The agriculture sector in India contributes significantly to the country’s Gross Domestic Product and offers employment to millions of workers. Agriculture is intimately linked to the culture, not just as facilitating trade and a source of income. Farmers are now separating themselves from agricultural production due to declining earnings and looking for alternate sources of income. As a result of these new advances, migration from villages to cities will begin. Producers will be eager to lease their property on a contract basis in the hopes to make quick money. Contract farming will also have a terrible impact on the lives of millions of Indians who work in the agriculture sector.
What is Contract Farming?
It is a production method in which a corporation or buyer and a farmer agree to produce a specific amount and quality of different products on the landowner’s land, with the farmer’s responsibility to harvest and ship the goods to the corporation. The corporation provides all of the necessary agricultural inputs, such as land preparation, technical guidance, and market facilities, while the farmer provides the land and labor for production. Although an oral agreement is possible, most contracts are written and documented.
Contract Farming Objectives:
Contract farming, which has changed the agricultural sector, has several essential goals:
- Increased business investment and the development of new marketplaces are both goals.
- To provide the farmer with a stable stream of revenue.
- To maintain product quality needs and enhance product diversity in terms of shape, size, and coloring.
- To decrease immigration from rural to urban areas while also creating jobs.
- Because the firm cannot adjust the price of the crops after harvesting, the farmer benefits from price stability.
- This may offer the security of risk transfer in the case of an error.
Advantages and Disadvantages for Farmers:
It enables farmers to gain technological knowledge, methods, or procedures that are required to boost production but have previously been unavailable owing to a lack of funding, higher interest rates on loans, or the potential risk associated with them.
- Service for inputs and production:
Farmers who engage in contract farming have access to a variety of agriculture products, including seeds, expert guidance, fertilizers, and various production methods.
- Decrease Risk:
Farmers gain pleasure from sharing risks in the event of a problem.
- Pre-fixed Crop and Price:
Farmers gain knowledge of market demands when planting the seeds, as well as security in the advancement of the predetermined price agreed upon in the arrangement.
Advancement of Funds:
It enables small farmers to get finance for output that would otherwise have remained idle.
- Decrease Migration:
It contributes to the strengthening of rural areas and, as a result, the reduction of migration from rural to urban areas.
- New Marketplaces:
It offers farmers confidence to produce regularly because they can now offer their crops or products to a reputable market and trustworthy purchasers.
The larger yield on contract farming might also come with more dangers. A sudden change in weather, the impact of fertilizer, pests, or a lack of concern can lead to a lesser yield, and the farmers will be unable to deliver the agreed-upon amount of crop.
- Repayment of a loan:
Often a farmer may take loans to satisfy the product’s quality and production standards, although there is a chance, he won’t be able to pay it back and will die in debt.
- Employment losses
The purchaser may have complete control over the production; yet, the implementation of modern equipment for improved production may result in job losses because it requires less staff to operate.
- No Crop Sales:
If the harvest does not meet the quantity and size specifications agreed upon at the time of contracting, the producer will be unable to sell it.
Farmers who engage in an agreement with a corporation may be forced to rely on that company for years to continue producing and selling their harvest.
Sponsors’ employees who are in charge of awarding contracts, supplying inputs, and purchasing crops may take advantage of the system and engage in corrupt practices that harm farmers.
Contract Farming Need in India:
We need to adapt our traditional farming methods to current contract farming. Although contract farming is indeed not new to India, it was particularly exploitative during the British era. Contract farming has been practiced in numerous Indian states over the previous three decades, but it is not legal everywhere. Because India is a developing country, it needs to tackle farmers’ difficulties and change the agricultural process, so contract farming should be a must. The following are some of the reasons why contract farming is necessary:
- To have accessibility to cutting-edge modern technologies as well as management abilities.
- Emerging markets and adequate infrastructure
- a sufficient quantity of funds for production,
- Assurance of a specific price can give defined revenue and security, reducing farmer suicide.
- Private sector investment is on the rise.
- Increase the number of people employed and the amount of money they earn.
Farmers were introduced to new technology, inputs, professional guidance, management strategies, and connectivity to multiple markets through contract farming, which evolved the traditional manner of farming. In (Sep 2020), contract farming is being given national prominence. It will function as an elevator to address the problems that farmers encounter and help them go toward growth, recognition, and development.