Contract Farming
Context:
Recently, the government informed the inclusion of provisions related to contract farming in the Agricultural Produce Market Committee (APMC) Act for 15 States and Union Territories (UTs).
Relevance:
GS-02 (Government policies and interventions)
GS-03 (Agricultural Marketing)
Dimensions of the Article:
- What is Contract Farming?
- Advantages of Contract Farming
- Challenges
- Difference between Traditional Farming and Contract Farming
What is Contract Farming?
- It is an agreement between the producers (farmer) and buyers as per pre-decided terms regarding the quantity, quality and the price of the farm products.
- Contract Farming ensures a ready market for the produce and drastically reduces uncertainty for the farmers.
Advantages of Contract Farming:
- Assured price and market: The entire process is based on a pre-determined agreement that specifies the price, quantity, and delivery date for the farmer’s produce.
- Access to Technology & Inputs: It allows the parties involved in the agreement to invest in procuring quality seeds, fertilisers, and advanced technical guidance to reap better yields.
- Supply chain management: It manages to reduce the wastage of perishables as it ensures fair pricing for producers and consumers.
- Better operational efficiency: Unlike non-traditional farming methods, contract farming meets the demand expectations efficiently by reducing the costs involved.
- Better standards of quality: It guarantees better-quality produce, aligning with global export standards.
Challenges:
- Exploitation of Farmers: Few incidents are reported where small and marginal farmers enter unfavourable contracts due to lack of legal awareness.
- Lack of Compensation: During an agreement, the companies impose very strict quality standards that may lead to rejection of produce without any compensation given to the farmers.
- Land ownership issues: In Contract farming, either farmers have to lease their land to companies or they might have to offer only land and labour as inputs will be mostly through companies, leaving farmers without having proper rights on their own land.
- Risk of Default: Farmers
Difference between Traditional Farming and Contract Farming:
|
Feature |
Traditional farming |
Contract farming |
|
Market access |
Uncertain, dependent on market fluctuations |
Assured buyer and price |
|
Risk Factor |
High, due to price volatility and climate |
Lower, as companies share risks |
|
Input support |
Farmers bear all costs |
Companies provide seeds, fertilizers, and technology |
|
Quality Control |
Variable, depends on individual farmer |
Standardized quality as per contract |
|
Price Realization |
Market-driven, often fluctuating |
Pre-agreed price, reducing uncertainty |
Way Forward
- Strengthening Legal Framework: Ensuring fair agreements and robust dispute resolution mechanisms.
- Expanding Adoption: Encouraging more states to implement contract farming models.
- Balancing Interests: Protecting small farmers from unfair contracts while attracting agribusiness investments.
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