WELCOME

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 CONTRACT FARMING

Srinidhigowda,G.E.
MBA 927
1ST MBA(ABM)
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 What is contract farming
• Contract Farming (CF) can be defined as a system for the
production and supply of agricultural and horticultural
produce by farmers/primary producers under advance
contracts, the essence of such arrangements being a
commitment to provide a agricultural commodity of a type, at
a specified time, price, and in specified quantity to a known
buyer.

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 History
• Contract Farming can be traced back to colonial period when
commodities like Collin Indigo were produced by the Indian
farmers for English factories.
• Seed production has been carried out through contract
farming by the seed companies quite successfully for more
than four decades in the country.
• ITC introduce Virginia tobacco cultivation in Coastal Andhra
Pradesh in the 1920’s under CF.
• The Pepsico introduced tomato cultivation in Punjab in the
1990’s under CF.

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• The recent spate of contract farming in India effectively began
with the entry of Pepsi Foods Ltd (PepsiCo) in 1989 by
installing a tomato processing plant in Hoshiarpur, Punjab.

• PepsiCo followed a method whereby the cultivator plants the

company’s crops on his land, and the company provides
selected inputs like seeds/saplings, agricultural practices, and
regular inspection of the crop and advisory services on crop
management.

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 Types of CF

1. Procurement contracts:- under which only sales and

purchase conditions are specified.

2. Partial contracts:- only some of the inputs are supplied by

the contracting firm and produce is bought at pre-agreed
prices.

3. Total contracts:- under which the contracting firm supplies

and manages all the inputs on the farm and the farmer
becomes just a supplier of land and labour.

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 Contents of a private contract
• Define the parties
• Specify type and quality of the produce
• State the quantity of the produce
• State clearly the responsibilities of both parties concerning
production and marketing practices
• Indicate the manner including timing of delivery and collection
• Determine the price ( specific or formula ) & other
considerations ( manner and timing of payment )
• Indicate duration of contract & the way in which it may be
terminated or renewed
• Appoint an arbitrator or otherwise how disputes are to be
resolved
• Provide an assignment of the contract
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 Main Products of CF
• Food grains
• Fruits & Nuts
• Vegetables
• Spices
• Medicinal Plants
• Meat
• Tobacco and Tobacco products
etc…

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 Indian institutes engaged for marketing
agricultural products under CF
• Krishi Maratavahini
• Madhya Pradesh State Agricultural Marketing Board
• Karnataka State Agricultural Marketing Board
• Maharashtra State Agricultural Marketing Board, Pune
• Meghalaya State Agricultural Marketing Board
• Orissa State Agricultural Marketing Board, Bhubaneswar
• Punjab State Marketing Board
• Rajasthan State Marketing Board
• AP Agricultural Marketing Board
• Domestic & Export Market Intelligence Cell
• Tamil Nadu Agricultural University and Agri Marketing Board
•12/07/2021
HP State Agricultural Marketing Board 9
 Corporates in CF
• Amira Foods India Ltd
• Appachi Cotton Company
• AVT Natural Products Ltd
• Cargill India Pvt Ltd
• DD international Inc.
• Escorts Machinery Group
• Gherkin Exporters
• Global Green Company Pvt Ltd
• Green Agro Park Pvt Ltd
• Himalaya Drugs Pvt Ltd
• Hindustan Lever Ltd
• ICICI Bank Ltd
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• IDBI 10
 • Ion Exchange Enviro Farms Ltd
• ITC-International Business Division
• Ken Agritech
• Marico
• Mahindra Shubhlabh Services Ltd
• Natural Remedies Pvt Ltd
• Nestle India Ltd
• Nijjer Agro Foods Ltd
• Pepsi Foods Pvt Ltd
• (PepsiCo)
• Rallis India
• Saguna Hatcheries Ltd
• Satnam Overseas Ltd
• Soyabean-Tinna Oils &
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 • Chemicals ltd
• Southern India Mills Associations
• State Bank of India
• Super Spinning Mills Ltd
• Tinna Oils and Chemicals Ltd
• Ugar Sugar
• Unicorn Agrotech Ltd
• United Breweries Ltd
• Unit Trust of India
• Venkateshwara Hatcheries
etc…

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 Contract Farming in Karnataka
Crop Company (Corporate) Area (ha)
Ashwagandha Himalaya Health Care 700
Dhavana Mysore SNC Oil Company 400-500
Marie Gold and AVT Natural Products Ltd 4000
Caprica chilli
Coleus Natural Remedies Private Ltd 150
Gherkins 20 Pvt Companies (Global 8000
Green Company Pvt Ltd, (inc of Tamil Nadu and
Unicorn Agrotech Ltd, Green AP)
Agro Park Pvt Ltd, Ken
Agritech Pvt Ltd,etc)

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 The acts and rules that governs the process of
Contract Farming in Indian Rural Economy
• Agricultural Produce Grading and Marking Act, 1937
• Agricultural Produce (Grading and Marking) Act, 1937 as
amended in 1986.
• Schedule Amended to AP (G&M) Act 1937
• General Grading and Marking Rules, 1988
• Commodity Grading and Marking Rules
• List of commodities whose Agmark Grade Standards have
been covered under AP (G&M) Act 1937
• Manual on Standards of Paddy
• Manual on Standards of Wheat
• Manual on Standards of Maize
• Manual on Standards of Mustard and Rapeseed

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 SWOT ANALYSIS

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 Strengths (To Firms)

1. Overcome capital market

2. Farmer needs of capital
• Suguna poultry farm limited tied up with SBI to
provide finance to poultry & maize grower

•
Appachi Cotton Company (ACC) provides crop loan at
12 per cent rate of interest to it’s grower
3. Transferring the production risks from firms to farmers
4. Monitor the labour supervision low or without any cost.

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 Strength (To farmers)
• Supply of certain quality and quantity of inputs.
• Skill transfer.
• Less Risk
• Expert advice

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 Weakness (To Firms)
• Firms face problems like labour shrinking and supervision
problem.
• In many of the states, the present APMR Acts still restrict the
processors/manufacturers etc .
• Extra cost to the company(If company purchase raw material
from other farmer, then cost of it is less than the cost of
product purchased from contract faming)

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 Weakness (To Farmers)
• The problem of monopsony.
• Sometimes supply of low quality seeds.
• about 15.5 per cent of the Pepsi potato growers
reported crop failure due to bad seed
• Some corrupt arrangement between the firm and the
pesticide dealers about the sale of particular pesticides and
insecticide brands.
• Farmers risk is not covered in CF
• Sponsoring firm do not discharge social responsibilities for the
farmers in respect of health, hygiene, education.
• Tenant can not participate in contract farming.
• Corruption.
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 Opportunity (For Firms)
• It gives an opportunity to develop backward linkages with
farmers.
• Political acceptability.
• 60 AEZ will be set up in 20 different state to integrate the
complete process from production to export stage.
• Punjab plans to diversify crops in 1.5 million acres in next 4
years through contract farming.

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 Opportunity (For Farmers)
• To production of high value crops like vegetables, flowers, fruits etc
and benefit from market led growth.
• To standardized the pattern of production.
• To provide homogeneous quality of product to international
market hence increase in export.
• Only 2 percent of Indian fruits and vegetables are processed,
compared with 80 per cent in the United States
• 38% of horticultural crop wastage due to post harvest losses.
• Inspite India produces 57 major crop, only cotton ,sugar, wheat,
soybean, and potato are traded.(Business Today, 10 July 2006)
• India account for 1 percent of the world’s exports of fruits and
vegetables.

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 Threats (For Firms)
• Farmer may avoiding repayment credits – strategic default.
• Entry of foreign player in market.
• Input diversion by farmer.
• Contract Farming Sponsor prohibited from raising permanent
structure on Contract Farming Producers' land

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 Threats (For Farmers)
• Production failure
• Exclusion of weaker farmers
• Increased the risk because diversification of farm business is
not followed.
• Sponsor can sometimes wind up playing games with farmers
who have contracted in good faith
• Arbitrarily poor quality standards.
• Firm may provide input facilities only progressive farmers and
large farmers who have more bargaining and political power
compare to others.

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 THANK YOU

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