Contract farming in india By Amit Bishnoi

CONTRACT FARMING IN INDIA PRESENT STATUS, SCOPE, OPPORTUNITY, CONSTRAINTS, IMPORTANCE AND STRATEGIES FOR IT

1. WELCOME

2. CONTRACT FARMING IN INDIA PRESENT STATUS, SCOPE, OPPORTUNITY, CONSTRAINTS, IMPORTANCE AND STRATEGIES FOR IT Speaker Amit Bishnoi DEPARTMENT OF AGRONOMY RAJASTHAN COLLEGE OF AGRICULTURE MAHARANA PRATAP UNIVERSITY OF AGRICULTURE AND TECHNOLOGY, UDAIPUR -313001(RAJ.)

3. CONTENTS 1. INTRODUCTION 2. HISTORICAL BACKGROUND 3. MEANING OF CONTRACT FARMING 4. OBJECTIVE OF CONTRACT FARMING 5. NEED FOR CONTRACT FARMING IN INDIA 6. TYPES OF CONTRACTS 7. MODELS OF CONTRACT FARMING IN INDIA 8. ADVANTAGES AND PROBLEMS OF CONTRACT FARMING A.ADVANTAGES FOR THE FARMERS B.ADVANTAGES FOR THE SPONSORS C.PROBLEMS FACED BY THE FARMERS D.PROBLEMS FACED BY THE SPONSORS 9. SCOPE AND OPPORTUNITIES OF CONTRACT FARMING 10.IMPORTANCE OF CONTRACT FARMING 11. WHY CONTRACT FARMING IN INDIA 12. ISSUES AND CONCERNS 13. FUTURE STRATEGIES OF CONTRACT FARMING 14. DIFFERENT CASE STUDY OF CONTRACT FARMING 15. SUCCESS STORY OF FARMERS 16. SUMMING UP

4. INTRODUCTION 65 percent of Indian population depends directly on agriculture. 17 per cent of world population 2.3 per cent of world geographical area 4.2 per cent of world’s water resources Traditional methods of farming To step up and adopt commercially, technically and economically viable agribusiness solutions

5. HISTORICAL BACKGROUND For the first time it was introduced in Taiwan in 1895 by Japanese government Europeans first introduced indigo and opium cultivation in the Bengal Region, under the East India company rule. ITC’s contracts with the farmers of Andhra Pradesh for growing Virginia tobacco during the 1920s In India it was introduced by Pepsi company for the cultivation of vegetables particularly tomato and potato in Panjab in 1927. Emergence of seed companies during the 1960s, the green revolution during the 1970s and finally the tomato farming contracts by PepsiCo in Punjab during the 1990s can be quoted as some of the milestones in the emergence of Contract Farming in India. In Karnataka contract farming was started with the cultivation of gherkin in 20 th century

6. Meaning of Contract Farming: It is an agreement between farmers & processing and marketing firms for the production and supply of agricultural products under certain agreement, frequently at predetermined prices.

7. OBJECTIVE OF CONTRACT FARMING To achieve consistent quality To achieve regular supply To improve quality of produce To stabilize the agro-raw produce price is not affected by market prices

8. Need for contract farming in India: Production and marketing are very critical in India. Over come inadequate linkages with market. Lack of capital, poor infrastructure, technology transfer, etc… To avoid post harvest losses. Unfavorable conditions for procurement. To avoid migrations.

9. TYPES OF CONTRACTS : Marketing contract Only purchase at predetermined price. No input supply. 2. Partial contract Provides only some inputs at predetermined price. Purchase of produce. Total contract All the inputs at predetermined price. Purchase of produce.

10. Models of contract farming in India : Three models of contract farming Bipartite Agreement model Tri-partite Agreement model Quad-partite Agreement model

11. Bipartite Agreement model:

12. Tri-Partite Agreement Model:

13. Quad-Partite Agreement Model :

14. Status of contract farming in India Nearly Five lakh hectares area is under contract farming in India More than 600 national and multinational companies are in contract farming

15. STATE COMPANY CROP AREA (ha.) Karnataka Himalaya Health Care Ltd. Ashwagandha 700 Mysore SNC oil Co. Dhavana 400-500 AVT Naturals Products Ltd. Marigold and caprice Chilli 4000 Natural remedies Pvt. Ltd Coleus 150 20 Pvt. Companies Gherkins 8000 Maharashtra Tinna Oil and Chemicals Soybean 1,54,800 ION Exchange Enviro farms Ltd. Several fruit, vegetables, cereals and pulses 19 Madhyapradesh Cargil India Ltd. Wheat, soybean and Maize 17000 Hindustan Lever Ltd. Wheat 15000 ION Exchange Enviro farms Ltd. Several fruit, vegetables, cereals and pulses 12098 ITC Soybean 1200 Panjab NIJJER Agro Food Ltd. Tomato and chilli 250 United Breweries Ltd. Barley 2270 Satnam Overseas, Sukhjit Starch Basmati, Maize 4000 Satnam Overseas, Amira Indian Food Ltd. Basmati 14700 PepsiCo India Ltd. Basmati, groundnut, potato and chilli 6000 Nestle India Ltd. Milk 65000000 lit./day Tamil Nadu Super Spinning 570 mills Cotton 570 Bhuvi Care Pvt. Ltd. Maize 800 Bhuvi Care Pvt. Ltd. Paddy 200 Appachi Company Cotton 260 Table 1: State wise Contract Farming initiatives by private companies in India Source: “Nature and Scope of Contract Farming in India” by H.S. Satish (2012)

16. Partial List of Companies Established Contract Farming In India HUL ITC SUGUNA POULTRY VENKATESHWARA HATCHERIES PEPSICO RALLIS NESTLE

17. The advantages of contract farming Provision of inputs and production services. Access to credit Introduction of appropriate technology Skill transfer Guaranteed and fixed pricing structures and Access to reliable markets.

18. Benefits to the Farmer: Assured markets & returns Risk elimination due to price fluctuation Timely transport Reduces exploitation from middlemen Reduces lending from private money lenders Adequate input supply Employment generation

19. Benefits to the Company: Uninterrupted & Regular Flow of Raw Material Protection From Fluctuation In Market Pricing. Long Term Planning Made Possible. Builds Long Term Commitment Dedicated Supplier Base Generates Goodwill For the Organization

20. Problems Faced by the Farmers Possibility of greater risk Outdated technology and crop incongruity Maneuvering in quotas and quality specifications Corruption

21. Problems Faced by the Sponsors Limitation on land availability Social and Cultural constraints Farmers disgruntlement Below quality agro-inputs Sale of crops by the farmers beyond contractual agreement

22. Scope and Opportunities of Contract Farming Dairy Contract Farming Poultry Contract Farming Fruit and Vegetables Farming

23. Dairy Contract Farming

24. Poultry Contract Farming

25. Reported By NSSO, 2010

26. Importance of Contract Farming Stable income, higher income than non contract farming Market certainty Delivery service for inputs Ease of obtaining input Loan made available though financial institutions Learning new technology Infrastructure: road and ditch Information, news and networking Quality development Risk uncertainty is less Improved access to local markets Assured markets and prices (lower risks) especially for non-traditional crops Assured and often higher returns Enhanced farmer access to production inputs Mechanization and transport services Extension advice, provision of inputs and production services, access to credit Introduction of appropriate technology Skill transfer, guaranteed and fixed pricing structures etc.

27. Why Contract Farming in India ? Traditional technology Management practices Little bargaining power with input suppliers and produce markets Inadequate infrastructure and market information Lack of post-harvest Poor package of produce Inadequate capital to grow a quality crop Small farmers not participate in the production of high value crops Efficient monitoring of production operations Extension activities Maximize the profits to the farmers and minimize risk in farming Users to go in for environmental friendly, value added quality agro products Farmers find it easy to get under one roof system Access to crop loans at attractive terms Alternate cropping system for better monetary returns.

28. Issues and Concerns Soil fertility concerns Environmental issues a. Bio-diversity issues Food security concerns Seed problems Labour problems Contract disputes Middle man’s influence

29. Future Strategies of Contract Farming Involvement of Panchayat or Gram sabha Improve bargaining power of the farmers The selection of appropriate plant genotype Minimum necessary infrastructure facilities Bank finance to small and marginal farmers Contracts should be managed in clear and participatory manner Legalization of tenancy Does not grow beyond certain limit which will destroy biodiversity and agricultural ecology CWC and SWC quality standards in respect of various commodities Updated database of contract farmers along with other relevant details Agreements written in vernacular language Liability of the contractor for any environmental losses should be fixed by the government

30. DIFFERENT STUDY ON CONTRACT FARMING

31. Sample study Area Panjab Sharma, 2007 Figure 1. Cropping Pattern Shifts in Sample Non-Contract Farmers A STUDY ON BASMATI RICE UNDER CONTRACT FARMING IN PANJAB

32. Sample study Area Panjab Sharma, 2007 Figure 2. Cropping Pattern Shifts in Sample Contract Farmers

33. Particulars Foreign   contract Domestic   contract Non-contract Baby   corn Chilli Baby   corn Chilli Baby   corn Chilli Variety PAC   Series Confidential    PAC   Series PAC   Series Chikkaballapur Yield  (kg/acre) I   Grade 1954 4071 2259 4307 1619 2894 II   Grade - 214 - 227 - - Price  (Rs/ kg) I   Grade 7 8 7 8 6.6 10.2 II   Grade - 5 - 5 - - Returns  (Rs/  acre) Main   product 13678 33638 15814 35591 10669 29374 Byproducts 2871 - 4745 - 2019 - Gross  returns 16549 33638 20558 35591 12688 29374 Total   cost   of   production 8499 26657 9948 24484 9653 Net   returns 8050 6981 10610 11108 3035 6101 Cost   of   production   /kg 4.34 6.20 4.40 5.40 5.96 Returns   per   kg 4.1 7.9 4.7 7.5 1.9 10.2 Returns   per   rupee   invested,   Rs 2.0 1.3 2.1 1.5 1.3 Table 1. Net returns realized by contract and non contract farmers for baby corn and chilli in Karnataka Karnataka Nagaraj   et   al. 2008

34. Crop Farms (Rs/ha) Contract    Farms (Rs/ha) Non-contract farms Change   over non-contract Gherkin 77066 - - Baby   corn 64681 - - Paddy 31602 27257 4345(15.3) Groundnut 30462 28821 1641(5.7) Sunflower 28553 30477 -1924(-6.3) Chilli 20372 - - Ragi 16671 12250 4421(36.1) Table 2. Per-hectare income from different crops on contract and non-contract farms Pantnagar Jagdish and Prakash 2008 Note: Figures within the parentheses indicate percentages change over non-contract farms

35. Particulars farms Hired   human   labour Contract Non-  contract farms   (human-days) Change over  non- contract   farms,   % Male 48   (15.5) 22   (19.8) 26*   (118.2) Female 261   (84.5) 89(80.2) 172*   (193.7) Total   hired   human   labour 309   (100) 111   (100) 198*   (178.4) Family   labour -use   in   crop   production Male 197(70.4) 64   (73.   6) 133*   (207.8) Female 83   (29.6) 23   (26.4) 60*   (260.9) Total   family   human   labour 280(100) 87   (100) 193*   (221.8) Family labour -use   in   livestock   production Male 41   (21.7) 64   (29.5) -23   (-35.9) Female 148   (78.3) 153   (70.5) -5   (-3.3) Total   family   labour 189   (100) 217   (100) -28   (-12.9) Total   male   labour 286   (36.8) 150   (36.1) 136**   (90.7) Total   female   labour 492   (63.2 ) 265   (63.9) 227**   (85.7) Total   human   labour 778   (100) 415   (100) 363**   (87.5) Table 3. Average level of yearly employment on contract and non-contract farms Pnatnagar Jagdish and Prakash 2008 Notes: Figures within the parentheses indicate percentages to total The figures within the parentheses indicate percentage change over non-contract farms * and ** indicate significance at 1 per cent and 5 per cent levels, respectively.

36. Qha -1 Category of farm Farm  size Marginal Small Semi-medium Medium Large Overall Contract farms Main product 44.86 45.63 47.16 48.59 50.98 47.03 By product 40.38 42.20 43.05 45.17 46.24 43.16 Non-contract farms Main product 38.45 40.27 41.17 42.46 44.79 41.11 By product 40.54 42.45 43.72 44.45 45.10 43.17 Difference Main product 6.41 5.36 5.99 6.13 6.19 5.92 (16.67) (13.31) (14.55) (14.44) (13.82) (14.40 ) By product -0.16 -0.25 -0.67 0.72 1.14 -0.01 -(0.39) -(0.59) -(1.53) (1.62) (2.53) -(0.02) Rajasthan Sitaram and Kumawat , 2015 Figures in parentheses are the percent increase in production on contract farms over non-contract farms Table 4 Category-wise production of barley on contract and non-contract farms, 2010-11

37. Players Commodities Type of Ownership Sample Size Year   of survey information Relevant to Economics of CF (Net profits (Rs/ton)/output per Acre ) Area of Study Studies CF NCF CF NCF Milkfed-Verka Milk & Milk Products Cooperative 117 134 2005 2004 5278 3960 Punjab- Ludhiana And Rupnagar districts Gupta et al . 2006 Nestle Milk & Milk Products Corporate (Multinational) 152 22 2002-03 2001-02 3651 1821 Punjab- Moga district Birthal et al . 2005 Venkateshwara Hatcheries Poultry Corporate (Domestic) 25 25 2002-03 2001-02 2255 2003 Andhra Pradesh- Rangareddy , Mehboobnagar And Nalgonda districts Birthal et al . 2005 Mother Dairy- Safal Vegetables (spinach) Cooperative 100 50 2002-03 2001-02 1791 1007 Delhi and Sonepat district   in   Haryana Birthal et al . 2005 Mahagrapes Fruits Farmers Group 88 95 2005 2004 14980 9390 Maharashtra- Pune , Nashik and Sangli districts Roy & Thorat . 2008 Global Green Company Gherkin Corporate 100 All   of   it   is under   CF 2004-05 2002-03 35000 (Rs/ha) - Andhra Pradesh Rao et al. 2008 Annexure Table A1: Some Studies on Contract Farming In India By Gulati et al. 2008 .

38. Success Story of Farmers Gujarat’s contract farmers reap profits even as potato prices crash By : Vivian Fernandes (http://www.financialexpress.com/author/vivianfernandes/) March 17, 2015 12:25 AM Those on contract to McCain, a Canadian company which sells tikkies , wedges and fries under its own frozen foods brand and also supplies to McDonald’s, the US fast-food chain, are relieved. The Rs 8 a kg guaranteed to them is double the spot market price. This will recompense for the notional loss they suffered last year when they had to make do with Rs 7.5 a kg. “Contract farming is good because the risk factor is zero,” says Kantibhai B Patel, 45, of Iqbalgarh village in Banaskantha’s Amirgarh taluka. A post-graduate in chemistry, Kantibhai has grown potatoes on most of his 30 acres, all of it under contract, a practice that he has not broken for about a decade. Assured of price, he focuses on productivity to increase his income per acre . Deesa , a town in Gujarat’s northern Banaskantha district, 145 refrigerated potato warehouses in Deesa , The district’s area under potato rose from 45,000 ha to 52,000 ha. Govt. decided MSP of Potato is Rs 4 a Kg.

39. SUCCESS STORIES OF COMPANY

40. SUMMING UP From the ongoing presentation, it can be concluded that the India, given the diverse agro climatic zones, can be a competitive producer of a large number of crops. There is a Need to convert our factor price advantage into sustainable competitive advantage. Contract farming offers one possible solution.

41. Everything else can wait But not Agriculture Jawaharlal Nehru