Contract Farming

22.01.2025

Contract Farming

Why in the news?                        

India has emerged as a major exporter of French Fries, which owes much contract farming through which companies procure potato directly from growers and deepening farmer engagement.

About Contract Farming:

• It is an agreement between farmers (producers) and buyers in which both agree in advance on the terms and conditions for the production and marketing of farm products.
• These conditions usually specify the price to be paid to the farmer, the quantity and quality of the product demanded by the buyer, and the date for delivery to buyers.
• In some cases the contract may also include more detailed information on how the production will be carried out or if inputs such as seeds, fertilizers and technical advice will be provided by the buyer.

Advantages to farmers

• Financial support: Easier access to inputs, services and credit.
• It will help in improved production and management skills.
• Secure market or access new markets.
• It helps in reduction of price-related risks.
• It will generate more stable income and helps in better planning.
• Introduction of new technologies.

Concerns of farmers

• Flexibility issue: Loss of flexibility to sell to alternative buyers when prices increase.
• Possible delays in payments and late delivery of inputs.
• Risk of indebtedness from loans provided by the buyer.
• Impact on environment: It creates environmental risks from growing only one type of crop.
• Unequal bargaining power between farmers and buyers.

                                                                Source: Indian Express

Consider the following statements regarding Contract Farming:

1. It is an agreement between farmers and buyers on the terms and conditions for the production and marketing of farm products.

2. It will help farmers in generating more stable income and better planning.

Which of the statements given above is/are correct?

A.1 only

B.2 only

C.Both 1 and 2

D.Neither 1 nor 2

Answer C