Contract Farming in India – Benefits of Contract Farming

Contract Farming in India - Benefits of Contract Farming

In India the only source of Income is agriculture. About more than 50% of people in India are dependent on agriculture. Agriculture plays a crucial role in India’s economy, about 58% of people are earning because of farming. It is the backbone of our economic system. Know more about Contract Farming.

Farming is the process of working on the surface of the ground, planting seeds, and growing good to eat plants.

What is Contract farming?

Contract Farming is an agreement between farmers and cooperative firms for the supply and production of agriculture goods, under predefined agreements and price.

As per noted agriculture is booming for a very long time, but nowadays farmers are facing a new problem of accessing the market and fully achieving profitability.

To reduce this issue contract farming was introduced in the market, in order to maintain the profit balance for farmers and corporations.

Basically it is a detailed partnership contract between farmers and processing companies, where the farmers are required to supply the agreed quantity and the quality of the crops in a specified time period. As well as in return the cooperative company agrees to buy the produced crop from the farmers at a predetermined price on which they both have agreed to make the deal.

Goals of contract farming

  • This also helps farmers in generating a permanent source of income for every farmer.
  • It also generates employment opportunities in rural areas, farmers are getting paid for working on the field and for many other agricultural works.
  • It reduces the load on central and state-level occupation systems.
  • With the help of contract farming the investments of the private sector in agriculture are also increasing.
  • It also brings the market focus of crop selection by Indian farmers.
  • This overcome the migration level in India of rural people who shift to urban areas due to the condition of unemployment.

Why we need contract farming?

 

contract farming

Below we are representing some points about, why we need contract farming in India? Let’s have a look.

  • Due to contract farming the risk of farmers is reduced at 80% whenever there is a pest attack, production got destroyed by rain and because of any other reason the company will bear it not the farmers, in fact, they will get their compensation hence 0%risk.
  • The best part of contract farming is that there is no middleman in this contract the farmers will get to pay at the market selling price.
  • Contract farming was introduced for the benefit of the farmer so they can get reasonable profits from their production.
  • It is important to set a predefined amount of the production, to be paid to the farmers.
  • Through Contract Farming the farmers get seeds and proper pieces of equipment to produce the crop.
  • Through Contract Farming the farmer’s knowledge increases and their production market value increases.

Challenges of Contract Farming in India

The problems farmers have to face in contract farming are given below:

  • The contract farming is more beneficial for large farmers in terms of production so the small earn less profit in comparison to large farmers.
  • Basically In India there are no strict rules and regulations regarding the fulfillment of the contract, which results in the failure of the contract.
  • The sellers (farmers) are many in comparison to corporate buyers. This results in a monopoly due to a lack of buyers.

The Basic Formula for a Good Contract

An ideal contract between farmers and the corporative is when they have a mutual understanding regarding the contract

Through contract farming, farmers get to know about the record-keeping, efficient use of farm resources and correct method of using the fertilizers, when they gain information about exporting the production they gain experience in how to deal with buyers.

contract farming

Therefore, a long term partnership can be achieved by creating a transparent contract between both the parties the three keywords that will help them to achieve that are as follow

  • Quantity:- Specifying the amount of product that is to delivered by farmers
  • Quality: – The quality level of the product Farmer will produce for the corporation.
  • Price: – The fixed amount of price for the crops to be paid by the corporation.

Advantages and disadvantages of contract farming

Everything has some advantages and some disadvantages. Contract farming also has some good and bad points. So, below we are representing some of the Advantages and disadvantages of contract farming.

Advantages of contract farming

  • Because of Contract Farming there is a guaranteed market for farmers, which increases their ability to produce.
  • For best production company provides farmers good quality products, such as breeds and best advisors to give efficient advice to the farmers.
  • It reduces unemployment in the rural area more and more farmers are getting paid and living a good lifestyle because of contract farming.
  • Contract farming help in increasing the economic value of our country among other countries.

Disadvantages of contract farming

  • Due to the guarantee market the contractors keep prices very low for farmers to earn maximize profit.
  • Farmers don’t have the opportunity to get feedback from the consumer, and this leads to no improvements in production due to no communication between consumers and farmers.
  • Farmers get to bind because the contract they have to produce a certain amount of the crop at a specific time period.

Farmers vs Companies

Do you want to know, what is the difference between farmers and companies in contract farming? Below we are showing some points for clearing your doubts. 

Basis Farmers Companies
Guarantee Guaranteed market and return. Form Long term commitment.
Risk Elimination Security from the price fluctuation. Security from the market price fluctuation.
Benefits Increase in employment opportunities. Increases the goodwill of the company.

List of contract farming companies in India

Below are some companies in India who is engaged in contract farming. Let’s have a look.

  • Baidyanath contract farming
  • Aloe vera contract farming companies in India
  • Dabur contract farming
  • PatanjaliContract farming
  • Tulsi contract farming, etc…

You can also get detailed information about the schemes the government has started for contract farming Model Contract Farming Act, 2018.

Government official site for more information about contract farming //vikaspedia.in/agriculture/market-information/contract-farming-a-mechanism-of-alternative-marketing

I hope you have got all the information about contract farming in India, for more information like this stay tuned with Tractorjunction.