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Presented byJoseph Thomas 11DCP076 Tarun Gautam 11DCP100

CONTRACT FARMING
 Contract farming is agricultural production carried out

according to an agreement between a buyer and farmers.
 It establishes conditions for the production and

marketing of a farm product or products.

often at a pre-determined price. .  The buyer commits to purchase the product.  meet quality standards and delivery schedule set by the purchaser.  The buyer may commit to support production through supplying farm inputs.Features  Farmer agrees to provide established quantities of a specific agricultural product. land preparation. providing technical advice and arranging transport.

Benefits for farmers  Improved access to local markets  Assured markets and prices (lower risks) especially for non-traditional crops  Assured and often higher returns  Enhanced farmer access to production mechanization and transport services inputs. .

Benefits for contract partners  Assured quality and timeliness in delivery of farmers’ products.  Lower transport costs. . as coordinated and larger loads are planned.

Types of contract farming  Centralized model  Nucleus Estate model  Multipartite model  Informal model  Intermediary model .

tea. sugar cane. packages and markets the product. thereby tightly controlling its quality. cotton.Centralized model  The contracting company purchases the crop from the farmers. paprika. cocoa and rubber.  This may involve tens of thousands of farmers. coffee. and then processes.  can be used for crops such as tobacco. . banana.

 The promoter also owns and manages an estate plantation  The estate is fairly large in order to provide some guarantee of throughput for the plant.Nucleus Estate model  This is a variation of the centralized model.  Mainly used for tree crops .

Multipartite model  The multipartite model usually involves the government. management. production. statutory bodies and private companies jointly participating with the local farmers. processing and marketing of the produce  The . model may have separate organizations responsible for credit provision.

with a risk of default by both promoter and farmer . watermelons. and fruits.Informal model  Individual entrepreneurs or small companies make simple.  The crops usually require only a minimal amount of processing or packaging for resale as with vegetables.  The most speculative of all contract-farming models.  Financial investment is usually minimal. informal production contracts with farmers on a seasonal basis.

Intermediary model  This model has formal subcontracting by companies to intermediaries (collectors.  The main disadvantage in this model is it disconnects the link between company and farmer . NGOs)  The intermediaries have their own (informal) arrangements with farmers. farmer groups.

 Side selling by farmers to competing buyers.Disadvantages Or Issues  Farmer sells to a buyer other than the one to whom the farmer is contracted.  Buyers may use their bargaining clout to their financial advantage .  company's refusal to buy products at the agreed prices  downgrading of produce quality by the buyer.

ITC (agri-business division) and McDonalds are some of the prominent business giants. which have either started contract farming projects already or are in the process of actively discussing them with various state governments. chilli and groundnut.  PepsiCo and other companies have used the contract system for the cultivation of Basmati rice. as well as for vegetable crops such as potato.Indian Scenario  PepsiCo was the first company in India to start contract farming of tomatoes in Hoshiarpur district of Punjab. Reliance Life Sciences. .

 Mix of technology transfer of an integrated spectrum of horticultural services with a focus on farmer economics and competing crops. district of Punjab. .  PepsiCo has done a wonderful job in Sangrur. model  Collaborated with Punjab agricultural university and Punjab agro Industries Corporation.Pepsi co.

PepsiCo gained by receiving uninterrupted and regular flow of quality raw materials. crop       monitoring during growing period. Helps farmers in terms of land preparation. Finally. . farmers are paid promptly and the agreed price. PepsiCo generated good will for itself. Help in terms of harvesting. Net impact.5 times. Farm incomes increased by more than 2. transportation and logistics. Tomato yields increased dramatically from 16 to 52 MT per hectares.

Nestle  Nestle now covers about 100 thousand dairy farmers in over 1500 villages in several districts of Punjab. Nestle collected 438 million kg of milk from farmers.  The firm observes strict food safety and quality standards right from the milk production stage. .  In 2005.

 ITC is of the firm belief that intermediaries who yield substantial socio-political power in their belt cannot be totally eliminated. But they could be disassociated from the intermediation of the information flows. Taking this understanding as the basis they have structured the e-Chaupal initiative. .ITC  It intends to leverage information technology to reduce aggregate cost of its supply chain and to extract value through a near disinter-mediation of the supply chain.

 Functions of Sanchalaks -Information and knowledge dissemination -Virtual aggregation of demand and supply . Uttar Pradesh and Andhra Pradesh ITC’s e-Chaupal’s holding Internet-enabled Pentium desktops and printers display the itcibd.com portal.e-Chaupals  Across various villages in interior Madhya Pradesh. Karnataka.Allowing retailing of agri-input .

Problems.  Which not only decides the crops grown but also the procurement prices.  Growing incidents of the pre-determined prices being reduced on the pretext of inferior quality of the grain. .:.Indian Scenario  System puts farmers under the total control of corporations.g.Punjab Agro Food grains Corporation has to buy Basmati Rice rejected by the contracting companies.  E.

 Male labour is being displaced by mechanisation.. .Contd. while lower-paid women and children are increasingly employed for the more labour-intensive activities.  It certainly led to more employment but increased competition for work through mitigation has pushed wages further down.  Also. the problem of finding alternative employment for displaced cultivators has become a serious concern.

 even deny farmers the benefit of higher prices. . It tends to displace labour quite substantially  marginalise direct cultivators. who lose control over the production process and often even over their land.  result in greater insecurity and lower incomes for farmers because of the use of quality measures to lower the effective output price paid by contractors. which could be instead absorbed by corporate contractors with local monopolistic power.  encourage more capital-intensive and often less sustainable patterns of cultivation.

why is contract farming still 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.a basic price-support mechanism that ensures that costs are covered -efficient extension services that provide information about possible crops.  What cultivators in rural India need. new inputs and their implications and new agricultural practices relevant for the particular area -and the availability of reliable and assured credit at reasonable rates of interest. .Suggestions  Given these evident problems.