Contract farming

Opening World Food India 2017 on Friday, Prime Minister Narendra Modi said that Private sector participation has been increasing in many segments of the value chain. However, he noted that more investment is required in contract farming, raw material sourcing and creating agri linkages. Many international companies in India have taken a lead in contract farming initiatives. This is a clear opportunity for global super-market chains considering India as a major outsourcing hub.

In pursuance of announcement in the Union budget 2017-18, the Ministry of Agriculture and Farmers’ Welfare has constituted a Committee on 28.02.2017 to formulate a Model Contract Farming Act for adoption by the States. This Model Act on Contract Farming would address the constraints in promoting contract farming in a holistic manner by the States. The Contract Farming Law will integrate backward integration of the food processors with the farmers and attracting investment in post-harvest management activities leading to increased benefit to the farmers and reduction in wastages.

According to Wikipedia, in contract farming, the farmer undertakes to supply agreed quantities of a crop or livestock product, based on the quality standards and delivery requirements of the purchaser. In return, the buyer, usually a company, agrees to buy the product, often at a price that is established in advance. The company often also agrees to support the farmer through, e.g., supplying inputs, assisting with land preparation, providing production advice and transporting produce to its premises.

Contract farming makes small-scale farming competitive - small farmers can access technology, credit, marketing channels and information while lowering transaction costs. There is assured market for their produce at their doorsteps, reducing marketing and transaction costs. It reduces the risk of production, price and marketing costs. Contract farming can open up new markets which would otherwise be unavailable to small farmers. It also ensures higher production of better quality, financial support in cash and /or kind and technical guidance to the farmers.

In case of agri-processing level, it ensures consistent supply of agricultural produce with quality, at right time and lesser cost, according to http://vikaspedia.in. Challenges are tendency of corporates to exploit farmers. The contracts are mostly verbal and even when written, they are not enforceable due to lack of legal provisions as in India.