Agriculture is the primary income source in India, with more than 50% of the total population depending upon agriculture for their livelihood. India’s agriculture sector also contributes significantly to the country’s Gross Domestic Product (GDP). However, a tractor is the most crucial agriculture equipment. John Deere tractor provides high productivity in the field. Apart from being a means of trade, it is well associated with our culture as well. Nowadays, farmers disassociate themselves from farming because of sequential losses faced. With the hope of earning from an alternative income source, farmers rent or lease their farmland on contract. This concept is known as contract farming. This blog will discuss contract farming and how it helps Indian farmers. Let us begin.
What is Contract Farming?
Contract farming is defined as the agriculture production carried out as per an agreement between a farmer and cooperative firms. According to this agreement, farmers should produce and supply agricultural goods according to a predefined agreement and price. Moreover, the process should meet the purchaser’s quality standards and the timeline to deliver such produce. The objective of introducing Contract farming is to maintain the overall profit balance.
Why is Contract Farming Needed in India?
- If any damage is caused to crops by pests, rain, or any other reason, the cooperative firm is responsible for bearing the loss and not the farmers. It helps in reducing farmers’ risk.
- Contract Farming involves a direct interaction between the respective cooperative firm and the farmer, ensuring there are no intermediaries or middlemen, whom farmers need to pay a commission to sell.
- The market value of a farmer’s production has increased significantly; they frequently require seeds and other farming equipment to produce the necessary crops. Contract farming helps farmers to generate enough income to fulfil these needs.
- When talking about competition, contract farming provides a boost to small scale farming. Even small farmers can access technology and other marketing channels while reducing transaction costs.
Business Models in Contract Farming
There are four significant types of business models in contract farming, which we will discuss in this post. These business models include:
- Informal Model
It is one of the most speculative farming models, with both promoters and farmers at risk. However, depending upon the interdependence among parties and their trustworthy alliance, it is possible to reduce the risk of opportunistic behaviors.
- Intermediary Model
Under this model, a cooperative firm subcontracts an intermediate aggregator, who, in turn, formally or informally contracts the farmer.
- Multipartite Model
The Multipartite model is developed from centralized or nuclear estate models. The model involves various organizations, such as governmental statutory bodies, private companies and financial institutions.
- Centralized Model
It is the most commonly used contract farming model and requires a buyer’s involvement to reduce variations due to minimal input provisions. The model is used to control various production aspects.
Challenges Faced by Farmers in Contract Farming
- At times, contract farming is criticized for being biased towards large firms. However, the truth is, contract farming often exploits a farmer for their poor bargaining skills.
- In India, there are no strict laws and regulations regarding the contract’s accomplishment, which results in the violation of the agreement by cooperative firms.
- Problems such as an undue quality cut on produce by cooperative firms, delayed delivery at the factory gates, deferred payments, and many more.
- The number of sellers, or farmers, in comparison to corporate buyers, is enormous. Due to the lack of buyers, the market becomes monopolistic in nature.
- Besides the monopolistic nature of markets, contract farming also has adverse gender effects; for example, women have less access to jobs than men.
We hope this post helped familiarize you with the term Contract Farming. For more information relating to farming and implements, stay tuned with us. We provide you with the best online services to buy farming implements at an affordable price.