In India, contract farming has existed in various forms in various parts of the country for commercial crops like sugarcane, cotton, tea, coffee, etc.
Under contract farming, an agreement is done between farmer and outside agency, a company, firm, individual, etc. In this agreement, usually, modern agriculture inputs are provided by a contracting agency to the farmer. The contracting agency also agreed to buy the farm produces at a predetermined price.
For more info, you can visit
https://en.m.wikipedia.org/wiki/Contract_farming
Contract Farming In India
In India, Contract Farming has been in existence for the last many years. Even in the British colonial era, indigo and opium cultivation was done under contract farming.
This contract was between Indian farmers and Britishers. In the 1920s, the Indian Tobacco Company (ITC) entered into a contract with the farmers of Andhra Pradesh for growing tobacco.
In the 1990s, Pepsico contracted with farmers of Punjab for growing tomatoes, potatoes, chili. Amul and Nation Dairy Development Board (NDDB) have also been very successful in dairy farming.
Nature of Contract Farming
1.) Buy Back Agreement -
Contract Farming has always repurchased agreement, i.e., the contractor undertakes to buy the agriculture produce if the cultivators.
2.)Pre-determined Price -
The contractor agreed to buy agricultural produce at a Pre-determined price. This price is fixed at the time of entering the contract .
3.) Pre-determined Crop -
The crop to be cultivated by the farmers is determined at the time of entering into a contract.
4.) Supply of Agricultural Inputs -
In certain farming contracts, agricultural inputs are provided by the contractor to the farmers. The cost of providing agricultural inputs is deducted by the contractor from the sale proceeds of agricultural produce.
5.) Quality Standards -
The agricultural produce must fulfill at least minimum quality standards. Otherwise, the contractor can breach the contract and refuse to buy the agricultural produce.
6.) Forward Contract -
it is a type of forwarding contract in which the contractor undertakes to buy the cops in a future period, i.e., the crop isn't ready when the contract is entered into.
Types of Contract Farming
1. Simple Procurement of Agricultural Produce :
Under this type of agreement, the contractor agrees to buy the agriculture produce of selected crops at a Pre-determined price from the farmers, provided the crop is as pre certain minimum quality standards. The farmer is relieved of market risk, i.e., risk of loss due to a fall in the market price of agricultural produce. In this type of contract, the contractor is not required to supply agricultural inputs to the farmers. These are to be arranged by the farmers on their own.
2. Supply of Agricultural Inputs and Procurement of Agricultural Produce:
In this type of contract, the contractor agrees to supply required agricultural inputs like high-yielding variety seeds, chemical fertilizers, pesticides, and transportation facilities to procure agricultural produce. The contractor also undertakes to buy the agricultural produce at a pre-determined price. The cost incurred by the contractor on supplying agricultural inputs is deducted from the sale price of agricultural produce. In this type of contract, the farmers get good quality agriculture inputs without any immediate cash outflow. This facility provides a type of credit support to farmers as they don't have to spend immediately on purchasing inputs.
3. Comprehensive Contract :
it is the ultimate form of contract farming. Besides supplying agricultural inputs and buying agricultural produce, the contractor also participates in agricultural operations like providing technical support, technical guidance, supervision, providing modern agricultural equipment for use, conducting soil testing surveys, etc. In this type of contract, the contractor shares production risk also besides bearing market risk. The farmer is relieved of market risk and, to some extent, of production risk. Market risk means the risk of loss due to a fall in the market price of agricultural produce. Production risk means the risk of loss of agricultural produce due to pest attack, climate vagaries viz floods, droughts, cyclones, etc.
For more info, you can visit
https://en.m.wikipedia.org/wiki/Contract_farming#Types
Contract farming is still in its infancy stage in India. For its long-term growth, the government should strengthen legislative support, create awareness among farmers about the benefits of contract farming.
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