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Contract and Corporate Farming

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10. Bhumika Pandita
Contract Farming: Contract farming brings private sector into the agricultural scenario. In this case, farming is done under an agreement between farmers and the private firms. In this setup, the producer commits to provide the commodities in a predetermined time and price and the buyer commits to purchase them at that price. Contract farming helps the farmers in having better production inputs, transportation services and extension knowledge. It helps the private firms in setting their feet in the agribusiness world. Contract farming has improved the market linkages with the farms to a great extent. Examples:

1. United Breweries Ltd. has entered into contract farming for production of barley in Punjab. 2. Himalaya Health Care Ltd. has entered into contract farming for the production of ashwagandha in Karnataka. 3. Sami Labs Limited, Bangalore has entered into contract farming for the production of medicinal plants in Karnataka. 4. M/s Dabur India Ltd. has entered into contract farming for the production of pineapple in West Bengal. 5. M/s. Fritto India Ltd. has entered into contract farming for the production of potatoes in West Bengal.

Types of contracts

1. Market specification contracts: It is an agreement that sets conditions for the sale of crop. The conditions refer to price, quality and time in exchange to the buyer providing market outlet. 2. Resource providing contract: This type of agreement sets conditions for the buyer to supply inputs and technical assistance. 3. Production management contract: It contains conditions for farmers to follow a certain farming procedure for higher quality.

Models for contract farming

1. Centralized model: In this model, a centralized buyer is in contract with a number of small farmers. The company provides support for production of crop, their purchase, processing, packaging and marketing e.g. for tobacco, tea, cotton, coffee etc. 2. Nuclear estate model: In this type of model, the company also owns an estate plantation that ensures a constant supply of material e.g. for tree crops, vegetables, fruits. 3. Multipartite model: As the word multi suggests, multiple organizations are involved i.e., Govt., statutory bodies, private companies with farmers. 4. Informal model: It involves an individual or a small company entering into informal contract with farmers on seasonal basis. There is a minimal amount of processing and financial input involved e.g. in case of watermelons. 5. Intermediary model: there is a contract between companies and intermediary bodies like NGO’s and their own contract with farmers. 6. Tripartite model: This is a three way contract between farmers, company and govt. where Govt. fixes the price.

Example of failures in contract farming

* The Kuppam Project in Andhra Pradesh: The Kuppam pilot was started in Chittoor district under Chandrababu Naidu’s governance as a measure for agricultural development. The project helped M/s BHC (India) Pvt. Ltd. to enter the agribusiness scenario by the application of Israeli technology. The project started in June, 1997. However, when an independent team of scientists examined the project, much criticism was received. Except for the use of Israeli dip technology, everything else was failing. The project was ill designed, unsustainable and expensive. The procedure that was entirely controlled by M/s BHC (India) Pvt. Ltd. resulted in the environmental degradation due to depletion of ground water, use of pesticides and weedicides. Also the condition of farmers was bad as they were working like laborers. As a result the project did not fulfill Govt.’s desired goal.

* Contract farming of hybrid cotton seeds in three districts of Andhra Pradesh: This case of contract farming was highly criticized because of the employment of children as young as six years old. The labor consisted majority of young girls because they worked at very low wages. 0.25 Million young girls have been estimated to be involved. Also due to the standardized hybrid cotton seed production, the children had to work continuously for long duration of time. Thus, this case presented a failure of contract farming. * In Punjab and Haryana, farmers in contract farming faced problems due to faults in the Input.

Corporate Farming: Corporate farming refers to the incorporation of the corporate world into agriculture. This business revolving around agriculture has allowed mega corporations dominating the food industry to get involved in all the stages, from seed production to retail sales by leasing the agricultural land. Corporate farming results in better quality, reduced agricultural waste, introduction of technology in the food production. The corporate farmer usually is a contracted employee.


IEFFL, Pune for plantation of fruit trees in Maharashtra, Tamil Nadu and Goa. Jamnagar Farms Pvt. Ltd. for agroforestry and horticultural crops in Gujarat and Punjab. Vimal Dairy for milk production in Narmada canal.

www.leam.adrocyte.com/hostedresources/nbfagri/contracting arrangementcontractfarming.pdf www.seea.org/specialissue/vol2/34

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