Contract Farming:

Contract farming is defined as a system for the production and supply of

agricultural/horticultural produce under forward contracts between
producers/suppliers and buyers. The essence of such an arrangement is the
commitment of the producer/ seller 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.

Farming is an age-old means of livelihood for millions of Indians. However, there

have been few systems/models in which farmers are assured of a market for their
produce, leave alone a remunerative
price. Farmers have on occasion had to throw their produce away for want of buyers.
This is one side of the coin. On the other is the agri-based and food industry, which
requires timely and adequate inputs of good quality agricultural produce. This
underlying paradox of the Indian agricultural scenario has given birth to the concept
of Contract Farming, which promises to provide a proper linkage between the ‘farm
and market.

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

Private Sector Involvement in Contract Farming In India

Amira Foods India Ltd IDBI
Appachi Cotton Company Ion Exchange Enviro Farms Ltd
AVT Natural Products Ltd ITC-International Business Division
Cargill India Pvt Ltd Ken Agritech
DD international Inc. Marico Industries
Escorts Machinery Group Mahindra Shubhlabh Services Ltd
Gherkin Exporters Natural Remedies Pvt Ltd
Global Green Company Pvt Ltd Nestle India Ltd
Green Agro Park Pvt Ltd Nijjer Agro Foods Ltd
Himalaya Drugs Pvt Ltd Pepsi Foods Pvt Ltd (PepsiCo)
Hindustan Lever Ltd Rallis India
ICICI Bank Ltd Saguna Hatcheries Ltd
Satnam Overseas Ltd
Soyabean-Tinna Oils & Chemicals ltd
Southern India Mills Associations
State Bank of India
Super Spinning Mills Ltd
Tinna Oils and Chemicals Ltd
Ugar Sugar
Unicorn Agrotech Ltd
United Breweries Ltd
UTI
Venkateshwara Hatcheries Ltd
State-wise Contract Farming Initiatives by Private Sector

State Crop Company/Corporate Area (ha)

Karnataka Ashwagandha Himalaya Health Care Ltd 700
Karnataka Dhavana Mysore S N C Oil Company 400-500
Karnataka Marigold & AVT Natural Products Ltd 4000
Caprica Chili
Karnataka Coleus Natural Remedies Private Ltd 150
Karnataka Gherkins 20 Pvt Companies* (Major 8000 (inc of
Companies Global Green Tamil Nadu and
Company Pvt Ltd, Unicorn AP)
Agrotech Ltd, Green Agro
Park Pvt Ltd, Ken Agritech
Pvt Ltd, etc)
Maharashtra Soybean Tinna Oils and Chemicals 134800
Maharashtra Several Fruits, Ion Exchange Enviro Farms
Vegetables, Ltd (IEEFL)
Cereals, Spices &
Pulses
Maharashtra Safflower Marico Industries
Oilseeds
Madhya Wheat, Maize & Cargil India Ltd
Pradesh Soybean
Madhya Wheat Hindusthan Lever Ltd (HLL) 15000
Pradesh
Madhya Several Fruits, Ion Exchange Enviro Farms
Pradesh Vegetables, Ltd (IEEFL)
Cereals, Spices &
Pulses
Madhya Soybean ITC_IBD 1200
Pradesh
Punjab Tomato & Chilly Nijjer Agro Foods Ltd 250
Punjab Barley United Breweries Ltd 2270
Punjab Basmati, Maize Satnam Overseas, Sukhjit 4000
 Starch (Mahindra Shubhlabh
Services Ltd)
Punjab Basmati Satnam Overseas, DD Intl 14700
Incorp, Amira Foods India
Ltd (Escorts Ltd & Grain
Tech)
Punjab Basmati, PepsiCo India Ltd Around 6000
Groundnut &
Potato, tomato,
chilli
Punjab Milk* Nestle India Ltd 65000000
kg/day
Tamil Nadu Cotton Super Spinning Mills 570
Tamil Nadu Maize Bhuvi Care Pvt Ltd 800
Tamil Nadu Paddy Bhuvi Care Pvt Ltd 200
Tamil Nadu Cotton Appachi Cotton Company 260
* Involving about 90000 farmers in about 1600 villages Source:
NIAM (2003), Times Agriculture Journal (2003), (FICCI-IFPRI-
1
ICRISAT: 2003 ) and Centad, Sukhpal Singh:2005)

Contract Farming Models

Model – Type 1

Corporate

Extension Arm

FARMER
Contract Farming
Model – Type II

Buyer Corporate

NGO/Govt. body
as facilitator

FARMER

Contract Farming
Model – Type II

Buyer Corporate

Arhatiya as facilitator

FARMER
 Contract Farming Model – Type IV

Buyer Corporate

Agri –Input Seeds Bank for Crop Loans

Implementing
Agency

Agri Input
Fertilizers & FARMER Insurance for
Pesticides Crop/Life
Comparison of Contract Farming Models in India
Component Type 1 Type 2 Type 3 Type 4
Cost increments Nil Minimal Considerable Maximum
due to channel
partners
Scale of Can be taken up Can be taken up Applicable for Applicable for
operations with smaller scale of with smaller large scale of large scale of
operations scale of operations operations
operations
Channel No channel partners Non profit Traditional Corporates act
Partners organizations as channel as channel
partners members as partners
partners
Transparency in Completely Transparent Low Lower
price fixation Transparent transparency Transparency
Services offered Only extension Extension Extension Wide range of
to the farmer services other services and services and services
services subjective other services at other associated ranging from
to the operating the discretion of services such as the crop loan
company the contracting loans and other to life
firm inputs insurance are
taken care
Source: NIAM (2003)
Grouping of Major Contract Farming Initiatives of Corporates
Under Different Models
Type Initiative Crop State
Type I Nijjer Agro Tomato & Chilly Punjab
Tinna Oils Soyabean Maharashtra
SNC Oil Dhavana Karnataka
AVT Natural Products Ltd Marigold Karnataka
Natural Remedies Pvt Ltd Coleus Karnataka
Himalaya Drugs Pvt Ltd Ashwagandha Karnataka
PepsiCo Basmati Punjab
Type II Ion Exchange Enviro Farms Organic Produce Maharashtra
Type III United Breweries Ltd Barley Punjab
ITC-IBD Soyabean, Wheat Madhya Pradesh
Type IV MSSL Basmati, Non-Basmati, Maize Punjab, Tamil Nadu
Escorts Machinery Group Basmati Punjab
Super Spinning Mills Cotton Tamil Nadu
Cargill India Pvt Ltd Soyabean, Wheat, Maize Madhya Pradesh
& Uttar Pradesh
Appachi Cotton India Cotton Tamil Nadu
Gherkin Exporters Gherkin Karnataka, Tamil
Nadu, Andhra Pradesh
Source: NIAM (2003)