Slide 1

WELCOME

CONTRACT FARMING IN INDIA PRESENT STATUS, SCOPE, OPPORTUNITY, CONSTRAINTS, IMPORTANCE AND STRATEGIES FOR IT

Speaker Amit Bishnoi

DEPARTMENT OF AGRONOMYRAJASTHAN COLLEGE OF AGRICULTUREMAHARANA PRATAP UNIVERSITY OF AGRICULTURE AND TECHNOLOGY, UDAIPUR -313001(RAJ.)

CONTENTS 1. INTRODUCTION 2. HISTORICAL BACKGROUND3. MEANING OF CONTRACT FARMING4. OBJECTIVE OF CONTRACT FARMING5. NEED FOR CONTRACT FARMING IN INDIA6. TYPES OF CONTRACTS7. MODELS OF CONTRACT FARMING IN INDIA8. ADVANTAGES AND PROBLEMS OF CONTRACT FARMINGA.ADVANTAGES FOR THE FARMERSB.ADVANTAGES FOR THE SPONSORSC.PROBLEMS FACED BY THE FARMERSD.PROBLEMS FACED BY THE SPONSORS9. SCOPE AND OPPORTUNITIES OF CONTRACT FARMING10.IMPORTANCE OF CONTRACT FARMING11. WHY CONTRACT FARMING IN INDIA12. ISSUES AND CONCERNS13. FUTURE STRATEGIES OF CONTRACT FARMING14. DIFFERENT CASE STUDY OF CONTRACT FARMING15. SUCCESS STORY OF FARMERS16. SUMMING UP

INTRODUCTION 65 percent of Indian population depends directly on agriculture. 17 per cent of world population 2.3 per cent of world geographical area 4.2 per cent of worlds water resources Traditional methods of farming To step up and adopt commercially, technically and economically viable agribusiness solutions

HISTORICAL BACKGROUND For the first time it was introduced in Taiwan in 1895 by Japanese governmentEuropeans first introduced indigo and opium cultivation in the Bengal Region, under the East India company rule. ITCs contracts with the farmers of Andhra Pradesh for growing Virginia tobacco during the 1920s In India it was introduced by Pepsi company for the cultivation of vegetables particularly tomato and potato in Panjab in 1927. Emergence of seed companies during the 1960s, the green revolution during the 1970s and finally the tomato farming contracts by PepsiCo in Punjab during the 1990s can be quoted as some of the milestones in the emergence of Contract Farming in India. In Karnataka contract farming was started with the cultivation of gherkin in 20th century

Meaning of Contract Farming:It is an agreement between farmers & processing and marketing firms for the production and supply of agricultural products under certain agreement, frequently at predetermined prices.

OBJECTIVE OF CONTRACT FARMING

To achieve consistent quality

To achieve regular supply

To improve quality of produce

To stabilize the agro-raw produce

price is not affected by market prices

Need for contract farming in India:Production and marketing are very critical in India.Over come inadequate linkages with market.Lack of capital, poor infrastructure, technology transfer, etcTo avoid post harvest losses.Unfavorable conditions for procurement.To avoid migrations.

TYPES OF CONTRACTS :Marketing contract Only purchase at predetermined price. No input supply. 2. Partial contract Provides only some inputs at predetermined price. Purchase of produce. Total contractAll the inputs at predetermined price.Purchase of produce.

Models of contract farming in India :Three models of contract farming Bipartite Agreement modelTri-partite Agreement model Quad-partite Agreement model

Bipartite Agreement model:

Tri-Partite Agreement Model:

Quad-Partite Agreement Model :

Status of contract farming in India

Nearly Five lakh hectares area is under contract farming in India

More than 600 national and multinational companies are in contract farming

STATECOMPANYCROPAREA (ha.)KarnatakaHimalaya Health Care Ltd.Ashwagandha700Mysore SNC oil Co.Dhavana400-500AVT Naturals Products Ltd.Marigold and caprice Chilli4000Natural remedies Pvt. LtdColeus15020 Pvt. CompaniesGherkins8000MaharashtraTinna Oil and ChemicalsSoybean1,54,800ION Exchange Enviro farms Ltd.Several fruit, vegetables, cereals and pulses19MadhyapradeshCargil India Ltd.Wheat, soybean and Maize17000Hindustan Lever Ltd.Wheat15000ION Exchange Enviro farms Ltd.Several fruit, vegetables, cereals and pulses12098ITCSoybean1200PanjabNIJJER Agro Food Ltd.Tomato and chilli250United Breweries Ltd.Barley2270Satnam Overseas, Sukhjit StarchBasmati, Maize4000Satnam Overseas, Amira Indian Food Ltd.Basmati14700PepsiCo India Ltd.Basmati, groundnut, potato and chilli6000Nestle India Ltd.Milk65000000 lit./dayTamil NaduSuper Spinning 570 millsCotton570Bhuvi Care Pvt. Ltd.Maize800Bhuvi Care Pvt. Ltd.Paddy200Appachi CompanyCotton260

Table 1: State wise Contract Farming initiatives by private companies in IndiaSource: Nature and Scope of Contract Farming in India by H.S. Satish (2012)

Partial List of Companies Established Contract Farming In India HULITCSUGUNA POULTRYVENKATESHWARAHATCHERIESPEPSICORALLISNESTLE

The advantages of contract farming Provision of inputs and production services. Access to creditIntroduction of appropriate technologySkill transferGuaranteed and fixed pricing structures andAccess to reliable markets.

Benefits to the Farmer:Assured markets & returnsRisk elimination due to price fluctuationTimely transportReduces exploitation from middlemenReduces lending from private money lendersAdequate input supplyEmployment generation

Benefits to the Company:Uninterrupted & Regular Flow of Raw MaterialProtection From Fluctuation In Market Pricing.Long Term Planning Made Possible.Builds Long Term CommitmentDedicated Supplier BaseGenerates Goodwill For the Organization

Problems Faced by the FarmersPossibility of greater riskOutdated technology and crop incongruityManeuvering in quotas and quality specificationsCorruption

Problems Faced by the SponsorsLimitation on land availabilitySocial and Cultural constraintsFarmers disgruntlementBelow quality agro-inputsSale of crops by the farmers beyond contractual agreement

Scope and Opportunities of Contract Farming Dairy Contract Farming Poultry Contract Farming Fruit and Vegetables Farming

Dairy Contract Farming

Poultry Contract Farming

Reported By NSSO, 2010

Importance of Contract FarmingStable income, higher income than non contract farming Market certainty Delivery service for inputs Ease of obtaining inputLoan made available though financial institutionsLearning new technology Infrastructure: road and ditch Information, news and networkingQuality development Risk uncertainty is less Improved access to local markets Assured markets and prices (lower risks) especially for non-traditional cropsAssured and often higher returns Enhanced farmer access to production inputs Mechanization and transport servicesExtension advice, provision of inputs and production services, access to credit Introduction of appropriate technologySkill transfer, guaranteed and fixed pricing structures etc.

Why Contract Farming in India ? Traditional technology Management practices Little bargaining power with input suppliers and produce markets Inadequate infrastructure and market information Lack of post-harvest Poor package of produce Inadequate capital to grow a quality crop Small farmers not participate in the production of high value crops Efficient monitoring of production operations Extension activities Maximize the profits to the farmers and minimize risk in farming Users to go in for environmental friendly, value added quality agro products Farmers find it easy to get under one roof system Access to crop loans at attractive terms Alternate cropping system for better monetary returns.

Issues and ConcernsSoil fertility concernsEnvironmental issuesa. Bio-diversity issuesFood security concernsSeed problemsLabour problemsContract disputesMiddle mans influence

Future Strategies of Contract Farming Involvement of Panchayat or Gram sabha Improve bargaining power of the farmers The selection of appropriate plant genotype Minimum necessary infrastructure facilities Bank finance to small and marginal farmers Contracts should be managed in clear and participatory manner Legalization of tenancy Does not grow beyond certain limit which will destroy biodiversity and agricultural ecology CWC and SWC quality standards in respect of various commodities Updated database of contract farmers along with other relevant details Agreements written in vernacular language Liability of the contractor for any environmental losses should be fixed by the government

DIFFERENT STUDY ON CONTRACT FARMING

Sample study Area PanjabSharma, 2007Figure1.CroppingPatternShiftsinSampleNon-ContractFarmersA STUDY ON BASMATI RICE UNDER CONTRACT FARMING IN PANJAB

Sample study Area PanjabSharma, 2007Figure2.CroppingPatternShiftsinSampleContractFarmers

ParticularsForeigncontract Domesticcontract Non-contract Babycorn Chilli Babycorn Chilli Babycorn ChilliVarietyPACSeriesConfidentialPACSeriesPACSeriesChikkaballapurYield(kg/acre)IGrade195440712259430716192894IIGrade-214-227--Price(Rs/kg)IGrade78786.610.2IIGrade-5-5--Returns(Rs/acre)Mainproduct136783363815814355911066929374Byproducts2871-4745-2019-Grossreturns165493363820558355911268829374Totalcostofproduction8499266579948244849653Netreturns80506981106101110830356101Costofproduction/kg4.346.204.405.405.96Returnsperkg4.17.94.77.51.910.2Returnsperrupeeinvested,Rs2.01.32.11.51.3

Table 1. Net returns realized by contract and non contract farmers for baby corn and chilli in Karnataka

Karnataka Nagarajetal.2008

Crop

Farms

(Rs/ha)Contract

Farms

(Rs/ha)Non-contract

farmsChangeover

non-contractGherkin77066--Babycorn64681--Paddy31602272574345(15.3)Groundnut30462288211641(5.7)Sunflower2855330477-1924(-6.3)Chilli20372--Ragi16671122504421(36.1)

Table2.Per-hectareincomefromdifferentcropson contractandnon-contractfarms

Pantnagar Jagdish and Prakash 2008

Note:Figureswithintheparenthesesindicate percentageschangeovernon-contractfarms

ParticularsfarmsHiredhumanlabourContractNon-contractfarms(human-days)Changeovernon-contractfarms,%Male48(15.5)22(19.8)26*(118.2)Female261(84.5)89(80.2)172*(193.7)Totalhiredhumanlabour309(100)111(100)198*(178.4)Familylabour-useincropproductionMale197(70.4)64(73.6)133*(207.8)Female83(29.6)23(26.4)60*(260.9)Totalfamilyhumanlabour280(100)87(100)193*(221.8)Family labour-useinlivestockproductionMale41(21.7)64(29.5)-23(-35.9)Female148(78.3)153(70.5)-5(-3.3)Totalfamilylabour189(100)217(100)-28(-12.9)Totalmalelabour286(36.8)150(36.1)136**(90.7)Totalfemalelabour492(63.2)265(63.9)227**(85.7)Totalhumanlabour778(100)415(100)363**(87.5)

Table3.Averagelevelofyearlyemploymentoncontractandnon-contractfarms Pnatnagar Jagdish and Prakash 2008

Notes:FigureswithintheparenthesesindicatepercentagestototalThefigureswithintheparenthesesindicatepercentagechangeovernon-contractfarms*and**indicatesignificanceat1percentand5percentlevels,respectively.

Qha-1CategoryoffarmFarmsize Marginal Small Semi-mediumMediumLargeOverallContractfarmsMainproduct44.8645.6347.1648.5950.9847.03Byproduct40.3842.2043.0545.1746.2443.16Non-contractfarmsMainproduct38.4540.2741.1742.4644.7941.11Byproduct40.5442.4543.7244.4545.1043.17DifferenceMainproduct6.415.365.996.136.195.92(16.67)(13.31)(14.55)(14.44)(13.82)(14.40)Byproduct-0.16-0.25-0.670.721.14-0.01-(0.39) -(0.59) -(1.53)(1.62)(2.53)-(0.02)Rajasthan Sitaram and Kumawat, 2015

Figuresinparenthesesarethepercentincreaseinproductiononcontractfarmsovernon-contractfarmsTable 4 Category-wise production of barley on contract and non-contract farms, 2010-11

PlayersCommoditiesType ofOwnershipSample SizeYearofsurveyinformationRelevant toEconomics of CF (Net profits(Rs/ton)/output perAcre )Area of StudyStudiesCFNCFCFNCFMilkfed-VerkaMilk&MilkProductsCooperative1171342005200452783960Punjab-LudhianaAnd RupnagardistrictsGupta et al. 2006NestleMilk&MilkProductsCorporate(Multinational)152222002-032001-0236511821Punjab-MogadistrictBirthal et al. 2005VenkateshwaraHatcheriesPoultryCorporate(Domestic)25252002-032001-0222552003Andhra Pradesh-Rangareddy,MehboobnagarAnd NalgondadistrictsBirthal et al. 2005Mother Dairy-SafalVegetables(spinach)Cooperative100502002-032001-0217911007Delhi and SonepatdistrictinHaryanaBirthal et al. 2005MahagrapesFruitsFarmers Group889520052004149809390Maharashtra-Pune,Nashik and SanglidistrictsRoy & Thorat. 2008Global GreenCompanyGherkinCorporate100Allofit isunderCF2004-052002-0335000(Rs/ha)-Andhra PradeshRao et al. 2008

Annexure Table A1: Some Studies on Contract Farming In India By Gulati et al. 2008.

Success Story of Farmers

Gujarats contract farmers reap profits even as potato prices crashBy: Vivian Fernandes (http://www.financialexpress.com/author/vivianfernandes/)March 17, 2015 12:25 AMThose on contract to McCain, a Canadian company which sells tikkies, wedges and fries under its own frozen foods brand and also supplies to McDonalds, the US fast-food chain, are relieved. The Rs 8 a kg guaranteed to them is double the spot market price. This will recompense for the notional loss they suffered last year when they had to make do with Rs 7.5 a kg. Contract farming is good because the risk factor is zero, says Kantibhai B Patel, 45, of Iqbalgarh village in Banaskanthas Amirgarh taluka. A post-graduate in chemistry, Kantibhai has grown potatoes on most of his 30 acres, all of it under contract, a practice that he has not broken for about a decade. Assured of price, he focuses on productivity to increase his income per acre.Deesa, a town in Gujarats northern Banaskantha district, 145 refrigerated potato warehouses in Deesa, The districts area under potato rose from 45,000 ha to 52,000 ha.Govt. decided MSP of Potato is Rs 4 a Kg.

SUCCESS STORIES OF COMPANY

SUMMING UP From the ongoing presentation, it can be concluded that the India, given the diverse agro climatic zones, can be a competitive producer of a large number of crops. There is a Need to convert our factor price advantage into sustainable competitive advantage. Contract farming offers one possible solution.

Everything else can wait But not Agriculture Jawaharlal Nehru