CONTRACT FARMING

SOMP
UPSC MAINS
CONTRACT FARMING

NOTES 2023

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CONTRACT FARMING

CONTRACT FARMING
Introduction:
 Contract and corporate farming are modern agricultural practices that have gained
popularity in recent years. Contract farming involves agreements between farmers
and agribusiness companies, while corporate farming entails large-scale agricultural
operations managed by corporations

What is Contract Farming?

 Contract farming is an agricultural production system based on an agreement
between farmers and buyers.
 The contract sets out the terms and conditions for producing and marketing specific
agricultural products.
 In this arrangement, farmers agree to supply a predetermined quantity of a
particular crop that meets the buyer's quality standards, and the buyer commits to
purchasing the produce.
 Contract farming often involves the buyer providing technical assistance, inputs, and
even financial support to the farmers.

Objectives of Contract Farming:

 Market Diversification and Access: Contract farming facilitates farmers' access to
new and larger markets, reducing their dependence on traditional local markets.
Farmers in the state of Punjab, India, engaged in contract farming with agribusiness
companies to export high-quality Basmati rice to international markets, thereby
diversifying their market reach.
 Risk Mitigation: Contract farming offers a degree of price and market risk mitigation
for farmers. A study conducted in Uganda showed that contract farming reduced
price risk for smallholder farmers by 75%, leading to improved income stability.
 Technology Transfer and Technical Support: Companies involved in contract farming
often provide farmers with access to modern farming technologies, improved seeds,
and technical assistance to enhance productivity. In Kenya, contract farming with a
major tea company resulted in the adoption of improved tea processing methods
and increased yields.
 Guaranteed Market and Income: Contract farming assures farmers of a market for
their produce, providing them with a reliable source of income. In Thailand, contract
farming for crops like rice and sugarcane has provided farmers with a secure income,
leading to a significant reduction in rural poverty.

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CONTRACT FARMING

Regulations in India on Contract Farming:

 Indian Contract Act, 1872: Contract farming in India is governed by the Indian
Contract Act, which lays down the legal framework for agricultural contracts.
 Model APMC Act, 2003: The Model APMC Act contains provisions related to contract
farming, including mandatory registration of contract farming sponsors and dispute
resolution mechanisms.
 Draft Model Contract Farming Act, 2018: The proposed Model Act aims to establish
a regulatory and policy framework for contract farming. States can enact contract
farming legislation based on this draft Model Act.

Model Contract Farming Act, 2018:

 Farmers' Protection: The Model Act prioritizes farmer protection and recognizes
them as the weaker party entering into a contract. It allows farmers to connect
directly with businesses, improving market linkage and reducing reliance on
middlemen.
 Registering and Agreement Recording Committee: A committee is appointed at the
district/block level for online sponsor registration and agreement recording,
simplifying the process.
 Crop and Livestock Insurance: The Act covers contracted produce under crop and
livestock insurance, safeguarding farmers against unforeseen losses. In Tamil Nadu,
contract farming for horticulture crops witnessed an increased adoption of crop
insurance, reducing farmers' vulnerability to weather-related risks.
 Promoting Farmer Producer Organizations (FPOs): FPOs/Farmer Producer
Companies (FPCs) are encouraged to mobilize small and marginal farmers, enhancing
their bargaining power.

Benefits of Contract Farming:

 Technology Adoption: Contract farming facilitates the adoption of modern
technologies and practices, resulting in increased productivity and efficiency.
 Market Linkages: Farmers engaged in contract farming have access to established
markets, ensuring a steady demand for their produce. In India, contract farming for
fruits and vegetables has led to increased market linkages, benefiting farmers in
states like Maharashtra and Karnataka.
 Risk Reduction: Contract farming provides farmers with price and market risk
mitigation, safeguarding them against fluctuations in commodity prices.
 Investment in Agriculture: By attracting private sector investment, contract farming
promotes infrastructure development and technology upgrades in the agricultural
sector In Vietnam, contract farming for coffee has led to increased investments in
processing facilities, resulting in higher export revenues.

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CONTRACT FARMING

Disadvantages of Contract Farming:

 Monoculture and Environmental Concerns: Contract farming may promote
monoculture, which can lead to environmental degradation and increased use of
chemical inputs.
 Small Farmer Exploitation: Small farmers may face challenges negotiating fair
contracts and may be subject to one-sided agreements with powerful buyers. In
some cases in India, small farmers engaged in contract farming faced difficulties due
to unfair quality cuts and delayed payments.
 Dependency on Companies: Farmers' reliance on contract farming companies for
inputs and technology may limit their autonomy and increase dependency.
 Inequitable Bargaining Power: Farmers may have limited bargaining power against
large corporations, resulting in unfavorable terms in contracts.

Current Status of Contract Farming:

 Growing Popularity: Contract farming has gained popularity worldwide, with many
countries adopting it as a means to promote agricultural modernization.
 Sector-Specific Adoption: Contract farming is more prevalent in certain sectors like
tea, coffee, fruits, vegetables, and poultry, where there is a demand for consistent
quality and volumes.
 Success Stories: Contract farming has shown success in countries like Thailand,
Vietnam, and Kenya, where it has contributed to poverty reduction and rural
development.

Government Initiatives:
 Promoting Model Contract Farming Act: The government is encouraging states to
adopt the Model Contract Farming Act, providing a uniform regulatory framework.
 Investment in Agricultural Infrastructure: The government is investing in agricultural
infrastructure to support contract farming and enhance value chain development.
 Capacity-Building Programs: Capacity-building initiatives are being undertaken to
educate farmers about contract farming and empower them in negotiations.

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CONTRACT FARMING

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