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Contract Farming !

Contract farming is 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 or products.Typically the farmer agrees to provide established quantities of a specific agricultural product meeting the quality standards and delivery schedule set by the purchaser.In turn the buyer commits to purchase the product often at a pre-determined price. In some cases the buyer also commits to support production through for example supplying farm inputs land preparation providing technical advice and arranging transport of produce to the buyer premises.

Another term often used to refer to contract farming operations is out-grower schemes whereby farmers are linked with a large farm or processing plant which supports production planning input supply extension advice and transport.Contract farming is used for a wide variety of agricultural products.

The rationale for contract farming

Contract farming is one of the different governance mechanisms for transactions in agrifood chains.The use of contracts (either formal or informal) has become attractive to many agricultural producers worldwide because of benefits such as the assured market and access to support services.It is also a system of interest to buyers who are looking for assured supplies of produce for sale or for processing. Processors are among the most important users of contracts as they wish to assure full utilization of their plant processing capacity.A key feature of contract farming is that it facilitates backward and forward market linkages that are the cornerstone of market-led commercial agriculture. Well-managed contract farming is considered as an effective approach to help solve many of the market linkage and access problems for small farmers.

Key benefits of contract farming

The key benefits of contract farming for farmers can be summarized as:1)improved access to local markets;2)assured markets and prices(lower risks) especially for non traditional crops;3)assured and often higher returns;and4)enhanced farmer access to production inputs,mechanization and transport services,and extension advice Additional key benefits for contract partners and rural development often include:1)assured quality and timeliness in delivery of farmers; products;2)improved local infrastructure,such as roads and irrigation facilities in sugar outgrower areas,tea roads,dairy coolers/collection centres,etc.and 3)lower transport costs, as coordinated and larger loads are planned,an especially important feature in the case of more dispersed producers.

Types of Contract Farming

Centralized model:-

The contracting company provides support to the production of the crop by smallholder farmers purchases the crop from the farmers,and then processes, packages and markets the product thereby tightly controlling its quality.This can be used for crops such as tobacco cotton,paprika,sugar cane,banana,coffee,tea, cocoa and rubber.This may involve tens of thousands of farmers.The level of involvement of the contracting company in supporting production may vary.

Nucleus Estate model:-

This is a variation of the centralized model. The promoter also owns and manages an estate plantation (usually close to a processing plant) and the estate is often fairly large in order to provide some guarantee of throughput for the plant. It is mainly used for tree crops, but can also be for,e.g.,fresh vegetables and fruits for export.

Multipartite model:-

The multipartite model usually involves the government,statutory bodies and private companies jointly participating with the local farmers. The model may have separate organizations responsible for credit provision, production, management processing and marketing of the produce.

Informal model:-

This model is basically run by individual entrepreneurs or small companies who make simple informal production contracts with farmers on a seasonal basis.The crops usually require only a minimal amount of processing or packaging for resale to the retail trade or local markets, as with vegetables,watermelons, and fruits. Financial investment is usually minimal.This is perhaps the most speculative of all contract-farming models with a risk of default by both promoter and farmer.

Intermediary model:-

This model has formal subcontracting by companies to intermediaries (collectors,farmer groups,NGOs) and the intermediaries have their own (informal) arrangements with farmers.The main disadvantage in this model is it disconnects the link between company and farmer.