Contract Based Agribusiness: Contract Farming

Contract Based Agribusiness – Agribusiness is commercial form of agriculture. Growth through agribusiness can be achieved by Contract Farming. System of Agriculture Marketing can be changed by the Contract Farming Service in India. There is a huge Difference Between Contract and Traditional Farming System. The scenario of agriculture and farming system is changing day by day. Emergence of different new agriculture based companies have given many opportunities to grow farmers and professionals through Agribusiness and Contract Farming.

Contract Farming

When a farming project is based on contract between the producer and buyer, it is called contract farming. Agriculture products are produced by the farmers and purchased by the buyers.

  • Contractor: Contractor is a person who contracts for agricultural product with farmers/buyer or company. Both, farmer and buyer can be contractor.
  • Producer: In agriculture, farmers are producer.
  • Buyer: A private company, organization or business person can be buyer.

Role of Producer

Farmer or producer in agriculture, who gets an agreement from a company or organization is the responsible person for starting the initial activity. His work includes,

  • Producing crop– A farmer will produce only a specific crop e.g., sugarcane, if he gets a contract from sugar mill.
  • Crop Management– All cultural activities i.e., irrigation, fertigation, weeding, insect-pests managment etc., are done by the farmers.
  • Harvesting– Harvesting is also done by the farmers. In some cases it is completed by the company, itself, e.g., technical harvesting of lac crop.

Role of Buyer

Farmer receive contract money before or after the harvesting of crop. The roles of buyer are, but not limited to,

  • Provides required resources.
  • Provides scientific and technical knowledge.
  • Harvesting.
  • Transportation.
  • Sometime acts as financer.

Agribusiness Based Contract Farming

Contract based agribusiness is a new and light weight model of commercial and professional agriculture.

In contract based agribusiness, there are two types of contract,

  • Farmer makes a contract with company or buyer.
  • Company or business man approaches farmer.

Tender based contract between farmer and buyer is done for standing crop.

Contract by farmers: A farmer can contract with any agri based company for a specific agriculture raw material before the production of crop.

Contract by company or organization: A company can deal an agreement with different farmers to use his land and other locally available resources.

Why Contract Farming

  • Problems in marketing– Cultivation and production of agriculture field crop is not a big deal. Farmer’s main problem is post harvest activity e.g., transportation and marketing. Most of time they are unable to find right market place for their agriculture raw product.
  • Farmers not getting fair price for their goods– Farmers sell their raw products to local vendor in very low price. Their margin of profit is very low.
  • To extend area of business– Business is scalable. It can be extended beyond limitations. A fast growing agriculture company makes contract with farmers to extend their area of business or experiment through farmer’s land.
  • Advertisement– Contract farming is a very good option for company’s advertisement. A company can advertise its product in remote areas also through contract farming.
  • Crop Insurance– Crop insurance or insurance is a process in which live stock and field crops are insuranced for a specific period. Insurance is done against bad climate, insect-pests etc. In contract farming crop insurance is covered by the company.
  • Technical support– Farmer can get technical support from contracted company.
  • Information– Important scientific knowledge is provided by the company.

Importance of Contract Farming in Agribusiness

Role of contract farming in agriculture can be understood quickly,

  • Farmer gets right market.
  • Farmer gets advanced technology.
  • Transportation becomes easy for farmer.
  • Farmer gets right price.
  • Farmer becomes free from the worry of insurance.
  • Farmer becomes free from the worry of marketing.
  • Overall practice of farming becomes easy.

Types of Different Contract Farming in Agriculture

Agriculture is a wide field of study. Different types of business model of different allied sectors can be used in contract farming. Some agribusiness model are as follows:

  1. Poultry farming.
  2. Dairy farming.
  3. Sugarcane cultivation.
  4. Flower production.
  5. Other crops.

Also read: Cultivation practice of African marigold.

Also read: Top 10 farming business ideas.

Poultry Farming

Role of farmer: Farmer has to construct shed for chicken.

Role of company: Company provides medicine, little chicks, scientific information.

Dairy Farming

Role of farmer: Farmers have to construct shed for cow. He has to purchase cow for milk. Farmer is responsible for timely vaccination and medication of livestock.

Role of company/buyer: Company or buyer purchases milk from farmers in fixed rate.

Sugarcane Cultivation

Role of farmer: Farmer cultivates sugarcane crop in his field. Management cost is bear by the farmer.

Company/buyer’s role: Buyer purchase the raw crop at fixed rate.

Flower Production

Flower production is a very profit able agribusiness. Most of the time, commercial producer make an agreement with a company or business person working in this field before cultivation of crop. Farmer has to find right market and potential buyer.

Same procedure can be followed while contracting for other crops.

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About the Author

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1. Author and Content Writer. 2. Agriculture Consultant and Farmer's Trainer. 3. Agriculture Entrepreneur.

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