Contract Farming in India - Its Implications

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1.1.Introduction on Contract Farming

Contract farming is defined as a system for the production and supply of agricultural produce under forward contracts between the companies (buyers) and the farmers (suppliers). The essence of such an arrangement is commitment on the part of both the buyer and the seller. The commitment of the suppliers/farmers to provide an agricultural commodity of certain type and quality at a specified time and place and in the quantity required by the company(buyer).

Contracts could be of three types;(i)procurement contracts, under which only sale and purchase conditions are specified;(ii)partial contracts, wherein only some of the inputs are supplied by the contracting firm and produce is bought at pre-agreed prices; and(iii)Total contracts, under which the contracting firm supplies and manages all the inputs on the farm and the farmer becomes just a supplier of land and labor.

Some of the major corporates, financial institutions, agri-input agencies and other organizations that have entered into contract farming in India are listed below:

Amira Foods India Ltd| Nijjer Agro Foods Ltd|
Appachi cotton company| Pepsi Fooods Pvt Ltd|
AVT Natural Products Ltd| Rallis India|
Cargil India Pvt Ltd| Suguna Hatcheries Ltd|
Escorts Machinery Group| Southern India Mills Association| Gherkin Exporters| State Bank of India|
Global Green Company Pvt Ltd| Super spinning Mills Ltd|
Green Agro Park Pvt Ltd| Tinna oils and chemicals Ltd|
Hiamalaya Drugs Pvt Ltd| Ugar Sugar|
Hindustan Lever Ltd| Unicorn Agrotech Ltd|
ICICI Bank Ltd| United Breweries Ltd|
Ion Exchange Enviro Farms | Venkateshwara Hatcheries Ltd.| ITC-International Division| Marico Industries|
Ken Agritech| Mahindra Shubhlabh Services |
| Natural Remedies Pvt Ltd|
| Nestle India Ltd|
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The various state intervention strategies as well efforts by non-governmental organisations to arrest migration of the rural masses, which include promotion of income generation activities, have not succeeded in reversing this trend. One of the strong reasons could be the lack of well established forward and backward linkages (reliable and co-effective) such as extension advice, mechanisation services, supply of seeds, fertilisers and credit, as also guaranteed and profitable markets for their produce. Therefore, contract farming, which would hopefully promote the linkages to the small-scale farming community to grow crops on commercial terms is needed on a large scale. The contractual agreement encompasses three areas viz., market (grower and buyer agree for future sale and purchase), resource (buyer agrees to supply inputs and technical advice) and management specifications (grower agrees to follow the recommended practices for the crop cultivation).

Contract farming is being carried out on more than 400,000 hectares across the country. Hindustan Lever, Wimco, Pepsi, Cadbury India, Godrej Agro Escorts, Maxworth Orchards, Reliance Agrotech, United Breweries, DCM Sriram, Markfed Punjab, Sungrow, Bilt, ITC, J K Paper, A V Thomas Natural Products, Hafed, Foodpro and Mohan Breweries and distilleries are major agencies involved in contract farming, he added. State-wise data that showed 236,610 hectares were under contract farming in Tamil Nadu, 121,457 in Punjab, 59,800 in Orissa, 2,000 in Gujarat, 1,924 in Goa and 20 in Bihar. The data, based on information supplied by different states, showed a total 425,834 hectares under contract farming across the country

S.R. Asokan and Gurudev Singh discuss the procurement options of an agribusiness enterprise.

1.2. NABARD and contract farming

The Government of India's National Agricultural Policy envisages that private participation will be promoted through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured market for crop...
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