical Assistance *Farmers Training *Crop Timing & Crop Monitoring *Soil preparation & Field selection *Seed sowing & Usage of fertilizers, Pesticides *Irrigation assistance *Harvesting technology *Commercial Assistance *Procurement, transportation logistics assistance *Prompt farmers payment system.

Benefits of contract farming to Corporates

No Capital expenditure

Quality Control
Low Risk of Crop Failure, disease etc., Use of Farmers entrepreneurial Skills

Benefits of contract farming to Farmers

Farmer gets access to world class agro technology.
Farmer gets assured up front about price & market outlet for his produce. Focus shifts from prices to return per acre driven by productivity increase. Promotes long term investment.

Benefits of contract farming to the Banker

The increased productivity, improved quality of fruit/ vegetables/ superior grains produced, enhanced shelf life, etc., could result in realization of remunerative prices by the farmers for their produce.
Direct link between the farmer and processor / exporter reduces the cost of supervision in dealing with such accounts.

Due to technical support to farmer it reduces the risk for the banks on account of various technical reasons, which normally affect the production/ cultivation of crop/ commodity concerned.

A word of caution on ContraCt Farming

The contract farming should have a provision for both forward and backward linkages. Unless both input supply and market for the produce are assured, small farmers will not be in a position to participate in contract farming.

For effective functioning of contract farming, it would be desirable to have the tripartite agreement for a minimum period of three years [farmers, processing unit and banks].

thank You