Public-Private Sector Initiatives in Agriculture Sector:Contract Farming

Contract Farming

There is an underlying paradox of the Indian agricultural scenario. The small farmers are not assured of a market and a remunerative price for their produce. On the other hand the agri-based and food industry requires timely and adequate inputs of good quality agricultural produce. This has given birth to the concept of Contract Farming, which promises to provide a proper linkage between the ‘farm and market’.
Contract Farming is an agreement between Farmers and Sponsors (Government Bodies/ Corporates /Processors/Individual Entrepreneurs) to co-ordinate and promote production and marketing of agricultural produce.
• The Farmers produce quantity and quality as per sponsor’s requirements and the Sponsor/s provide support in terms of agri-inputs, credit, improved farm practices, markets and fixed price procurement and marketing of produce.
• Contract Farming is essentially demand/market driven unlike traditional farming that first produces a commodity and then looks for its market.
• For a single crop/or commodity, a simple Centralized Model with a single sponsor could suffice, whereas for Multicrop Multiyear Contract Farming, like the one adopted by the Punjab agriculture industries corporation, a Multipartite Model involving a variety of organizations, frequently including statutory bodies, is followed.
Contract farming is one of the most significant and powerful means by which farmers are integrated into national and international commodity markets and agro-industrial markets. The nature and structure of contract farming systems vary widely from country to country, but a fundamental element is the vertical concentration of producers in which the States attempt to supervise and condition the production patterns of growers . Many researchers view this institutional form as an integral element in the “new international division of labor in agriculture” and the “new internationalization of agriculture”. Contract farming considerably increases the power of agro-industrial companies and it ‘shifts the control away from the farm towards the agro-industrial enterprise’. Contract production is very prominent in the horticultural and tree crops, floriculture and industrial animal husbandry sectors. In Asia and Latin America, rubber, cocoa, palm oil, tea and banana plantations are generally managed through contract farming by transnational corporations and in certain cases by state run agencies. In the United States, 90 percent of chicken farms and 20 percent of pig farms were integrated into agro-industrial conglomerates in 1994.
In India, contract farming is also fast developing. One instance is the Kuppam project initiated in 1997 by an Indian Corporation (M/S BHC Agro) with support from the Government of Andhra Pradesh. Export crops such as potatoes, gerkhins and chillies are grown using expensive imported Israeli technologies for dry land farming. The land is leased from small and medium farmers who are offered work as laborers on the consolidated holding managed by the company. Promoted by the government as a model of modern agriculture, the pilot project has nonetheless come under heavy criticism based on environmental and social grounds.

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