Contract farming is not a new thing in India. It’s been around for a long time. It’s when farmers and purchasers agree to grow and sell a certain farm product or products. The purchasers give the farmers inputs, guidance, and quality standards.
The farmers follow the instructions and deliver the product at a fixed price. Contract farming can benefit both sides, like a sure market, lower costs, shared risks, and more credit. But it can also cause many problems, like cheating, unfair contracts, less power, and more pollution.
In this blog, we will weigh the pros and cons of contract farming in India and give tips on making it more fair and green.
What is Contract Farming?
Contract farming is agricultural production undertaken under the terms of an agreement between a purchaser and farmers that specifies the requirements for producing and marketing a farm product or series of farm products.
Contract farming can include simple purchase agreements, loose buying arrangements, and supervised production with input provisions comprising loans and risk coverage. The farmers also get lent farming tools, including tractors. For example, you could see a farmer under a contract driving a Preet tractor and cultivating the buyer’s farm.
Contract farming is not a new concept in India. It has been practised since British rule. Even after independence, contract farming was practised in the commercial production of seed and sugarcane, milk, tomatoes, and poplar.
In 1988, India allowed PepsiCo to procure and process some horticulture crops in Punjab through a joint venture with a state-owned Punjab Agro Industries Corporation. This venture extended to the production of tomatoes under the contract farming system. These measures led to the expansion of contract farming in India.
Benefits of Contract Farming
There are several benefits to indulging in contract farming for the farmers. It stands to benefit the buyers as well. Let us see how contract farming benefits both the farmers and the buyers here: Farmers can benefit from the stable income, the assistance they get technically, and the quality of the input resources.
They also benefit as they get protection from the fluctuating prices of the yield as they get their money in the form of salaries. The technical assistance that they get help them cultivate the farm better. They get Kubota tractor or any other tractor to cultivate these fields properly.
On the other hand, buyers benefit as they get a consistent supply of good quality produce. In addition, the money that they spend in procuring such quality goods is low. What’s more, is that they also have better control over production standards.
In addition to benefiting both the farmers and the buyers, contract farming also benefits society by increasing food security and promoting rural development.
Drawbacks of Contract Farming
But of course, there are no positives without a fair share of negatives. You can’t call contract farming a panacea, a cure-all for all things wrong with Indian Farming. In that spirit, here are some of the drawbacks of contract farming:
For farmers, contract farming is a practice if not done right, can involve being cheated, exploited, and manipulated out of their profits by the buyers. They also risk falling into bargain traps and quality rejections by their buyers.
When it comes to buyers, there is always a question of quality. Farmers can breach their contracts and sell their goods to others, i.e., side selling and legal disputes between them.
Society as a whole can also be affected by this by way of environmental impact if the farming practices are unsustainable.
Improving Contract Farming in India
So what can the government and administration do to improve the state of contract farming in India? It is public knowledge that something as volatile as contract farming requires some amount of regulation in the form of a legal framework. In addition, there needs to be transparency in the contracts that the farmers enter into, which would be useful both to the farmer and the buyer.
The government should involve itself in enacting a model contract farming act which would control how the procedure happens so that there are no surprises on either side and nobody ends up getting cheated out. The government should also be promoting organizations between farmers and buyers through which both can get benefits. They can act as intermediaries between farmers and buyers and provide collective bargaining power, input supply, quality control, and market linkage.
Successful Contract Farming Models in India
Do you know that contract farming has been done in different parts of India for different crops and products? Some of them have been quite successful. Dabur contract farming for medicinal plants in some states that gives a sure market, quality inputs, and technical support to the farmers. Tata Coffee contract farming for coffee in southern states that gives credit, extension services, and quality bonuses to the farmers.
Patanjali contract farming for organic products in northern and central states that gives organic certification, price benefits, and market access to the farmers. Himalaya Herbal Healthcare contract farming for herbs in hilly states that gives training, quality testing, and buy-back assurance to the farmers. PepsiCo contract farming for potatoes, tomatoes, and basmati rice in northern and eastern states that gives seeds, fertilizers, pesticides, and guaranteed price to the farmers.
Both buyers and farmers can benefit from contract farming, a promising concept that can offer many advantages in India. However, it also has its own risks and challenges that need to be mitigated and addressed.
A proper legal and institutional framework that can ensure transparent and fair transactions and protect the interests and rights of both parties is required for contract farming.
Various stakeholders, such as the government, NGOs, FPOs, and consumers, also need to support and participate in contract farming to make it more inclusive and sustainable. Contract farming can be a win-win situation for both buyers and farmers if it is done with caution and care.