Contract Farming and Public-Private Partnership in Agriculture
Contract Farming and Public
Private Partnership
Dairy Entrepreneurship Development and
Industrial Consultancy (DBM-421)
A K JHA
Introduction
•
Indian agriculture is dominated by smallholders
•
The average size of holding is very tiny
•
Farmers generate very small marketable surplus
•
Their linkage to markets are weak
•
They often fail to realize remunerative prices
•
Often lack information and inputs
•
Contract farming provides a plausible solution to many
of these problems
–
To set up and adopt technically, commercially, and
economically viable agribusiness solutions
Some Historical Milestones
•
Japan government introduced it for the first time in 1895
in Taiwan
•
Europeans first introduced in indigo and opium
cultivation in the Bengal region under the regime of East
India Company
•
In 1920’s, ITC formalized contract farming with farmers in
Andhra Pradesh for growing Virginia Tobacco.
•
Pepsi Company introduced in in India for cultivation of
Tomato and Potato in 1927.
•
Green revolution further provided impetus
•
In Karnataka contract farming was started with cof
Gherkin in 20
th
Century
Contract Farming
Contract farming is essentially an agreement between
unequal parties: companies, government bodies or
individual entrepreneurs on the one hand and
economically weaker farmers on the other (FAO, 2001).
It is, however, an approach that can contribute to both
increased income for farmers and higher profitability for
sponsors.
efficiently organized and managed, contract farming
reduces risk and uncertainty for both parties as
compared to buying and selling crops on the open
market.
Contract Farming
It is defined as agreement between farmers and processing
or marketing firms for the production and supply of
agricultural products under forward agreements at
predetermined prices.
The important feature of contract farming is that the
buyer/contractor provides all the material inputs and
technical advice regarding crop production to the farmer.
It is a system for the production and supply of land based
and allied produce by primary producer (farmer) under
advance contract.
The essence of such contract is commitment to supply
agricultural products of specific type at specific time, price
and quality to the contracting party.
1.
Procurement Contract:
Only sale and purchase conditioned are mentioned.
2.
Partial contract:
Only some of the inputs are supplied by the
contracting party and the farm output is purchased
at predetermined price.
3.
Total Contract:
Contracting party supplies and manages all the
inputs on the farm and farmer becomes just a
supplier of land and labour.
Types of Contract
•
Advantages for farmers
i) Provision of inputs and production services
ii) Access to credit
iii) Introduction of appropriate technology
iv) Skill Transfer
v) Guaranteed and fixed pricing structure
vi) Access to reliable markets
•
Problems faced by farmers
i) Increased risk
ii) unsuitable technology and crop incompatibility
iii) Manipulation of quotas and quality specification
iv) Corruption
v) Domination by monopolies
vi) Indebtedness and over reliance on advances
i) Land availability constraint
ii) Social and cultural constraints
iii) Farmer discontent
iv) Extra contractual marketing
v) Input diversion
Problem Faced by Contracting Party
Public Private Partnership (PPP)
•
This is a form of organization, funded and
operated through a partnership of government
and one or more private sector organizations.
•
It is a contract between public sector organization and
private organization where in the private party
provides public services and bears financial, technical
and operational risk.
•
Public Private Partnership (PPP)
Based upon nature of contract a public private
partnership may assume any of the following
forms:
a)
The cost of using the services is totally charged to
users and not to the taxpayers.
b)
Capital investment is made by the private sector
based upon contract with government to provide
agreed services and the cost of providing the
services is the responsibility of the government
.
Public Private Partnership (PPP)
In PPP mode, generally a private sector
organization forms a special separate
organizational set up to develop, build, maintain
and operate the asset for the contracted period.
In the infrastructure sector, complex
arrangement and contracts that guarantee and
secure the cash flows make the public private
partnership mode a suitable arrangement for
project completion.
•
Indian agriculture, dominated by smallholders, faces challenges such as weak market linkages and low surplus. Contract farming emerges as a solution, benefiting both farmers and sponsors. Historical milestones and types of contract farming models are explored, highlighting the benefits and nuances of this approach in driving agricultural productivity and profitability.
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Presentation Transcript
Contract Farming and Public Private Partnership Dairy Entrepreneurship Development and Industrial Consultancy (DBM-421) A K JHA
Introduction Indian agriculture is dominated by smallholders The average size of holding is very tiny Farmers generate very small marketable surplus Their linkage to markets are weak They often fail to realize remunerative prices Often lack information and inputs Contract farming provides a plausible solution to many of these problems To set up and adopt technically, commercially, and economically viable agribusiness solutions
Some Historical Milestones Japan government introduced it for the first time in 1895 in Taiwan Europeans first introduced cultivation in the Bengal region under the regime of East India Company In 1920 s, ITC formalized contract farming with farmers in Andhra Pradesh for growing Virginia Tobacco. Pepsi Company introduced in in India for cultivation of Tomato and Potato in 1927. Green revolution further provided impetus In Karnataka contract farming was started with cof Gherkin in 20thCentury in indigo and opium
Contract Farming Contract farming is essentially an agreement between unequal parties: companies, government bodies or individual entrepreneurs economically weaker farmers on the other (FAO, 2001). It is, however, an approach that can contribute to both increased income for farmers and higher profitability for sponsors. efficiently organized and managed, contract farming reduces risk and uncertainty for both parties as compared to buying and selling crops on the open market. on the one hand and
Contract Farming It is defined as agreement between farmers and processing or marketing firms for the production and supply of agricultural products under predetermined prices. The important feature of contract farming is that the buyer/contractor provides all the material inputs and technical advice regarding crop production to the farmer. It is a system for the production and supply of land based and allied produce by primary producer (farmer) under advance contract. The essence of such contract is commitment to supply agricultural products of specific type at specific time, price and quality to the contracting party. forward agreements at
Types of Contract 1. Procurement Contract: Only sale and purchase conditioned are mentioned. 2. Partial contract: Only some of the inputs are supplied by the contracting party and the farm output is purchased at predetermined price. 3. Total Contract: Contracting party supplies and manages all the inputs on the farm and farmer becomes just a supplier of land and labour.
Advantages for farmers i) Provision of inputs and production services ii) Access to credit iii) Introduction of appropriate technology iv) Skill Transfer v) Guaranteed and fixed pricing structure vi) Access to reliable markets Problems faced by farmers i) Increased risk ii) unsuitable technology and crop incompatibility iii) Manipulation of quotas and quality specification iv) Corruption v) Domination by monopolies vi) Indebtedness and over reliance on advances
Problem Faced by Contracting Party i) Land availability constraint ii) Social and cultural constraints iii) Farmer discontent iv) Extra contractual marketing v) Input diversion
Public Private Partnership (PPP) This is a form of organization, funded and operated through a partnership of government and one or more private sector organizations. It is a contract between public sector organization and private organization where in the private party provides public services and bears financial, technical and operational risk.
Public Private Partnership (PPP) Based upon nature of contract a public private partnership may assume any of the following forms: a) The cost of using the services is totally charged to users and not to the taxpayers. b) Capital investment is made by the private sector based upon contract with government to provide agreed services and the cost of providing the services is the responsibility of the government.
Public Private Partnership (PPP) In PPP mode, generally a private sector organization forms organizational set up to develop, build, maintain and operate the asset for the contracted period. In the infrastructure arrangement and contracts that guarantee and secure the cash flows make the public private partnership mode a suitable arrangement for project completion. a special separate sector, complex
