Contract Farming

CREDIT SEMINAR REPORT
ON

CONTRACT FARMING

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Submitted to: Submitted By:
Dr. Madhu sharma M. Nageswara Rao Associate Professor MBA (AB) 1st year

Institute of Agri Business Management
Rajasthan Agricultural University
Bikaner Rajasthan
2008-2010

CONTENTS

1. INTRODUCTION 1.1. DEFINITION 1.2. BROAD OBJECTIVES 1.3. IMPORTANCE OF CONTRACT FARMING 1.4. CONTRACT FARMING AGREEMENT

2. MODELS OF CONTRACT FARMING 2.1. BI-PARTITE MODEL 2.2. TRI-PARTITE MODEL 2.3. QUAD-PARTITE MODEL

3. SPECIFICATIONS IN CONTRACT FARMING

4. CONTRACT FARMING PROCESS 4.1. COORDINATING PRODUCTION 4.2. MANAGING THE AGRONOMY 4.3. FARMER MANAGEMENT RELATION

5. ACTS AND RULES IN CONTRACT FARMING 5.1. APMC ACT

6. AGRICULTURAL PRODUCTS UNDER CONTRACT FARMING

7. GOVERNMENT INTIATIVES

8. ADVANTAGES & DISADVANTAGES OF CONTRACT FARMING

9. IMPORTANT PLAYERS IN CONTRACT FARMING IN INDIA

10. SCHEMES IN CONTRACT FARMING

11. IMPACT OF WTO ON CONTRACT FARMING

12. PEPSICO’S CASE 13.1. REASONS FOR SUCCESS

13. CONCLUSION AND REFERENCES

1. INTRODUCTION

The process of Contract Farming in India Rural Economy is a new concept. A combination of agriculture reforms and a huge business opportunity has generated interest in contract farming The rapid industrialization process in India has created shortage of farmland, which in turn has necessitated organized farming practice in India. The role of contract farming in India rural economy is becoming more and more important, since organized farming practice has become the need of the hour in the world of rapid industrialization. With the liberalization of India economy, there has been a sudden spurt in contract farming in India.

The process of contract farming in India involves scientific and optimum use of land and farm resources for maximum output of agriculture produce. Small time farmers practicing primitive agricultural methods for cultivation and harvesting of crops dominate the Indian agriculture sector. Moreover, today more and more established business houses are taking interest in the business of contract farming in India. This has happened as a result of rapid growth of retail industry in India. The growth of retail industry in India has propelled the growth of farm retail in India, which caters fresh vegetables and fruits from the farms to the Indian mass.

According to sources in the agriculture ministry, the total area currently under contract farming covers nearly 7m acres of the total cultivable land of 400m acres, less than 2 per cent. However, if one were to count purely corporate contracts with farmers for their crops, then this figure would barely touch 200,000 acre.

Contract farming is increasingly being presented as a solution for the problems of Indian agriculture, by major international donor agencies, multinational companies and even the government. The process of contract farming in India involves, engaging rural Indian farmers for the cultivation of agricultural produce under strict government policies. The role of Contract Farming in India Rural Economy involves government and private participation along with the rural workers. Further, it engages a good number of farmers and other rural workers to discharge other agriculture related activities.

This system has old historical resonances, such as the infamous contracts enforced by indigo planters in eastern India during the early colonial period. But the more recent pattern of contract farming has been developed especially in the United States, where corporate penetration of agriculture is probably the most advanced.

The recent spate of contract farming in India effectively began with the entry of Pepsi Foods Ltd (PepsiCo) in 1989 by installing a tomato processing plant in Hoshiarpur, Punjab. PepsiCo followed a method whereby the cultivator plants the company’s crops on his land, and the company provides selected inputs like seeds/saplings, agricultural practices, and regular inspection of the crop and advisory services on crop management.

1.1. DEFINITION

“Contract farming can be defined as agricultural production carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products.” – FAO

In contract farming typically, the farmer agrees to plant the contractor's crop on his land, provide agreed quantities of a specific agricultural product. These should meet the quality standards of the purchaser and be supplied at the time determined by the purchaser. This could be at a pre-agreed price. In turn, the buyer commits to purchase the product and, in some cases, to support production through, for example, the supply of farm inputs, land preparation and the provision of technical advice.

1.2. BROAD OBJECTIVES OF CONTRACT FARMING • To increase private sector investment in agriculture. • To bring about a market focus in terms of crop selection by Indian farmers • To reduce the load on the central & state level procurement system. • To generate a steady source of income at the individual farmer level. • To promote processing & value addition, thereby generating rural employment • To reduce migration from rural to urban areas.

1.3. IMPORTANCE OF CONTRACT FARMING

• It increase private sector investment in agriculture and bring about a focus in terms of crop selection and plantation by Indian farmers.

• It generate a steady source of income among farmers, increases production thus reducing the load on the food procurement system.

• It promote processing & packaging of food items (making them resistant to degradation) and making them look attractive thus will help to get the market.

• It generate gainful employment in rural communities, particularly for landless agricultural labour and thus reducing seasonality associated with such employment. It reduces migration from rural to urban areas.

• It promotes rural self-reliance. Locally available resources & expertise to meet new technologies and thus facilitates research. Newer markets are available as well as new marketing strategies.

• Promotes investments and builds capabilities. Focus shifts from prices to returns per acre – driven by increased productivity. It promotes long term planning and investments.

• Farmer gets exposure to world class agro technology thus crop monitoring technical advice free at his doorstep.

• Healthy disease free crop is available. In short contract farming clearly offers numerous opportunities for smallholders.

• It gives access to a reliable market, provides guaranteed and fixed pricing structures, and most importantly provides access to credit, inputs and production services like seed, fertilizer, training, extension.

• On a wider note, it can stimulate technology and skill transfer, and can support farmers in meeting vital sanitary and good sanitary standards

1.4. CONTRACT FARMING AGREEMENT
(1) The Contract Farming Sponsor shall register himself with the market committee or with a prescribed officer in such a manner as may be prescribed
(2) The Contract Farming Sponsor shall get the contract farming agreement recorded with the officer prescribed in this behalf. The contract farming agreement shall be in such form containing such particulars and terms and conditions as may be prescribed.
(3) Disputes arising out of contract farming agreement may be referred to an authority prescribed in this behalf for settlement.
(4)The party aggrieved by the decision of the prescribed authority under sub-section (3) may prefer an appeal to an Appellant Authority within thirty days from date of decision. (5) The decision by the authority under sub-section (3) and decision in an appeal under sub section (4) shall have the force of the decree of a civil court and shall be enforceable as such and the decreed amount shall be recovered as arrears of land revenue.
(6) Dispute relating to and arising out of contract farming agreement shall not be called in question in any court of law other than provided herein above.
(7) The agricultural produce covered under the Contract Farming Agreement may be sold to the Contract Farming Sponsor outside the market yard and in such a case; no market fees will be leviable.

2. MODELS OF CONTRACT FARMING

2.1. BI-PARTITE MODEL

2.3. QUAD-PARTITE MODEL

2.4. STATE LED CONTRACT FARMING SYSTEM IN PUNJAB

• Centralized Model: Centralized model involve a centralized company contracting directly with large number of individual farmers. In such models the companies are interested in high value export crops, coffee, tree crops like tea, aloe vera, poultry, and dairy. They require a good quality and need to meet international specifications as specified by the company.

• Intermediary Model: In this the company contracts with lead farmers who act as intermediaries who in turn contract with individual farmers. Centralized model provides greater control over the production process but it is expensive to implement in the practical field. Intermediary model requires less investment & is less expensive and financial risk are less but there is a lesser ability to control production & quality & it is difficult to control the individual farmer.

• The market specification contracts are pre-harvest agreements that bind the firm and grower to a particular set of conditions governing the sale of the crop and there conditions specify price, quality.

• Resource providing contracts oblige the processor to supply crop inputs, extension or credit, in exchange for a marketing agreement.

• Production management contracts bind the farmer to follow a particular production method.

3. SPECIFICATIONS

• Contract duration

• Quality standards

• Production quotas

• Cultivation practices

• Crop delivery arrangements

• Pricing arrangements

• Payment procedures

• Insurance arrangements

4. CONTRACT FARMING PROCESS

4.1. COORDINATING PRODUCTION

• Identifying suitable production areas

• Selecting farmers

• Forming working groups

• Providing material inputs

• Providing logistical support

• Purchasing the product

4.2. MANAGING THE AGRONOMY

• Field extension services

• Transfer of technology

• The use of cropping schedules to ensure the correct timing and sequencing of all contractual activities

• Training for extension staff and farmers, and research into varieties and cultivation practices

4.3. FARMER-MANAGEMENT RELATION

• Farmer-management forums

• Male-female relationships

• Payments to men for work largely carried out by women

• Conflict between contract requirements and women's priorities with regard to subsistence farming

• Participation in community affairs

5. ACTS AND RULES IN THE PROCESS OF CONTRACT FARMING • Agricultural Produce Grading and Marking Act, 1937 • Schedule Appended to AP (G&M) Act 1937 • General Grading and Marking Rules, 1988 • Commodity Grading and Marking Rules • List of commodities whose Agmark Grade Standards have been covered under AP (G&M) Act 1937 • Manual on Standards of Paddy • Manual on Standards of Wheat • Manual on Standards of Maize • Manual on Standards of Mustard and Rapeseed • Agricultural Produce (Grading and Marking) Act, 1937 as amended in 1986.

5.1. APMC ACT The amendment of the Agricultural Produce Marketing Committee (APMC) Act in 14 states and the introduction of an integrated food bill has made corporate India take a look at the agriculture sector. Fourteen states, among them Maharashtra, Punjab, Andhra Pradesh and Rajasthan have amended the state APMC act this year, along the lines of the Model APMC Act, ’02, which allows farmers to sell their produce directly to buyers offering them the best price. Maharashtra and Punjab have already evoked interest from corporates interested in contract farming. • Farmers grow selected crops under a buy back agreement with an agency engaged in trading or processing.

• This law provides for an institutional arrangement for registration of sponsoring companies, recording of Contract Farming Agreement, indemnity to farmers’ land and lays down a time bound dispute resolution mechanism.

• Under the APMC Act, only state governments are permitted to set up markets.

• APMC Act restricts the farmers from entering into a direct marketing contract with bulk purchasers as all the produce is to be canalised for sale through the regulated markets only

6. AGRICULTURAL PRODUCTS UNDER CONTRACT FARMING

In principle, there is no restriction to the types of agriculture products that can be the object of a contract. There are numerous examples of successful contract farming arrangements for most types of crops and livestock. Examples also exist for forestry, aquaculture and fibre products, as well as for flowers and tobacco, to name a few. While the applicability is fairly general, there is evidence that the most successful schemes are associated with agricultural products that are high-valued or produced for processing and /or exports. Products for which there is high local demand may be more susceptible to side selling and thus may be less suitable for contract farming. • Food Grains - Rice, Wheat, Pulses, Cereals, Corn, Maize, Rice Bran Extractions, Sorghum, Soy meal, Suji, Parmal, Lentils, Jowar, Bajra, Chick pea, • Fruits & Nuts - Cashew Kernels, Cashew Nut, Cashews, Almonds, Roasted Dry Fruits, Peanuts, Groundnut, Walnut Kernels, Indian Peanuts. • Fruits - Bananas, Beans, Cherry, Cucumbers, Dried Fruits, Dried Truffles, Carrots, Lemon, Mandarins, Mango, Meslin, Shallots, Apples, Asparagus, Grapes, Oranges, Gherkins, Turnips, Oranges, Papaya, Pineapple, • Vegetables – Potatoes, Bitter gourd, Stripe Gourd, Pumpkin, cauliflower, Cabbage, Tomato, Onion, Green Pepper, Drum Sticks, Lady's finger, Banana, Papaya, Spinach, Cucumber, Mushroom, Mushroom Spawn, Seeds, Buds, Plantation & Related Products - Basil Seed, Cumin seeds, Dill Seed, Buds, Celery Seed, Hybrid Seeds, Sesame Seeds, Sesbania Seed, Sunflower Seeds, Mustard Seeds, Oil Seeds, Plant Products, Plantation, Plants, Fennel Seed, Fenugreek Seed, Herb Seeds, Tamarind Seed, Vegetable Seeds

• Spices - Black Pepper, Chilly, Cinnamon, Cloves, Coriander Powder, Cumin, Dry Ginger, Dry Red Chilly, Cardamom, Anise, Salt, Pepper, Fenugreek, Clove, Ginger, Turmeric, Turmeric Powder, • Tea & Coffee - Black Tea, Coffee, Coffee Beans, Darjeeling Teas, Assam Teas, Instant Coffee, Leaf Coffee, Leaf Tea, Packaged Tea, Green Tea, CTC Teas, • Tobacco & Tobacco Products - Betel nut Leaves, Betel nut, Bidi Leaves, Chewing Tobacco, Arecanut, Snuff, Opium, Pan, Jute, Tobacco, Rubber etc

7. GOVERNMENT INTIATIVES

• National Agricultural Policy (NAP) envisaged that “Private sector participation in Agriculture shall be promoted through Contract Farming and Land-leasing arrangements to allow accelerated technology transfer, capital flow and assured markets for crop production • The Government has circulated a Model Act to replace the APMC and several are in the process of enacting suitable legislation as convenient. • Most of the State Governments had formulated their own Acts in their legislatures to allow contract farming . • All Indian states are set to adopt new laws to facilitate contract farming on a big scale by Indian corporate

This Model Act includes suggested provisions for a contract farming agreement, as follows: • All Contract Farming Agreements should be registered with the Market Committee or a Prescribed Officer • Disputes are to be referred to a Prescribed Authority and are to be resolved within 30 days • An Appellate Authority will entertain appeals and will decide such cases within 30 days • The decision of the Prescribed/ Appellate Authority shall have the force of a decree of the Civil Court • All disputes will be resolved only in the above manner and not by any other court of law • No market fee will be levied on direct procurement • Quality of the supply has to be clearly stipulated plus its sampling procedure • Collect no taxes on profits, corporate or otherwise from food processors, who can demonstrate to the satisfaction of a regulator, direct procurement via contract farming of agri -produce from at least 100 registered farmers. • No taxes or duties to be imposed on import of agri equipment, that will be used in a registered contract farming program. • Abolish all fees, cess, taxes, duties levies etc on procurement of agricultural or horticultural produce procured through any registered contract-farming programme

8. ADVANTAGES OF CONTRACT FARMING

8.1. FOR FARMERS:

• Inputs and production services are often supplied by the sponsor • Farmers' price risk is often reduced as many contracts specify prices in advance • Access to credit • Introduction of appropriate technology • Guaranteed and fixed pricing structures • Access to reliable markets

8.2. FOR SPONSERS:

• Political acceptability • Overcoming land constraints • Production reliability and shared risk • Quality consistency • Promotion of farm input

. 8. DISADVANTAGES OF CONTRACT FARMING

8.3. FOR FARMERS: • Unsuitable technology and crop incompatibility • Manipulation of quotas and quality specifications • Domination by monopolies • Indebtedness and over reliance on advances.

8.4. FOR SPONSERS: • Land availability constraints • Social and cultural constraints • Farmer discontent • Extra-contractual marketing • Input diversion.

9. IMPORTANT PLAYERS IN CONTRACT FARMING IN INDIA

|ORGANIZATION |CROP/COMMODITY |PLACE |TERMS AND CONDITIONS |
|Hindustan Lever Limited |Chicory cultivation |Nadiad |Seeds are given free of cost to the |
| | |Anand |farmers |
| | |Mehsana | |
| | |Jamnagar |Per acre 40 bags are to be supplied by |
| | |Districts in |the farmers to the company. |
| | |Gujarat | |
| | | |Each bag has to contain 50 kgs of |
| | | |chicory |
| | | | |
| | | |The crop has to be harvested and cut |
| | | |into different sizes and dried for 15 |
| | | |days after harvest by the farmer |
| | | | |
| | | |Rs.100/20 kgs will be paid by the |
| | | |company |
|Hindustan Lever Limited, |Tomato Paste |Zahura in Punjab and |Pepsi's plant was acquired in 1995 |
|Nijjer Agro, BEC Foods, Bhillai | |Karnataka, |alongwith the contract farming system in|
|Chattisgarh, Sun Sip Ltd. | |in Punjab and Sirsa in |Punjab. |
| | |Haryana, and | |
| | |Chhatisgarh | |
|Hindustan Lever Limited |Tea |Assam and Nilgiris | |
|Pepsi |Chilli paste, ginger, |Punjab |The guarantee covers around two tonnes |
| |garlic, basmati, potato |Maharashtra, Karnataka |pf production per farmer while the |
| | |and MP |balance can be sold in the open market. |
|ORGANIZATION |CROP/COMMODITY |PLACE |TERMS AND CONDITIONS |
|National Dairy Development Board’s |Fruit concentrate |Delhi, Haryana, |Fruits and vegetables are procured from |
|F & V project at |Tomato puree |Himachal Pradesh, |100 growers' associations with |
|Mangolpuri in Delhi |Vegetables and fruits and|Rajasthan and UP. |membership of 18000 growers |
| |sells 250 tonnes of F&V | | |
| |daily through 279 retail | | |
| |outlets in Delhi | | |
|Maxworth Orchards |Fruits and vegetables |Tamil Nadu | |
|Cadbury India |Cocoa |Karnataka | |
|WIMCO, BILT, ITC and JK Paper |Match and paper (poplar |Punjab, Haryana, UP and| |
| |and eucalyptus) |MP | |
|A V THOMAS Natural Products Ltd. |Marigold and caprica |Hindupur in AP, |Total of 6000 acres under contract |
|Kochi |chillies |Sathyamangalam in TN |farming. |
| | |and Karnataka | |
|MSSL |Guar Gum |Uttaranchal | |
|C & M Group of Nashik, Markfed, |Maize and Soyabean |Nashik in Mah, Punjab |The Nashik District Central Cooperative |
|Punjab, Tina Oils and Chemicals, |cultivation |and MP |Bank, the Dena Bank, SBI and Bank of |
|Maharashtra, ITC-IBD, MSSL |for poultry feed plants | |Maharahstra have participated in the |
| | | |project. |
| | | |Tripartite agreement would be signed by |
| | | |the company, the respective farmer and |
| | | |NABARD, which would finance the farmers.|
|Green Agro Pack, Global Green, |Gherkins |Mostly in Karnataka and|Small areage under gherkin for each |
|Sterling Agro, Ken Agri Pack, | |AP |grower (0.25-1.0 acres) |
|Unicorn Agro Tech, Golden Sluis, | | | |
|Bharat Copper, Koelman India, | | | |
|Vishal Natural Products, BHC Agro | | | |
|India | | | |
|ORGANIZATION |CROP/COMMODITY |PLACE |TERMS AND CONDITIONS |
|Godrej Agro |Oil Palm | | |
| |in AP and Gujarat |AP (West, and East |Under the AP oil Palm Act, zonalisation |
|Navabharat | |Godavari and Krishna |of procurement whereby farmers would be |
| | |districts in AP, |tied to processors in their area and |
|AP Oilfed | |Karnataka, Gujarat and |buying by others has been barred. It has|
| | |Mizoram |been made obligatory on the part of the |
|Palmtech of ITC | | |farmers to deliver palm bunches to the |
| | | |business enterprises. |
|Suguna Broilers, Pioneer, Sri |Broiler chickens |Mostly in AP and TN. |A farmer having a minimum of 5000 sq.ft |
|Venkateshwara, Swathi, | | |area of poultry shed is provided with |
| | | |day-old chicks, along with their own |
| | | |feed. |
| | | | |
| | | |Around 45th day grown birds are |
| | | |collected at an average live weight of |
| | | |2.00 kg per bird. |
| | | | |
| | | |Growing charges at a specific rate per |
| | | |kg is paid to the farmers. |
| | | | |
|United Breweries, Ugar sugar, |Barley |Punjab, Karnataka | |
|PAFC | | | |
|Coimbatore Cots and Coatings Ltd, |Cotton |Anaikatti-Attapadi hill| |
|Appachi, Super Spinning Mills and |Including organic cotton |ranges in Coimbatore, | |
|Syngenta, Rasi Spinning, Vardhman, | |Tamil Nadu, Punjab, | |
|Nahar, | |Gujarat, and MP | |
|Agrocel, Pratibha, | | | |
|Maikaal bioRe, Arvind, Mafatlal, | | | |
|Ashima | | | |
|ORGANIZATION |CROP/COMMODITY |PLACE |TERMS AND CONDITIONS |
|Reliance Agrotech Pvt Ltd. |Cashew, mango, bamboo and|MP | |
| |teak | | |
| |(Proposed) | | |
|KHDC’s Naddukara Agro Processing |Pineapple including |Kerala, Maharashtra and| |
|Co. (NAPC), Ion Exchange, Pune, |organic |West Bengal | |
|Dabur India | | | |
|Satnam, Markfed, L&T, KRBL, |Ordinary paddy and |Kerala, Punjab, |(1000 hectares by 2300 farmers in Kerala|
|Agrocel, Rallis, Escorts, EID |Basmati paddy including |Haryana, andUttaranchal|for the AFCB) |
|parry, HLL, Pepsi, DCM-Sriram, |organic basmati paddy | | |
|MSSL, Satnam, Amira foods, Grain | | | |
|tech | | | |
|Pepsi, Nijjer, OSGF, Kerala |Spices like chilly, |Punjab, Kerala | |
| |ginger and garlic, | | |
| |including organic | | |
|Hundreds of private sugar mills |Sugarcane |Up. Pb., Mah. Guj, | |
|esp. Shakti sugars, Renuka sugar | |Karnataka and TN | |
|PAFC, M&M, HAFED, Foodpro in AP and|Sunflower, safflower |Punjab, | |
|Prime Bio products , Marico | |Haryana,Tamilnadu, | |
|Industries | |Maharashtra | |
|Rallis for HLL, |Wheat |MP and Punjab | |
|Markfed Punjab | | | |
|Nestle, private dairies in Gujarat,|Milk |Punjab, Gujarat, Uttar |Nestle follows two types of contracts- |
|HLL | |Pradesh |direct legal with large farmers with |
| | | |more than 25 animals and indirect |
| | | |(through agents with legal contracts) |
| | | |for small farmers with a few |
| | | |cattle/buffalo only. The latter mode |
| | | |dominates procurement. |
|ORGANIZATION |CROP/COMMODITY |PLACE |TERMS AND CONDITIONS |
|Sami Labs, |Medicinal plants and |Uttaranchal, Karnataka,| |
|Himalaya intl., Dabur, Nandan Agro,|herbs and vanilla |and Kerala | |
|Hexagon, A V Thomas | | | |
|Jain irrigation, SYP agro, Garlico |Onion, White Onion and |Gujarat, MP | |
|industries Ltd., Mark Hort Potatoes|garlic | | |
|(India) – a subsidiary of MARKFED | | | |
|Punjab , and many small players in | | | |
|Saurashtra region | | | |
|Bharati (field fresh), Shyam |Vegetables |Punjab, WB and | |
|Telecom, Keventer Biotech, | |Rajasthan | |
|Tata Tea | | | |
|JK paper, BILTSEWA, ITC |Poplar and eucalyptus |Orissa, AP and MP | |
|Natural remedies pvt. Ltd. |Coleous |Karnataka | |
|L&T, HAFED |Safed Musli |Chhatisgarh, Haryana | |
|HAFED |Turmeric |Haryana | |
|Sungrow |beetroot |Punjab | |
|Mohan Breweries and Distilleries, |Jatropha (amrjyot) | TN |80000 hac,3800 hac |
|Shiva Distilleries, Dharani Sugars | | |2100 hac all in 2005-06 |
|and Chemicals | | |The last two were yet to plan their |
| | | |operations |
|Pepsi, McCain, Golden Fries, MSSL, |Potato |Punjab, Maharashtra, | |
|DSCL (HKB), NAFED | |Karnataka, MP, | |
| | |Haryana, and Tamilnadu | |

Source: compiled from various popular and research sources including field research. also: http://www.tn.gov.in/policynotes/agriculture-2.htm, accessed on 7th August, 2006, for Jatropha.

10. SCHEMES IN CONTRACT FARMING

|State/ Institution |
|Hindustan Paper Mill |
|1. Sarvodaya Krishak Sewa Swablambi Sahkari Samiti |
|MSSL Mahindra Krishi Vihars |
|Himalayan International Limited |
| M/s Bharati Associates |
|1. ITC Ltd. |
|M/s Fritoley India |

Tata Chemicals Ltd. |Grapes - Nashik district |i Assured quality of grapes for export and improving brand name 'Tata Grapes" |i Easy availability of crop loan (Rs.55000 /acre). ii Availability of technical know-how and supply of required inputs iii. No marketing problem for farmers. |i. Scheme implemented through SBI. | |

State/ Institution |Nomenclature of the Scheme |Short Details of the Scheme |Benefit to Farmers/Benefit to Private House |States/Districts where it is being implemented | |2. S. H. Kelkar Group of companies |Patchouli (Aromatic oil plant) |i) Availability of tissue culture planting material ii) Marketing facility by the company |Availability of assured quality raw material |Ratnagiri & Sindhudurg districts | |3. Champagne India Limited |Production of grape wine - Pune distrit |i Easy availability of planting material (@Rs.65-70 /. |Assured supply of quality raw material |2500 acres of Wine grapes under contract | |4. Venkate shwara Hatcheries Private Ltd. |Contract Broiler Farming in Maval Block of Pune district |i. Technical inputs and marketing of product is assured. ii. All recurring expenditures are borne by the company |Assured availability of marketable product.
The Company is saving on the investment cost as well as management cost |i) Being implemented through Pune DCCB. ii) 120 units of 5000 birds each are envisaged | |

11. IMPACT OF WTO

• Providing Export subsidies.

• Replacing Export quotas by Tarrifiacation.( Previously more than 30% of agricultural produce had faced quotas or import restrictions. The first step in tariffication was to replace these restrictions with tariffs that represented about the same level of protection. )

• The WTO agreements allow countries to introduce changes gradually, through progressive liberalization. Developing countries are usually given longer to fulfil their obligations.

• Reduction in domestic support & Export subsidies to developed countries, making higher international prices, so that developing countries can get substantial gain.

• But India does not provide any any product specific support other than market price support

AGENCIES INVOLVED IN MARKETING OF CONTRACT FARMING PRODUCTS

• Karnataka State Agricultural Marketing Board

• Krishi Maratavahini

• Madhya Pradesh State Agricultural Marketing Board

• Maharashtra State Agricultural Marketing Board, Pune

• Meghalaya State Agricultural Marketing Board

• Orissa State Agricultural Marketing Board, Bhubaneswar

• Punjab State Marketing Board

• Rajasthan State Marketing Board

• AP Agricultural Marketing Board

• Domestic & Export Market Intelligence Cell

• Tamil Nadu Agricultural University and Agri Marketing Board

• HP State Agricultural Marketing Board

12. PEPSICO’S CASE

• Investing in food processing and farming was a precondition for Pepsi Co's entry into India in 1989

• The company imported a tomato processing plant from Italy and installed an unit at Hoshiarpur district of Punjab to produce aseptically packed pastes and purees for the international market.

• The company realized that investment in agro-processing plants would not be viable unless the yields and quality of agricultural produce to be processed were up to international standards.

• This led to the birth of Pepsi's backward linkage with the farmers of Punjab. The Pepsi model of contract farming, measured in terms of new options for farmers, productivity increases and the introduction of modern technology, has been an unparalleled success.

• By 1994, productivity of tomato had increased from 16 tonnes to 52 tonnes per hectare.

• Pepso Co had been successfully emulating the model in food grains (basmati rice), spices (chillies), oilseeds (groundnut) as well, apart from other vegetable crops like potato. Currently, the company is engaged in citrus plantation, which will feed its Tropicana juice.

12.1. REASONS FOR PEPSICO’S SUCCESS

• Core Research &Development team working behind it.

• Unique partnership with local agencies including a public sector enterprise.

• Execution of technology transfer through well-trained personnels.

• Supply of all kinds of agricultural implements free of cost to contracted farmers.

• Supply of timely and quality farm inputs on credit.

• Prompt dispatch/delivery/procurement of inputs to individual contracted farmer.

• Effective adoption/use of modern communication technology like pagers for communication with field executives and farmers.

• Regular and timely payment to contracted farmers through computerized receipts.

• Integrated crop management through competent Farm Service Centres.

• Assured buyback of final produce from farmers’ doorsteps.

• Technical personals from the company visits the farmers’ fields.

• The company supplies genetically pure seed for free.

13. CONCLUSION

The contract farming system per se is acceptable. In order to make it an effective development tool, however, strong mechanisms must be in place to monitor contracts and ensure that growers -- the more vulnerable partners -- are not exploited. The production, marketing and distribution of agricultural products have all become increasingly sophisticated. Modern advances in technology have made it feasible for agricultural products to be produced to “specification” and preserved in a fresh condition. The sheer scale of operations has also been increasing, and new selling methods have emerged, emphasising the need for a brand image based on consistent quality. Consumers too are becoming more discriminating in their tastes. They demand better quality and year-round supplies. All this has given an impetus to the search for ways of improving the co-ordination of production, processing and distribution, especially with respect to timing and quality control One way of doing this is to encourage vigorous bargaining cooperatives or other agricultural producer organisations that can negotiate equitable contracts. In developed countries, the state can intervene to regulate contracts. Producer bargaining units and farmers' markets are additional tools the farmer should be able to use. Non-government organisations can be involved, both to ensure that the contracts are fair and to provide knowledge inputs. Though the amended Agricultural Produce Marketing Committees (APMC) Act contains some provisions to regulate contract farming, legal protection for contract growers as a group is essential. This would include setting out clearly what the parties must do and what they cannot do in the areas of delivery, payment, returning goods, price-fixing, etc.

13. REFERENCES

• www.fao.org • www.agricoop.nic.in • www.manage.gov.in • www.ficci.com • www. tn.gov.in • www.centad.org • www.partnershipsummit.com • www.indian-bank.com • www.waves.net.pk • www.ris.org.in • News papers • Pratiyogota darpan

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Supply of inputs on credit

Farmer

Supply of produce

Company

Farmer

Agri input
Company/ facilitator/ trader/ intermediary

Farmer selection & documentation

Supply of inputs

P a y m e n t

Payment for produce

Payment for inputs

Produce supply under agreement

Processor/
Marketer

Bank

Machines and equipment

Reimbursement of extension fee, waiver of purchase taxes, and approval of CF

Direct

PAFC

Extension co./buying co./PAFC

Farmer

2.2. TRI-PARTITE MODEL

3-7

8-10

11

12-13

13-14

15

16-17

18-19

20-24

25-28

29-30

31-32

33-34

Supply of inputs on credit

Credit and
Payment after deduction of dues some cases)

Supply of produce

Payment for inputs

Farmer/Cooperative

Bank

Company

Payment