Contract Farming is a Triangular Benefit - Satheeshkumar.N
-
Upload
satheesh-kumar -
Category
Business
-
view
458 -
download
0
description
Transcript of Contract Farming is a Triangular Benefit - Satheeshkumar.N
Presented by
N.Satheeshkumar
LEVERAGING CONTRACT FARMING IN LEVERAGING CONTRACT FARMING IN AGRICULTURE FOR TRIANGULAR BENEFITAGRICULTURE FOR TRIANGULAR BENEFIT
1
Contents
• Definition• Need & Importance• History of Contract farming• Area under CF• Clauses of contract• Advantages & Disadvantages• Types• Success stories & Failure• Conclusion
2
• 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/products
(FAO,2009)
• Contract farming (CF) is defined as forward agreements specifying the obligations of farmers and buyers as partners in business. Federal Ministry for Economic Cooperation and Development (BMZ),2011
Definitions – Contract Farming
3
• Contract farming is an understanding between farmers and
processing units or marketing firms for the production and
supply of agricultural products under forward agreements,
frequently at predetermined prices.”
In General
4
5
www.barterindia.in
Importance
• To increase private sector investment in agriculture
• Crop selection by Indian farmers
• To generate a steady source of income
• To promote processing & value addition
• To generate gainful employment
• To reduce migration
6
www.cci.in
• Production and marketing are very critical.
• Overcome inadequate linkages with markets
• Presence of fragmented land holdings
• Lack of capital, poor infrastructure, Technology transfer, etc
• To avoid Post harvest losses
• Unfavorable conditions for procurement
FICCI, 2005
Need for contract farming in India
7
• The liberalized marketing system coming up in India
• The growing role played by supermarkets
• Changes in consumption habits
• Increasing number of fast-food outlets
• Continued expansion of world trade
Need for contract farming in India
8
FICCI, 2005
9
• Farmer – Companies
• Farmer – Government bodies
• Farmer – Individual Entrepreneur
• Farmer – Unequal parties
• Farmer – NGO / Facilitator
PartnershipPartnership
10
Pre – Arrangements in Contract farmingPre – Arrangements in Contract farming
11
State wise area under CF
STATESTotal cropped area
(In ‘000 ha)
Area under contract farming
(Ha)
Assam 3962 160
Bihar 7882 20
Goa 169 1924
Gujarat 11311 2000
Haryana 6388 1416
Mizoram 98 2447
Orissa 8637 5990
Punjab 7931 121457
Tamil Nadu 5316 236610
India 190641 425834
www.indiastat.com,200712
• Need and plan for the targeted raw material• Selection of geographic area• Selection of contract farmers• Signing of agreements with contract farmers• Distribution of inputs• Technical assistance + Monitoring of production• Procurement of production• Payment• Storage and Shipment• Processing
Contract farming approachFrom Company’s perspective
13
• Practical experience on the targeted crop• Resources to cultivate selected crop• Residence in the targeted area• Suitability of land for targeted crop• Good reputation in the community• Farmers who have their own land/acceptable leased
arrangement• Not involved with competing companies for same crop• Have time to devote to contract farming
Criteria to identify the contract farmers
14
• Commitment by the farmer towards quantity & quality
• Commitment by the industry to procure the produce at fixed price & time.
Basics of Arrangements
15
Preconditions to be Met
• From Industry– Supply for long term– Production meets required quantity– Prediction on yield should be positive– Economic viability
• From Farmers– Hope to get good yield from practiced crop cultivation– Best market potential than other alternatives– Manageable risk
16Premjit Sharma – Contract Farming, 2007
• Providence of agreed quantities of specific product
• Same quality standard of produce
• Supply at right time
Conditions from Farmer’s side
17
Conditions from Government side
• Should make a platform to both buyer and Seller
• Legislative clearance for the type of produce
• Act as a facilitator, if needed
18
Conditions from buyer’s side
• Standby commitment of purchase.
• Should support production
• Fit to the pre determined price.
• Timely payment
19
Signing the agreement
20
Clauses of contract
• General obligations
• Product specification
• Production technology
• Terms and conditions
• Determination of final prices after deducting loans
• Choice of jurisdiction
• Reference to a dispute settlement
21
Problems faced by Farmers
• Increased risk (Production problem)
• Unsuitable technology and crop incompatibility
• Manipulation of quotas and quality specifications
• Corruption
• Domination by monopolies
• Indebtedness and overreliance on advances
22
Problems faced by Industry
• Land availability constraints
• Social and cultural constraints
• Farmer discontent
• Extra-contractual marketing
• Input diversion
23
Problems faced by Government
• Legislative issues
• Issues from the public faced by fraudulent
24
Favourable situations
• Physical environment
• Utilities and communications
• Land availability and tenure
• Input availability
• Social considerations
25
Government support
• Enabling and regulatory role
• Developmental role
26
Extension servicesExtension services
• Recruitment & Training
• Execution of Technology transfer
• Selection of Farmer & Contracting
• Farmer Training & Education
• Provision of Implements
• Provision of Agricultural Inputs
• Nursery & Seed Supplies
• Post Transplantation Care
• Maturity & Harvest Prediction
ProcurementProcurement
• Harvesting
• Registration/ based buying
• Produce Collection
• Quality Inspection
• Transportation of the produce to the
processing unit
• Management of Information system
• Management of Farmer payments
Key Functions Rendered by Corporate
27
Types
• Centralized model
• Multipartite model
• Informal model
• Intermediary model
• Nucleus estate model
28
Model to be selected
• Depends on
– The product
– The resources of the company and
– The intensity of the relationship between farmer and
company that is necessary
29
Centralized Model
Corporate Corporate
Extension Arm
FarmerFarmer30
www.fao.org
Multipartite Model
31
Intermediary Model
32
Corporate
NGO / Lead farmers / Govt body
Farmer
Informal model
Corporate
Implementing Agency
Farmer
Agri InputsSeeds
FertilizersPesticides
Bank for Crop loans
Insurance for Crop /
Life
33
Nucleus Estate Model
• Promoter also owns and manages an estate plantation (usually close to a processing plant)
• Estate is often fairly large in order to provide some guarantee of throughput for the plant
• Mainly tree crops, but also e.g. Fresh vegetables and fruits for export
• Close supervision of production
34
Specifications of CF
• Legal framework – Based on the law of the country
• Formula – Clarification of managerial responsibilities
• Format – Prescribed manner
• Specifications – Details of implementation of contract
35
Monitoring performance
• Monitoring quality and yield– Quality controls– Yield estimations– Calculated yield indicators– Production matrices
• Monitoring Human Resources– Appraising employees– Reviewing farmer performance
• Protecting the environment
36
Impact on society
• Child labour
• Small holder
37
CF in Developing countries
• Spot markets and plantations
• Transaction costs– Costs of drafting contracts– Maladaption costs– Set-up and running costs– Bonding costs
38
Criteria for success in CF
• Economic, Technical and Social environment– Strong markets– Land ownership– Macro institutional policies– Sophisticated technology
• Management of environment– Farm groups– Farmers selection– Contract default– Conflict resolution
39
Poverty reduction & Equity
• Welfare of small holders
• Equity amongst small holders
• Collective action
• Regional development
40
Commercialization of CFCommercialization of CF
• Income generation
• Dislocation of alternative crops
41
Consequences Consequences
• Effect of contracts• Barriers to entry• Small seed firms• Collective action by farmers• Role of institutions• Vertically integrate the sector
42
State Crop Company Area (ha)Karnataka Ashwagantha Himalaya Health Care Pvt
Ltd700
Karnataka Dhavana Mysore S N C oil company 400-500
Karnataka Marigold & Caprica chilli
AVT Natural Pvt Ltd 4000
Karnataka Coleus Natural Remedies Pvt Ltd 150
Karnataka Gherkins 20 Pvt companies (Global green company pvt ltd, Unicorn agrotech ltd,etc.,)
8000 (Including of TN & AP)
Madhya Pradesh
Soybean Tinna oils and chemicals 134800
Madhya Pradesh
Several fruits, Vegetables, Spices, Cereals & Pulses
IEEFL -
State wise contract farming initiatives by Private sector
(NIAM, 2003, Times Agriculural journal) 43
State Crop Company Area (ha)Madhya Pradesh Wheat, Maize,
SoybeanCargil India Ltd
Madhya Pradesh Wheat Hindustan Lever Ltd
15000
Madhya Pradesh Several Fruits, Vegetables,Spices, Cereals & Pulses
IEEFL
Madhya Pradesh Soybean, Tomato & Chilli
ITC, IBD 1200
Punjab Tomato & Chilli Nijjer Agro foods Ltd
250
Punjab Barley United Breweries Ltd
2270
Punjab Basmati & Maize Satnam overseas, Pepsico
4000
State wise contract farming initiatives by Private sector
(NIAM, 2003, Times Agriculural journal)44
State Crop Company Area (ha)
Punjab Basmati Satnam overseas, Amira foods India Ltd
14700
Punjab Basmati, Tomato, Chilli, Potato & G.nut
Pepsico Around 6000
Punjab Milk Nestle India Ltd 65000000 kg / day
Tamil Nadu Cotton Super spinning mills 570
Tamil Nadu Maize Bhuvi care pvt ltd 800
Tamil Nadu Paddy Bhuvi care pvt ltd 200
Tamil Nadu Cotton Appachi cotton company
260
State wise contract farming initiatives by Private sector
(NIAM, 2003, Times Agriculural journal)45
46
Pepsico’s contract farming
Steps of contract farming
• R&D Activities
• Transfer of technology
• Commercialization
47
FICCI, 2005
Pepsico’s impact in PunjabPepsico’s impact in Punjab
• Tomato yields increased threefold
• Production technology spread to non Pepsi growers
• Farm income increased due to price fixation
• Chilli yields increased from 2.5 MT to 9 MT / acre
• Crop diversification
48
Pre - operativePre - operative
• Need of technical team, with an applied & commercial focus
• Research the site & location well
• Conduct trials – Intensive R&D efforts
• Poll grower attitudes to your crop
• Assess availability & Sustainability of other resources and
infrastructure
49
The NurseryThe Nursery
• Low cost tunnel technology works.
• Land preparation is critical.
• Siting nursery operations on elevated ground.
• Mechanization of operations.
• Proper maintenance.
50
The Main fieldThe Main field
• Extension services team should be available at the farmer’s call
• Never offer your growers any commercially, untested technology
• Break the hard pan in clay, encourage deep rooting
• Ensure availability of adequate and appropriate inputs
• Agricultural implements offered gratis to growers – an investment that yields long term benefits
• Field record maintenance
• Make payments at priority
51
Contract farming Vs A price support mechanismContract farming Vs A price support mechanism
Contract farming• Planting material supplies• Technology transfer• Assured price• Assured quantity• Free equipment• Partnership approach• Builds commitment• Long term
Price support• Usually none• None• Minimum guaranteed• No assured quantity• No free equipment• Usually adversarial• Builds mistrust• Short term
52
www.fao.org
A Lot can be done despite the absence A Lot can be done despite the absence of a legal frameworkof a legal framework
• Maintain a proper database on farmers
• Incentives, rewards & public recognition
• Publicising the names of defaulters in the locality of default
• Farmer encouraged to set own targets, assist with draft of QC standards etc.,
• Clearly allocate quantities for the fresh market
• Repeat defaulters are not considered again
• Maintains a high motivation level
• The social stigma usually suffices as a disincentive to default
• Promotes “Ownership” of the business, builds loyalty over the long term
• The difference becomes apparent very quickly
53
Policies neededPolicies needed
• Single tier regulatory authority at the district level • Make purchase interference by a third party as a
cognizable offence
• For a registered contract farming programme
– Abolish all fees, taxes, duties, levies on procurement – Exempt taxes and duties on import of agri equipments– Eliminate red tape in import of varieties / hybrids
54
Policies neededPolicies needed
• Introduce insurance policies
• Exposure of Agricultural students to CF
• Development of crop and region specific agendas through SAU.
55
Factors to failureFactors to failure
• Reluctance of farmers in production
• Clashes & Disagreements
• Violation of agreement when price change
• Weather harshness
• Deviation from commitment
56
Challenges to IndustryChallenges to Industry
• Highly restricted and regulated agricultural marketing system
• Monopoly of the state govt. to set up markets
• Mandi revenues not deployed for infra structure
development
• Price setting not transparent
• Processing industries cannot buy directly from farmers
57
ConclusionConclusion
• Contract farming plays an important role in agricultural
growth and it leads to increase in GDP
• Contract farming leveraging multi sector growth in India
• ‘Commitment driven’ contract farming is always viable
• Government should take necessity step towards small holders
growth simultaneously.
58
59
My special thanks to Dr.K.Vaiyapuri