What Is Contract Farming

What is Contract Farming ?

 Contract farming arrangements of different types have existed in various parts of the country for centuries for both subsistence and commercial crops.
 The commercial crops like sugarcane, cotton, tea, coffee etc.
 Have always involved some forms of contract farming. Even in the case of some fruit crops and fisheries, contract farming arrangements, involving mainly the forward trading of commodities have been observed.
 However, in the wake of economic liberalization, the concept of contract farming in which national or multinational companies enter into contracts for marketing of the horticultural produce and also provide technologies and capital to contract farmers has gained importance.
 According to this, bipartie agreements are made between the farmer and the company and the latter contributes directly to the management of the farm through input supply as well as technical guidance and also markets the produce.
 The main features of this type of contract farming are that selected crops are grown by farmers under a buy back agreement with an agency engaged in trading or processing.
 In such cases, the centralized processing and marketing agencies supply technology and resources, including planting materials and occasional crop supervision.
 Under such contracts, the farmer assumes the production related risks, which the price risk is transferred to the company.
 In some cases, the company also bears the production risk, depending on the stage of crop growth at which the contract is made.
 If the contract is made at flowering or fruiting stage, the company bears the production risks also.
 In any case, the company bears the entire costs of transaction and marketing.
 It is this variant of contract farming which is said to be one of the ways by which small farmers can participate in the production of high value crops like fruits, vegetables, flowers etc. and benefit from market led