SWOT analysis on

Contract Farming
Sachin Lakade
09020242032
Current scenario of indian
agriculture
 Total Geographical Area - 328 million hectares
 Net Area sown - 142 million hectares
 Gross Cropped Area – 190.8 million hectares
 Major Crop Production (1999-2000)

 Rice 89.5 million tonnes
 Wheat 75.6 million tonnes
 Coarse Cereals 30.5 million tonnes
 Pulses 13.4 million tonnes
 Oilseeds 20.9 million tonnes
 Sugarcane 29.9 million tonnes

Some facts
 Contributes to 27% of GDP
 Provides food to 1Billion people
 Sustains 65% of the population : helps alleviate
poverty
 Produces 51 major Crops
 Provides Raw Material to Industries
 Contributes to 1/6th of the export earnings

 One of the 12 Bio-diversity centers in the world
with over 46,000 species of plants and 86,000
species of animals.
 5198 units processing fruits and vegetable.

What is contract farming
 Contract Farming (CF) can be defined as a
system for the production and supply of
agricultural and horticultural produce by
farmers/primary producers under advance
contracts, the essence of such arrangements
being a commitment to provide a
agricultural commodity of a type, at a
specified time, price, and in specified
quantity to a known buyer.
History

 Contract Farming can be traced back to colonial

period when commodities like Collin Indigo were
produced by the Indian farmers for English
factories.
 Seed production has been carried out through
contract farming by the seed companies quite
successfully for more than four decades in the
country.
 ITC introduce Virginia tobacco cultivation in
Coastal Andhra Pradesh in the 1920’s under CF.
 The Pepsico introduced tomato cultivation in
Punjab in the 1990’s under CF.
 The recent spate of contract farming in India
effectively began with the entry of Pepsi
Foods Ltd (PepsiCo) in 1989 by installing a
tomato processing plant in Hoshiarpur,
Punjab.
 PepsiCo followed a method whereby the
cultivator plants the company’s crops on his
land, and the company provides selected
inputs like seeds/saplings, agricultural
practices, and regular inspection of the crop
and advisory services on crop management.
Types of cf
1)procurement contracts:-
 under which only sales and purchase conditions
are specified.

2) Partial contracts:-
 only some of the inputs are supplied by the
contracting firm and produce is bought at pre-
agreed prices.

3) 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 labour.
 Strength

To Firm:-
1) Overcome capital market:-


 Farmer needs capital

 Suguna poultry farm limited tied up with SBI to
provide finance to poultry & maize grower


 Appachi Cotton Company (ACC) provides crop

loan at 12 per cent rate of interest to it’s
grower

3) Transferring the production risks from firms
to farmers

4)Monitor the labour supervision low or without
any cost.
Strength
 To farmer
 Supply of certain quality and quantity of
commodities.


 Skill transfer.

Weakness
 To the firm:-
 Firms face problems like labour shirking and
supervision problem when they follow
vertical integration strategy
 In many of the states, the present APMR Acts
still restrict the processors/manufacturers
etc .

 Extra cost to the company(If company
purchase raw material from other farmer,
then cost of it is less than the cost of
product purchased from contract faming)

Weakness contd…..
 To farmer:-
 Theproblem of monopsony.
 Sometimes supply of low quality seeds.
 about 15.5 per cent of the Pepsi potato growers
reported crop failure due to bad seed
 Some corrupt arrangement between the firm
and the pesticide dealers about the sale of
particular pesticides and insecticide brands.
 Farmers risk is not covered in CF.


 Sponsoring firm do not discharge social
responsibilities for the farmers in respect of
health, hygiene, education.
 Tenant can not participate in contract
farming.

 Corruption.
Opportunities
 To the firm:-
 It gives an opportunity to develop backward
linkages with farmers.


 Political acceptability.


 60 AEZ will be set up in 20 different state to

integrate the complete process from
production to export stage.


 Punjab plans to diversify crops in 1.5 million acres

in next 4 years through contract farming.


Opportunities contd…

To farmer:-
 To production of high value crops like
vegetables, flowers, fruits etc and benefit
from market led growth.
 To standardized the pattern of production.
 To provide homogeneous quality of product to
international market hence increase in
export.


 Only 2 percent of Indian fruits and vegetables
are processed, compared with 80 per cent in
the United States
 38% of horticultural crop wastage due to post
harvest losses.
 Inspite India produces 57 major crop,only
cotton ,sugar, wheat, soybean, and potato
are traded.(Business Today, 10 July 2006)
 India account for 1 percent of the world’s in
exports of fruits and vegetables.
Threats
To Firm:
 Farmer may avoiding repayment credits –
strategic default.


 Entrance of foreign player in market.

 Input diversion by farmer.
 Contract Farming Sponsor prohibited from
raising permanent structure on Contract
Farming Producers' land



Threats cont……
 To farmer:
 Production failure


 Exclusion of weaker farmers

 Increased the risk because diversification of
farm business is not followed.
 Sponsor can sometimes wind up playing games
with farmers who have contracted in good
faith
 


 Arbitrarily raising quality standards.
 Firm may provide input facilities only
progressive farmers and large farmers
who have more bargaining and political
power compare to others.



A case of Jisl
 100percent export oriented unit.
 JISL largest processor of onion in the country
(10,000 tons of DHO).
 The company entered into contract farming
way back in 2001-02 .
 The principal objective of ensuring assured
and consistent supply of onion bulbs, to
enhance productivity and uniformity with
better agronomical practices and also to
improve the quality of onion bulbs
 The seeds of high-yielding onion varieties.
 Criteria for Selection
 Farms located within 200-km radius from
Jalgaon are preferred for easy accessibility
 Jalgaon, Dhule, Nandurbar districts have
therefore been selected for contract
farming
 Farmers should be willing to adopt modern
hi-tech precision farming practices
 Experience in onion cultivation, past
production record


Reasons for success
 Jain Gram Sevaks
 52 trained and committed jain gram sevak.
 It supplies elite seeds at a subsidized rate.
 Good Agricultural Practices .
 Benefits to Farmers.
 Double Price Formula Rs 3/kg
 Linking with Banks
 SBI
 ICICI
 Close quality Monitoring.

 Unique approach to dispute redressal.
 the company gave a compensation of Rs.6 lakhs
to farmers due to problems with quality of
imported seeds .
 Re-supply of onion seed at 50percent of the
original rate.
 The onions were purchased from the farmers at
a whopping at Rs.16.3 crores (@Rs. 7.00/kg)
as against Rs.6.9 crores (if it had been on MGP
of Rs. 3/kg).
recommendations
 National and State level Contract Farming
Policies should be framed.
 Different models of contract farming should
be allowed to evolve as per the situation,
instead of strait jacketing the models in to
a particular fixed definition.
 Registration : There should be an
institutional arrangement for registration
of sponsoring companies and recording of
contract farming agreements with some
Government machinery.



 The market committee should not be
registration authority for contract farming
and the Contract Farming Sponsor shall get
the contract farming agreement recorded
with the Sub Divisional Magistrate , who,
inturn, shall verify the credentials of the
sponsoring company
 Like Punjab and Maharashtra state
governments , other state government
should also totally exempt levy of market
fees in respect of commodities procured
under a contract framing agreement.
THANK YOU
Bibliogrphy
 www.iimahd.ernet.in
 www.manage.gov.in.
 www.isec.ac.in
 www.ncap.res.in
 www.iied.org.
 http://mpra.ub.uni-muenchen.de/18683

Apmc act
 The APMC Act in each state of India requires all
agricultural products to be sold only in government -
regulated markets.
 Under the present Act, the processing industry cannot
buy directly from farmers

 These markets impose substantial taxes on buyers, in
addition to commissions and fees taken by
middlemen, but typically provide little service in
areas such as price discovery, grading or inspection.

 . A key impact of this regulation is the inability of
private sector processors and retailers to integrate
their enterprises directly with farmers or other
sellers, eliminating middlemen in the process.
 This leaves no incentives for farmers to
upgrade, and inhibits private and foreign
investments in the food process sector.