Contract farming - Advantages and Disadvantages

Contract farming can be defined as an agreement between farmers and contracting firms for the production and supply of agricultural products under advance agreements, frequently at predetermined prices.

1. What is Contract Farming?
ContractFarmingisnothingnewinourcountry.MilkandSugarCooperativesspecifyquantity
andaccesstocontractfarminginIndia.Itisaformalagreementbetweenproducers(farmers)
andconsumers(bymajorprocessorsorexporters).Contractfarmingisanunderstanding
betweenfarmersandfirmsthathaveacontractfortheproductionandsupplyofagricultural
inputs under pre-arranged arrangements, usually ata pre-set cost.
See also:Smart Farming
Farmingcontractsallowfirmstobecomeinterestedandexercisepoweroverthecreativecycle
withoutbuyingorworkingonthefarm.Arrangementscanvarywithplantsandcontractfirms.
AgreementsmaybeforI)marketsupportcontractspre-harvestarrangementsbetweenfirms
andfarmersinspecificarrangementsforthetermsofpurchaseandacquisition.Theagreement
determinestheamount,qualityandquantity;ii)propertysupportcontractsunderstanding
betweenfarmersandfirmsrelatedtomarketingcourses,organizationsagreetoprovide
selectedinputs,commemorativelandpreparationeventsandspecialpromotions,debt,etc.;
andiii)productionmanagementcontractsobligethefarmertofollowdetailedinput
management,agronomicprocessesandharvestingdetailsbyrestoringtheincentive
arrangement or supply of goods.
Advantages of Contract Farming
(1)Farmers:Generally,farmers'havelittleknowledgeofcropfarmingpractices,lowincome
andlackofpost-harvestmanagementtechnology,inadequateinfrastructureandmarketdata.

2. Farmerscanusetheunderstandingoftheagreementasaguaranteeofcreditworthinessin
commercialbanksandinputstofundinputs.Contractfarminghelpssmallholderfarmersto
participateinthegrowthofhighyieldingcropssuchasvegetables,flowers,fruitsetc.Contract
farmingdoesnotrequiremuchmoneyforfarmersandreducescostsincurredinobtaining
donations as provided by contract firms.
(2)Contractfirms:Contractfarmingisusuallyfollowedbyfoodmanagementorganizations.
Contractfarmingprovidesasolutiontotheproblemofsupplyingrawmaterialsintherequired
quantity and to a reliable source close to processingfacilities.
(3)Banks:Banksandfinancialinstitutionssupportcontractfarming.Easymonitoringof
manufacturing operations, extension activities andcredit delivery is easy on contract farming.
Loans can easily be obtained at better prices by joiningbanks in contract farming.
(4)Government:Manygovernmentofficesandafewgovernmentsaredirectlyorindirectly
involvedincontractfarming.Tocombatpoverty,thebestprogramtoincludeprivatecompanies
incontractfarmingistoacceleratetechnologytransfer,revenuegenerationandaguaranteed
agriculturalharvestmarket.Theprivateagriculturalbusinesswillprovidenewstrategieswith
greatersuccessthangovernmentmanagementinagriculture,asithasadirectfinancialinterest
inimprovingtheproductivityoffarmers.Thiswillalsocreateopportunitiesforworkinginarustic
environment, job creation, agribusiness and financialcreation.
See also:advantages and disadvantages of verticalfarming
Disadvantages of Contract Farming
Itisnotsoeasytoaskfarmerstofollowcontractfarming.Therisksassociatedwiththe
developmentofanewproductmaynotmeettheexpectationsoffarmersorthepredictors'
predictions.Manyorganizationsoffercontractfarmingtolargetomediumfarmers.Theyignore
the small and medium farmers.
Organizationscanregulatequalitypracticestoreducepurchasesorregulatenon-productive
policieswithfarmers.Theformalimplementationframeworkisextremelytediousforboth
producersandfirmsandthelegalcomplianceofcontracttermswithfarmersprovidesanegative
message for a contracted company among the farmingcommunity.
The success of contract farming lies in building amutual trust between producer and consumer.
See also:
Difference between hydroponics and aquaponics
Greenhouse farming

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