Is Contract Farming Really the Solution for Indian Agriculture?

Jayati Ghosh
17 May 2007

Contract farming is increasingly being presented as a solution forthe problems of Indian agriculture, by major international donor agencies, multinational companies and even the government. It is argued that private sector participation will be promoted through contract farming and land leasing arrangements will allow accelerated technology transfer, capital inflow and assured markets for crop production, especially of oilseeds, cotton and horticultural crops.

The UPA government¶s Approach Paper to the Eleventh Plan gave priority to the development of contract farming. Now, a Working Group set up by the National Development Council, under the leadership of then Punjab Chief Minister Amarinder Singh, has also made a set of proposals to promote contract farming. In addition to suggesting greater liberalisation of laws and rules forcrop contracts, it has proposed tax rebates for food processing, duty-free imports of machinery and equipment, exemption of market fees, etc., and liberalised imports of seed varieties forcontract farming programmes.

Contract farming is defined as a system for the production and supply of agricultural or horticultural products under forwardcontracts between producers/suppliers and buyers. The essence of such an arrangement is the commitment of the cultivator to provide an agricultural commodity of a certain type, at a time and a price, and in the quantity required by a known and committed buyer, typically a large company.

According to the contract, the farmer is required to plant thecontractor¶s crop on his land, and to harvest and deliver to thecontractor a certain amount of produce, based upon anticipated yield and contracted acreage. This could be at a pre-agreed price, but need not always be so. The typical contract is one in which the contractor supplies all the material inputs and technical advice required for cultivation, while the farmer supplies land and labour.

This system has old historical resonances, such as the infamouscontracts enforced by indigo planters in eastern India during the early colonial period. But the more recent pattern

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apart from other vegetable crops such as potato. PepsiCo followed a method whereby the cultivator plants the company¶s crops on his land. It is not generally known that US farmers have not really gained from the continuing government subsidiesto agriculture . Punjab. and the company provides selected inputs like seeds/saplings. which has been so marked in the US over the past two decades. Agricultural trade globally is dominated by transnational corporations. The Punjab government has argued that contract farming is the best means of crop diversification. However. which are increasingly involved at each stage of the agriculture system. Until recently. since contract farming is based on private corporate interests that are inherently profitdriven. Subsequently PepsiCo and other companies have used similar methods for the cultivation of food grains (Basmati rice). where corporate penetration of agriculture is probably the most advanced. So it is important to be fully aware of the implications and the need for adequate regulation of contracts. spices (chillies) and oilseeds (groundnut) as well. This explains the rising spread between retail prices and the prices received by farmers and livestock breeders. Archer Daniels Midland and Monsanto.of contractfarming has been developed especially in the United States. many of whom are already operating at the margin of subsistence. there is no reason why these should coincide with the ecological requirements of the 2 . This has increased the margins for the procuring and processing firms while at the same time reducing farm incomes and increasing the prices for the consumers. in a region where there is a real question of ecological survival and sustaining natural resources like water and soil in a reasonably healthy state.instead large agribusinesses have made huge and increased profits. and regular inspection of the crop and advisory services on crop management. 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. agricultural practices. like Cargill. this model ofcontract farming was considered a success in terms of diversifying cultivation in Punjab and improving the incomes of farmers. These corporations achieve domination over the market through a combination of horizontal and vertical integration. US farmers are financially and politically much stronger than Indian cultivators.

much of the recent corporate interest in Punjab agriculture has been in basmati farming. relies excessively on the use of lower paid women workers and child labour. the stategovernment agency that had designed the contract farmingprogramme in the first place (Punjab Agro Foodgrains Corporation) has been forced to step in and buy basmati rice that was being rejected by the contracting companies. is much higher than fortraditional crops like wheat or paddy. The growing incidents of the pre-determined prices being reduced on the pretext of inferior quality of the grain or crop. since the labour intensity of most vegetable crops. Farmers in Punjab have become increasingly resentful of a system that has put them under the total control of corporations. except potato. propagates monoculture which reduces food security and the possibility of livelihood diversification through livestock. can even deny farmers the benefits of higher prices which could be instead absorbed by corporate contractors with local monopsonistic power. marginalises the direct cultivators who lose control over the production process and often even over their land. male labour is being displaced by mechanisation while lower-paid women and children are increasingly employed for the more labour-intensive activities. The problem of finding alternative employment for displaced cultivators has become a serious concern. It tends to displace labour quite substantially. However. have added to such resentment. Contract farming in Punjab has certainly led to more employment opportunities for some labour. can result in greater insecurity and lower incomes for farmers because of use of quality measures to lower the effective output price being paid by contractors.region. that several times in recent years. The Punjab experience is generally considered to be among the more successful in India thus far. and increases and accelerates the process of casualisation of labour. 3 . The issue has became so critical. encourages more capital-intensive and often less sustainable patterns of cultivation. which will decide not only the crops grown but also the procurement price. wage levels have been pushed to subsistence levels by increased competition forwork through migration. which is one of the great water-guzzlers. Indeed. Crop diversification can be more effectively encouraged through a system of changing the relative prices of crops accompanied by a supportive system of public agricultural extension services. Also. but even this shows thatcontract farming holds numerous problems for agriculture in developing countries like India.

600 acres. At present.Given these evident problems. new inputs and their implications and new agricultural practices relevant for the particular area.000 farmers across the country for contract farming of potato.000 farmers in contract farming Tags:Pepsico|Farmers KOLKATA: Riding on high sales of its snacks brands like Lays and Uncle Chipps. What cultivators in rural India need most of all today is the following combination: a basic price support mechanism that ensures that costs are covered. He said that with the growing sales of its snacks brands. the company would adopt for more in the country for contract farming. Company Pepsico engages 12.000 acres of land. why is contract farming still being promoted so assiduously? This is really because public institutions have failed to provide farmers with the essential protection and support required for viability on a sustained basis. 4 . He said that out of the 12. efficient extension services that provide information about possible crops. Pepsico has engaged 12. and the availability of reliable and assured credit at reasonable rates of interest.000 farmers. Pepsico is involved in the contract farming for potato only. 6. "There are 12." Executive Vice-president of Pepsico Holdings (agro-business) Nischint Bhatia said. adding that the company had procured 22.000 farmers doing contract farming of potato for us involving 16.000 tonnes of potato in the last harvesting season.500 of them are in West Bengal working 2. Bhatia said Pepsico's contract farming had picked up very fast.

herbal extracts.. India] We are leading Manufacturers of Kanhaiya Amla Powder which is one of the best 5 . India] y Manufacturing of Sounf. y We Accept Packaging Contract. Farsan. Wafers." Bhatia said.. Bhatia said that the company was planning to follow a similar line for oats. Tea Masala.We will takeup contract cultivation of herbs as desired by our customers. Asked whether the company would enter into contract farming for other crops. Pickles. spices. essential and aromatic oils. y All Types of Food Products Packaging Services. Snacks. Chiwda. Dry Fruits. "It is still in the research stage and may take three to four years time. phytocosmetics etc. UNN PRODUCTS [Pune. natural sweetener like stevia. He said Pepsico was buying potatoes at Rs 6 per kg from the farmers. He said oatmeal was becoming a popular breakfast cereal in India due to health reasons Agriculture Manufacturers Directory Contract ASTER NATURALS PRIVATE LIMITED [Bangalore. India] Manufacturers and Suppliers of raw herbs..Bhatia said that farmers were ensured a captive offtake even in periods of glut and also a remunerative price.. we can supply organic material at highly competitive prices..... Mukhwas. KANHAIYA BAJAJ GARDENS [Solapur. natural colourants. we can also provide consultation facilities for the plantation of herbs. which was higher than what others were getting by selling the crop to the intermediaries. He said oats were presently being imported for its Quaker Oats brand and the company was in talks with various agricultural universities for cultivating it in the country. Supari.

Seed Graders/Seed Cleaners. Green Peas. We also engaged in Contract Farming. Seed Polishers. species. Neem cake organic manure is used directly and/or in blends with urea or with other organic manure like sea weed or farm yard manure to an extent of 15-20% by weight. ANALAB [Solapur. Neem . we undertake contract farming like complete farm development. Riko Gold. Mango RTS Beverage.. Storage Bins. Osaw Agro Industries Pvt. Eros. VISHAWRADHYA FARMS [Gulbarga... Serum 6 . Mango Slices in Syrup.. Western Tobacco Ltd.. India] We cultivate and supply safed musli and other organic planting materials... Sweet Corn. bulk herbal raw material.. Bucket Elevators. for higher yields in various crops. Westend. Screw Conveyors. land prepartion.source of Vitamin C as well as a very good health food. Seed Dryers.. fencing [solar/barbed]... India] We Provide manufactures full range of machines and equipment used for cleaning... Previous. contract farming. Pineapple : Pineapple Slices in Syr... grading./100 gm.. Next. /100 gm. This belt is known for growing lots of vegetables. India] NEEM CAKE ORGANIC MANURE Neem Cake Organic Manure is the bye product obtained in the process of cold pressing of neem kernels and / or solvent extraction process for neem oil cake. processing. India] Leading exporter and manufacturer of cigarette and tobacco products from India. Specific Gravity Separators. Mango Pulp : Mango Pulp (Natural & Sweetened). Mixed Vegetables. India] Manufacturers & Exporters of Canned Vegetables : This category includes vegetables like Drumsticks.. VITAMIN C IN 'KANHAIYA' powder is more than 3000 mg. Width Sizers. Agro Extracts Ltd. training consultancy of safed musli and other herbal plants.. Seed Treaters. Midland Blue. Okra.. Destoner. India] Manufacturers of CLINICAL ANALYSIS: Serum Protein electrophoresis. Sai Food Processing [Belgaum... Carrots. organic manure supplying . [whereas Vitamin C in most of the commonly available Amlakathi powders is merely in the range of 500 to 1000 mg. Midland Red. India] Consultancy for medicinal & horticulture crops. seeds. Mango Juice. Indented Cylinder Seed Graders. turnkey farm development. [AMBALA CANTT. Midland Standard.WTL also undertake contract manufacturing for private label owners. [Bhopal. Bag Stack. Gherkin.] 'KANHAIYA' uses only Gardenfresh Amla fruit directly pluc. Film Coaters. SANAT BUILDCON PVT LTD [Gwalior. [Bangalore. Ltd.. Belt Conveyors. of powder. handling and storage of Seed cleaners/Grain Cleaners.. drip fitting..

Lipoprotein electrophoresis.. Our Products are:. packer and distributor of dry food products.. . Pineapple : Pineapple Slices in Syru. Contract manufacturing. Dried wasabi rhizome.. Glycosylated hemoglobin. Fragrances. Serum Pseudocholine esterase. This belt is known for growing lots of vegetables... United States] Leading contract manufacturer of dry food products. Tova Industries.. Tybbuo Corporation [Texas. United States] We are Manufacturer and Export / Import of Full range of products includes Navigator guidance systems. Ltd. India] Manufactures & Exports of Canned Vegetables : This category includes vegetables like Drumsticks. Products :. Compact Industries [St. 100% Real wasabi paste. Urinary sugar chromatography. India] Manufacturers & Exporters of Botanical extracts... Charles. Phytochemicals. [Mumbai. Arsenic and lead poisioning.. AayurMed Biotech P. India] We Provide of Cultivators. Essential oils. manufacturers and exporters of herbal tea. Mango RTS Beverage.. Cappuccino Flavors: French 7 . Manufacturing food/health supplements. Mango Juice. Serum Ceruloplasmin. -Complete Product List Beverage Mixes Cake/Bakery Mixes Bread Bases Heritage Challah Mix Dough Conditioners Baker's Supplies Breading/Marinades Gelatin/Pudding Mixes Dessert Mixes Frozen Dessert Mixes Soup Bases/Mixes Gravy/Sauce Mixes Vegetarian Entrees Tea & Cocoa Dietary Products Salad Bar Items Potato Products Vege. Soil Mover scrapers.. Oleoresins and natural colors.Wasabi rhizome with stem. Flavors. Urinary mucopolysac. live planting materials & extracts. Automatic Agriculture [Pender. Urinary Metabolic screen. Essences. Urinary aminoacid chromatography. plus a full line of specialty products for towing and hauling. seeds. Abnormal hemoglobins quantitative.. We also engaged in Contract Farming.Organic cultivation of medicinal and other natural herbs i.. Hemoglobin electrophoresis. Okra.... Carrots. Dried wasabi stem. roller mills including the Rollmix roller mixer.. Mango Slices in Syrup . which allow us to provide the high-quality wasabi products Wasabi is perennial plant.. United States] Manufacturer. 100% Real wasabi powder.Our Product range includes : AyurMed : Herbal Tea : Slimming Tea Stress Tea Brain Power Tea Diabetes Tea Lever Cleanse Tea Cough Tea Strength Tea Extracts Stevia Products AyurHerb :. Gherkin.. Mixed Vegetables.. importing. manufacturing. natural herbs.. Wasabi rhizome without stem. Serum Lipid profile. Sweet Corn. LLC [Louisville. Ltd [Ernakulam. United States] We contract growing. Portable Trailer Mills : Blower Discharge Auger Discharge AUTOMATIC MILL FEATURES Heavy Duty PTO Basic Mill with Chain Drive Tapered Aug. Mango Pulp : Mango Pulp (Natural & Sweetened). Sai Food Processing [Belgaum. mist sprayers.. Green Peas. Elixir Extracts Pvt.

unique mixture of potentially healthy products nutraceuticals -Adjuvant . 8 .Vanilla (several variations) White Chocolate Original Almond Amaretto Hazelnut Mocha Irish Cr?me Cinnamon Cinnamon Vanilla Nut Butter Pecan English Toffee Cr?me Brulee Caramel Fat Free French Vanilla Harvest Blend Holiday Spice Chocolate Mint Butterscotch Butter Rum Bananas Foste. India] The Group Manufactures special purpose dairy ingredients and currently sells both in the domestic as well as in the international market to food/pharmaceutical/nutraceutical companies. PRODUCTS Industrial products in.. Mahaan Group [Delhi. United States] Potential Producers? Natural Processing Products -Natural Processed Protein (Meal) .higher phytoestrogens (genestein) -Natural Processed Oil ? higher tocopherols and phytochemicals -Foots ...ability to deliver naturally processed meal for animal feed -Natural Processed Protein . Mahaan Group also manufactures private label dairy products as well as makes customised agglomerated and instantly soluble dairy premixes under its contract manufacturing services.. Producers' Natural Processing Inc [Brookston.contract manufacturing opportunity ......

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