In this article, we are going to see the advantages and disadvantages of contract farming.
What is Contract Farming?
Contract Farming is nothing new in our country. Milk and Sugar Cooperatives specify quantity and access to contract farming in India. It is a formal agreement between producers (farmers) and consumers (by major processors or exporters). Contract farming is an understanding between farmers and firms that have a contract for the production and supply of agricultural inputs under pre-arranged arrangements, usually at a pre-set cost.
See also: Smart Farming
Farming contracts allow firms to become interested and exercise power over the creative cycle without buying or working on the farm. Arrangements can vary with plants and contract firms. Agreements may be for I) market support contracts pre-harvest arrangements between firms and farmers in specific arrangements for the terms of purchase and acquisition. The agreement determines the amount, quality, and quantity; ii) property support contracts understanding between farmers and firms related to marketing courses, organizations agree to provide selected inputs, commemorative land preparation events, and special promotions, debt, etc .; and iii) production management contracts oblige the farmer to follow detailed input management, agronomic processes, and harvesting details by restoring the incentive arrangement or supply of goods.
Advantages of Contract Farming
(1) Farmers: Generally, farmers’ have little knowledge of crop farming practices, low income and lack of post-harvest management technology, inadequate infrastructure, and market data. Farmers can use the understanding of the agreement as a guarantee of creditworthiness in commercial banks and inputs to fund inputs. Contract farming helps smallholder farmers to participate in the growth of high-yielding crops such as vegetables, flowers, fruits, etc. Contract farming does not require much money for farmers and reduces costs incurred in obtaining donations as provided by contract firms.
(2) Contract firms: Contract farming is usually followed by food management organizations. Contract farming provides a solution to the problem of supplying raw materials in the required quantity and to a reliable source close to processing facilities.
(3) Banks: Banks and financial institutions support contract farming. Easy monitoring of manufacturing operations, extension activities, and credit delivery are easy on contract farming. Loans can easily be obtained at better prices by joining banks in contract farming.
(4) Government: Many government offices and a few governments are directly or indirectly involved in contract farming. To combat poverty, the best program to include private companies in contract farming is to accelerate technology transfer, revenue generation, and a guaranteed agricultural harvest market. The private agricultural business will provide new strategies with greater success than government management in agriculture, as it has a direct financial interest in improving the productivity of farmers. This will also create opportunities for working in a rustic environment, job creation, agribusiness, and financial creation.
Disadvantages of Contract Farming
It is not so easy to ask farmers to follow contract farming. The risks associated with the development of a new product may not meet the expectations of farmers or the predictors’ predictions. Many organizations offer contract farming to large to medium farmers. They ignore the small and medium farmers.
Organizations can regulate quality practices to reduce purchases or regulate non-productive policies with farmers. The formal implementation framework is extremely tedious for both producers and firms and the legal compliance of contract terms with farmers provides a negative message for a contracted company among the farming community.
The success of contract farming lies in building mutual trust between producer and consumer.