Effectiveness of Contract Farming Practices for Agricultural Development and Equity

By Roopam Singh, Assistant Research Fellow, Centad

SUMMARY

Internationally agriculture markets are witnessing structural change wherein agricultural trade has deepened the interdependence and integration of the world economy through foreign direct investment and subcontracting of production. Indian agricultural markets too are witnessing a transformation; there is an increased value addition in the supply chain and the traditional model wherein the role of state functionaries is slowly diminishing. There is an increasing role of private entities in the new regime of agribusiness. Off the many practices brought in by the new agribusiness models, contract farming is much talked about. Contract farming models at present are gaining importance in the developing countries such as India, and is considered an important tool for commercialization of agriculture. Contract farming over one decade or so, particularly after the emergence of the World Trade Organization (WTO) in 1995, has grown phenomenally in the developing countries. Contract farming by national and multinational companies (MNCs) is increasing sporadically. Contract farming for agro processing is the most important force that is helping in the development of super market chains. Global retail companies have an influence on agricultural retail sector in the developing countries through foreign investments and/ or through the imposition of their private standards. Corporates are interested in contract farming as it ensures the timely availability of quality produce at their doorstep and help them overcome the constraint of land availability. Whereas, for farmers pre-agreed prices for their produce is a lucrative factor. Contracting reduces much of the uncertainty that would exist if the company simply bought crops in the open market, and gives the company some control over the production process. Farming practices like contract farming introduced by the agribusiness firms have a bearing on the development issues of the farming communities. The issues of effectiveness, accessibility and equality under contract farming are needed to be examined.

The study on the “Effectiveness of Contract Farming Practices for Agricultural Development and Equity” looks into the issue of contract farming with the broad objectives :

1. To study the effectiveness of contract farming practices in providing better opportunities to the farmers in terms of technology transfer, increase in incomes and improved marketing facilities.
2. How equitable are contract farming practices vis-à-vis the two major stakeholders that is, farmers and contractors?
3. To study the accessibility of contract farming arrangements by the different sections of the farming community, irrespective of size of land holding (i.e. small and large farmers).

The major findings that this study reveals are that contact farming practices in Hoshiarpur region does not allow equal stake to the farmers in deciding the terms and conditions of the contract farming practices as to the contracting firms. Farmers have no stake over deciding the terms and conditions of contract agreement and have no stake in fixing the prices of their farm produce. The contract does not include any provision of ‘risk sharing’. In case of shut down of tomato project in the early nineties and failure of the entire basmati crop due to the infested seed supplied by the Markfed in the year 2006, the farmers were not paid any compensation, they incur great losses. Where as companies and cooperatives have insurance against such risks.

Small farmers are not a part of contract farming practices in Hoshiarpur District. Contracting firms prefer large farmers over small farmers due to their capacity to supply farm produce in bulk, capability to follow the stringent quality parameters and capacity to abide high input costs and high risk associated with contract farming. To read the full version of the PDF, click here.