Contract Farming in India Rural Economy

The process of Contract Farming in India Rural Economy is a new concept. The process of contract farming involves cultivating and harvesting for and on behalf of big business establishments or Government agencies and forwarding the produce at a pre-determined price. In return, the contracted farmers are offered high price against their farm produce. The role of contract farming in India rural economy is becoming more and more important, since organized farming practice has become the need of the hour in the world of rapid industrialization. The rapid industrialization process in India has created shortage of farmland, which in turn has necessitated organized farming practice in India. The process of contract farming in India involves scientific and optimum use of land and farm resources for maximum output of agriculture produce. Small time farmers practicing primitive agricultural methods for cultivation and harvesting of crops dominate the Indian agriculture sector. But, with the liberalization of India economy, there has been a sudden spurt in contract farming in India. Moreover, today more and more established business houses are taking interest in the business of contract farming in India. This has happened as a result of rapid growth of retail industry in India. The growth of retail industry in India has propelled the growth of farm retail in India, which caters fresh vegetables and fruits from the farms to the Indian mass. The process of contract farming in India involves, engaging rural Indian farmers for the cultivation of agricultural produce under strict government policies. The role of Contract Farming in India Rural Economy involves government and private participation along with the rural workers. Further, it engages a good number of farmers and other rural workers to discharge other agriculture related activities. The Indian institutes engaged for marketing agricultural products under contract marketing are as follows • • • • • • • • • • •

Karnataka State Agricultural Marketing Board Krishi Maratavahini Madhya Pradesh State Agricultural Marketing Board Maharashtra State Agricultural Marketing Board, Pune Meghalaya State Agricultural Marketing Board Orissa State Agricultural Marketing Board, Bhubaneswar Punjab State Marketing Board Rajasthan State Marketing Board AP Agricultural Marketing Board Domestic & Export Market Intelligence Cell Tamil Nadu Agricultural University and Agri Marketing Board

Fennel Seed. Suji. Ginger. Chewing Tobacco. Cucumber. Meslin. Papaya. Chick pea. Turmeric Powder. Peanuts.Cashew Kernels. Tamarind Seed. Mandarins.Black Pepper. 1988 Commodity Grading and Marking Rules List of commodities whose Agmark Grade Standards have been covered under AP (G&M) Act 1937 Manual on Standards of Paddy Manual on Standards of Wheat Manual on Standards of Maize Manual on Standards of Mustard and Rapeseed . Green Tea. 1937 Schedule Appended to AP (G&M) Act 1937 General Grading and Marking Rules. Cucumbers. Walnut Kernels. Tobacco & Tobacco Products . Rice Bran Extractions. Oranges.• HP State Agricultural Marketing Board The main agricultural products of India under the process of contract farming are as follows • • • • • • • Food Grains . Corn. Dill Seed. Hybrid Seeds. Turnips. Wheat. Onion. Soy meal. Banana. Papaya. Plant Products. Chilly. Sesbania Seed. Spinach. Lady's finger. Grapes. Herb Seeds. Pan. Plantation & Related Products . Groundnut. Green Pepper.Basil Seed. Fruits & Nuts . Opium. Drum Sticks. Lentils. Seeds. Parmal. Oranges. Apples. Cinnamon. Radiata. Cabbage. Sunflower Seeds. Darjeeling Teas. Gherkins. Coffee. Carrots. Buds. Pepper. Almonds. Tea & Coffee . Leaf Tea. Sorghum. Maize. Asparagus. Pineapple. Cashew Nut. Mushroom. Oil Seeds. Bajra. Cashews. HPS Groundnuts Fruits . Beans. Rubber etc The acts and rules that governs the process of Contract Farming in India Rural Economy are as follows • • • • • • • • • • Agricultural Produce (Grading and Marking) Act. Dried Truffles. Coffee Beans. Stripe Gourd. Plants. Psyllium Seed.Black Tea. Fenugreek Seed. Indian Peanuts. cauliflower. Bitter gourd. Turmeric. Assam Teas. CTC Teas. Fenugreek. Plantation. Cumin. Jute. Anise. Leaf Coffee. Bidi Leaves. Mustard Seeds. Lemon. Dry Ginger. Roasted Dry Fruits. Dry Red Chilly.Rice. Cherry. Packaged Tea. Cumin seeds.Betel nut Leaves. Betel nut. Walnuts. Sesame Seeds. Dried Fruits. Pumpkin. Vegetable Seeds Spices . Jowar. Shallots. Snuff. Coriander Powder. Cloves. Clove. Mushroom Spawn. 1937 as amended in 1986. Pulses. Vegetables – Potatoes. Salt. Tobacco. Cardamom. Agricultural Produce Grading and Marking Act.Bananas. Celery Seed. Buds. Instant Coffee. Tomato. Cereals. Mango. Arecanut.

"We are not encouraging a model of leasing land and allowing the private sector to acquire it for cultivation. thanks to the entry of business giants like Reliance and ITC and also because of the encouraging change in the government policies. mostly a large company. While earlier it was limited to a certain small initiatives by the corporate sector. electrification and processing. Pawar made it clear that the contract farming model that to be implemented in India will ensure that land is permanently owned and cultivated only by farmers." he said. The agreement is defined by the commitment of the farmer to provide an agricultural commodity of a certain type at a time and a price and in the quantity required by a committed buyer. He also asked agro-business firms to integrate farmers on their supply chains through institutions like cooperatives. it is likely to become a norm rather than exception. Union Agriculture Minister Sharad Pawar said contract farming is emerging as an important institutional arrangement in India that promotes coordination between production and marketing activities. "The main issue is to upscale contract farming. Winds of change are blowing across the Indian agricultural landscape with the advancement of contract farming. Contract farming involves a pre-agreed price between the company and the farmer. The central government is so serious about the issue that it is mulling a contract farming policy for India. The size of agreements for contract farming with the farmers is also increasing manifold. They seek to integrate . Recently.Pros and cons of contract farming Farmers in India are all set to see a sea-change in agriculture sector soon. While the corporates will have us believe that contract farming is the panacea for all the ills affecting the agriculture sector in the country today. thanks to contract farming. it remains to be seen whether it really turns out to be so. producers' associations and contract farming. It is clear why the business sector is gunning for contract farming." he pointed out. This will require both public and private sector investments in roads. He also disclosed that the Centre is encouraging farmers to form grass-root level associations or informal cooperatives owned and managed by farmers themselves or producer companies. The minister added that the government's main concern is that smallholders are not left out in the process. cold chains.

as well as for vegetable crops such as potato. which have either started contract farming projects already or are in the process of actively discussing them with various state governments. PepsiCo India's project with the Punjab Agro Industries Corporation and Punjab Agriculture University remains one of the most ambitious contracts farming projects in the country. localised agri-base in India by leveraging its access to world class agricultural practices. PepsiCo was the first company in India to start contract farming of tomatoes in Hoshiarpur district of Punjab . "PepsiCo's involvement in Indian agriculture stems from its vision of creating a costeffective. chilli and groundnut.the supply chain to ensure timely availability of quality and quantity of raw material. as not only do they get the raw material as per their specific demands. capital inflow as well as lead to assured markets for crop production. Reliance Life Sciences. The United Progressive Alliance government's 'approach paper' to the Eleventh Plan gives clear priority to the development of contract farming. . it also reduces the procurement cost for them by doing away with the middlemen." PepsiCo spokesperson said. PepsiCo and other companies have used the contract system for the cultivation of Basmati rice. which allows farmers to sell their produce in open markets. It has also proposed tax rebates for food processing. A working group set up by the National Development Council has also made a set of proposals to promote contract farming. ITC (agri-business division) and McDonalds are some of the prominent business giants. It leads to significant gains for them. What has been of crucial help to the business houses venturing into contract farming is the amendment of the Agriculture Produce Marketing Committee Act in 14 states. This has opened the gates for the companies to enter this segment. Till today. "The programme focuses on evolving agricultural practices to help Punjab farmers produce crops that would make Indian products internationally competitive." says the spokesperson. It is also believed that the participation of the corporate sector in the farming segment will play a crucial role in technology transfer. The group suggests greater liberalisation of laws and rules for crop contracts. duty-free imports of machinery and equipment and liberalised imports of seed varieties for contract farming. Significantly. the cost is also much less.

will be used to grow crops required by the food-processing industry. The detractors of the contract farming believe that far from being a panacea for agriculture sector. This is mainly because the company provides all the material including seeds as well as technical know-how and there is also a guarantee of purchase of the produce after harvest. contract farming is likely to increase the problems. therefore. In the present scenario. Agriculture sector is facing a number of problems in the country and farmers actually don't have many options in the matter of deciding whether or not to go in for contract farming. The main thing is that farmers don't have any . The switch to contract farming. which also has a significant overseas market. while the farmer supplies land and labour. "We are bound to lose food security considering the way the government is supporting contract farming without thinking of farmers. which is currently used to grow staple crops like wheat and rice. a farmer's participation is limited to production in the fields. However.The model which is most popular in the country today is the one in which the contractor supplies all the inputs required for cultivation. It is believed that contract farming would double agriculture exports from India to $20 billion by 2010. the minimum price of the produce is fixed in advance. the farmers themselves and technologies and the context in which contract farming is taken up. Generally. In fact. in the present context. the increasing number of farmers' suicides is seen as a reflection of the fact that agriculture is no longer seen as a profitable venture. contract farming is clearly a win-win situation for both the corporates and the farmers. implying that the country might become dependent on imports. This makes the economic security offered by the contract farming very attractive. the terms and nature of the contracts vary according to the crops grown. However. In most cases. leads to a rise exports. contract farming seems to be the only choice left open to them. With rising debt and soaring seed and fertiliser costs. Many believe that the rampant increase in contract farming will eventually lead to loss of food security of the country. many corporates enter contract farming to fulfil their export obligations. The main concern is that the land. the agencies involved.

The government should involve the farmers in policy making otherwise their concerns are likely to be left out. "Contract farming.role to play in contract farming except providing the corporates with labour and land.000 farmers in the country. the crop required by the company is not recommended for that particular area. There have been numerous studies to examine the impact of contract farming on farmers. About 70 per cent of the population is dependent on agriculture. which claims to represent around 5. It is also because public institutions have failed to provide farmers with the essential protection and support required for viability on a sustained basis." But for farmers. about 20 kms from Pune. Certainly. it has to be a particular variety and it's not like anything will do.conducted a study ." says Shirish Mane. . Dr Sukhpal Singh of Indian Institute of Management." says Dr Kishan Bir Chaudhary of Bharat Krishak Samaj. It can lead to sustainable cultivation practices. Ahmedabad . there is a need for the government to step in and monitor the contract farming practices. this is a matter of survival. Of course. if they want chilli. who owns a 3-acre farm at Loni Khand village. Recently.'Contract Farming for Agricultural Development: Experience of the Indian Punjab and Northern Thailand'. in a political economy. not all contract farming is bad for farmers. There is also a belief that it might also lead to the loss of natural seeds. However. The government should also take into account that the situation is very different in our country as compared to other countries. For instance. This can also have negative implications on the quality of soil. He observes in his study. Many times. is one mode of capitalist penetration of agriculture for capital accumulation and exploitation of the farming sector by agri-business companies. "Farming was hardly a profit making venture but thanks to the company people we also can afford to have some self-respect now. there are problems associated with companies also like if a crop doesn't meet their requirements they will not take it.

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