Contract Farming in India | MBA Finance in Bangalore

Posted by Prof. Dr. G. N. Nagaraja On 01/10/2022 10:28:55

The agricultural marketing scenario in the country and the state has undergone a sea change since independence, owing to the increase in the quantity and the variety of commodities produced, the marketable surpluses, changing consumption patterns in the society, linkages with the international market, etc. (Karnataka Agricultural Marketing Policy, 2013). MBA finance in Bangalore

Contract farming is an agreement between the farmers and firm/contracting agencies where farmers agree to grow crops specified by the firm and supply the produce to the firm for a predetermined agreement. The phenomena of contract farming revoke around three main needs i.e. (a) Predetermined quantity, (b) Predetermined quality, (c) Predetermined price. The agreements also allow the purchaser to provide a degree of production support through inputs and technical guidance for crop cultivation. From the farmer’s side, there is a commitment to producing the specified agricultural products within the quality and quantity standards prescribed by the purchaser, and the firm supports, in turn, the farmer’s production, and also purchases the produce. MBA in operations management in Bangalore

Contract farming has long-term benefits for both growers and purchasers, provided that their long-term association is mutually complementary. A sizable part of the farming community falls under the small and marginal farmers’ category in India. Contract farming, therefore, becomes increasingly important as it allows agricultural produce to be purchased by multinationals, small companies, government agencies, farmers’ cooperatives, and individual entrepreneurs. The contractual agreement encompasses three areas viz., market (grower and buyer agree for future sale and purchase), resource (buyer agrees to supply inputs and technical advice), and management specifications (grower agrees to follow the recommended practices for the crop cultivation).

An enabling legislative environment, investment in infrastructure, and well-operated markets spread across the state have provided a reasonable means for farmers to market their surplus produce. Karnataka Agricultural Produce Marketing (Regulation and Development) Act, 1966 was further amended in 2007 to allow direct purchase centers, the establishment of private markets, farmers' consumer markets, contract farming, the establishment of spot exchanges, etc. best MBA colleges in Bangalore

Policy Initiatives for Contract Farming

Recognising the potential and benefits of contract farming arrangements in the agriculture sector, NABARD took the important initiative of supporting such arrangements by the banking sector and developed a special refinance package for contract farming arrangements (within and outside Agri-Export Zones) aimed at promoting increased production of commercial crops and creation of marketing avenues for the farmers. mba in digital marketing in Bangalore

a) Financial Interventions

b) Special Refinance package for financing farmers for contract farming in AEZs

c) 100% refinance to disbursements made by CBS, SCBs, RRBs, and select SCARDBs (having net NPA less than 5%).

d) Term facility for repayments (3 years).

e) Fixation of higher scale of finance for crops under contract farming.

In spite of all the drawbacks, the success stories of contract farming indicate that the process holds promise if executed properly. For the farmer, it greatly reduces market risk and to some extent price risk. Contract farming brings the farmer in direct contact of the buyer, thus eliminating middlemen in marketing. It helps the farmer understand market requirements and tailor his production methods to suit market needs. MBA it colleges in Bangalore


To bring Indian agriculture on a developmental track that ensures food and nutrition security to a population of over a billion, raw material for its expanding industrial base, surpluses for exports, and a fair and equitable rewarding system for the farming community, commitment driven contract farming is no doubt a viable alternative farming model, which provides assured and reliable input service to farmers and desired farm produce to the contracting firms. Coordination and collaboration and acting in an organized manner are advisable for both sides. The success of contract farming depends on the existence of a responsive legal framework and institutional support. Several Indian and multinational companies have already begun such initiatives in India and have demonstrated repeated success. The successful cases should encourage the rest of the producing and the consuming enterprises to emulate them for mutual benefits in specific and Indian agriculture in general.

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