Contract farming in India
Contract farming is defined as agricultural production carried out on the basis of an agreement between buyer and farmer, with established conditions for farm product production and marketing. Contract farming, in its most basic form, refers to a variety of formal and informal agreements made between producers and processors/buyers. It consists of loose purchasing arrangements, simple purchase agreements, and supervised production with input provision, as well as tied loans and risk coverage. In this farming process, a farmer agrees to provide specific agricultural products that meet the purchaser's standards. In exchange, the buyer agrees to purchase and support the production by providing farm input, land preparation, and technical advice.
Contract farming is defined as agricultural production carried out on the basis of an agreement between buyer and farmer, with established conditions for farm product production and marketing. Contract farming, in its most basic form, refers to a variety of formal and informal agreements made between producers and processors/buyers. It consists of loose purchasing arrangements, simple purchase agreements, and supervised production with input provision, as well as tied loans and risk coverage. In this farming process, a farmer agrees to provide specific agricultural products that meet the purchaser's standards. In exchange, the buyer agrees to purchase and support the production by providing farm input, land preparation, and technical advice.
Objectives
Contract farming strives for:
- Reducing the burden on central and state procurement systems
- Increasing private sector agriculture investment.
- Increasing market emphasis on crop selection by Indian farmers.
- At the individual farmer level, generating a consistent source of income.
- Processing and value addition are being promoted.
- Creating gainful employment in rural areas.
- Reducing rural-to-urban migration.
- In general, encouraging rural self-sufficiency by pooling locally available resources and expertise to meet new challenges.
Advantages
Contract farming is intended to benefit both farm producers and agro-processing companies.
Producer/Farmer
- Small farmers can access technology, credit, marketing channels, and information while lowering transaction costs, making small-scale farming more competitive.
- By lowering marketing and transaction costs, assured markets can sell their produce at their doorsteps.
- Reduces the risk of manufacturing, pricing, and marketing costs.
- Opens up new markets that would otherwise be closed to small farmers.
- Assures higher production of better quality, financial support in cash, and technical guidance to the farmers.
- It ensures a consistent supply of quality agricultural produce at an appropriate and lower cost at the agri-processing level.
Agro-based Businesses
- This is the preferred method of utilizing their installed capacity, infrastructure, and human resources in order to respond to consumer quality concerns and food safety.
- Direct private investment in agricultural activities is encouraged.
- Negotiations with producers and firms are used to set prices.
- Farmers enter into a production contract with a guaranteed price, subject to the terms and conditions.
Challenges
The following are the difficulties that farmers face when contract farming:
- Contract farming arrangements are criticized for favoring firms or large farmers while exploiting small farmers' lack of bargaining power.
- The problems are caused by an excessive reduction in product quality due to delayed deliveries at factories, late payments, low prices, and pest attacks on the contract crop, which raises the production cost.
- Contracts are frequently verbal or informal, and written contracts do not always provide legal protection in India. Inadequate enforcement of contractual
- provisions results in either party breaching commitments.
- Multiple sellers - a single buyer (Monopsony)
- Gender disparities - women have less access to contract farming than men.
Also Read:- Integrated Organic Farming System
