Contract Farming

The Government of India's National Agricultural Policy envisages that private

participation will be promoted through contract farming and land leasing
arrangements to allow accelerated technology transfer, capital inflow and
assured market for crop production, especially of oil seeds, cotton and
horticultural crops. National Agricultural Policy of GoI has also recognised
contract farming as an important aspect of agri-business and its significance for
small farmers. The Inter -Ministerial Task Force on Agricultural Marketing reforms
observed that contract farming was becoming increasingly important.
NABARDs Initiatives in contact 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 AEZs) aimed at promoting
increased production of commercial crops and creation of marketing avenues for
the farmers.
Policy initiatives by NABARD
In order to augment the reach of bank credit and increase the production of
commercial crops as also for creation of marketing avenues for the farmers, all
contract farming arrangements (within and outside AEZs) are made eligible for
availing special refinance package from NABARD. The various initiatives
undertaken by NABARD in this direction are:
Financial Interventions
Special Refinance package for financing farmers for contract farming in AEZs
100% refinance to disbursements made by CBs, SCBs, RRBs and select
SCARDBs (having net NPA less than 5%)
Term facility for repayments (3 years)
Fixation of higher scale of finance for crops under contract farming.
Extension of refinance scheme for financing farmers for contract farming in
AEZs to contract farming outside AEZs besides coverage of medicinal and
aromatic plants.
Extension of Refinance scheme for contract farming under Automatic
Refinance Facility.
Preparation of banking plan for financing Diesel Gensets to Gherkin farmers in
Karnataka with TFO 1.71 crore
Area Development Project for grapes in Nashik District, Maharashtra with
TFO 402 crore.

Refinance support extended for contract farming within AEZs and outside to
various financing agencies during 2004-05 and 2005-06 was to the tune of
Rs.774 crore and Rs.268 crore respectively.
Developmental interventions
Conducting workshops and exposure visits for better interface among farmers
and entrepreneurs and popularization of contract farming concept.
Conducting crop specific studies in (Ex. Gherkins in Karnataka, Grapes in
Maharashtra and Mango in AP) to understand the gamut of contractual
arrangements.
Sensitisation of stake holders through State and District level meets and
consultations.
Sensitisation of Bankers through tailor-made training programme at Bankers
Institute for Rural Development (BIRD) Lucknow.
Follow-up with National Agricultural Insurance Corporation for insurance of
crops grown under contractual arrangements in AEZs.
Initiatives for expansion of scope of contract farming for medicinal plants
through corporate initiatives.

MEDC study supported by NABARD

NABARD extended financial support for conducting a comprehensive study on
contract farming by Maharashtra Economic Development Council (MEDC),
Mumbai and suitable follow-up action on the findings of the study is being
initiated. Contract farming arrangements for different types of crops, viz.,
sugarcane, cotton, vegetables, coffee, tea and food grains are already in vogue.
NABARD Study on the contract farming arrangements in various states
The study on contract farming arrangements in various states were taken up in
2004 covering 8 states. The salient features are as follows.
Contract farming as an arrangement has been operational across the states
and 15 companies small and large have this arrangement in place.
The arrangement encompasses a wide range of crops Basmati rice, aromatic
oils, seed production, potato to name a few.
The arrangement is beneficial to both the farmer and the company.
The major benefits accruing to the farmer are quality inputs, technical
guidance, assured market and price. There is an enhanced farm productivity &
income.

In many of the contract farming arrangements, the company enjoys twin

advantages viz., assured availability of quality produce at pre-decided rates and
assured market for companys products reaching even the remote areas. This
also facilitates building the image of the company and meets the social
responsibility quotient.
The inference is that contract farming, as practiced by different companies, is
serving the interest of both the parties, though in certain cases it is tilted more
towards the company.

Looking Ahead
NABARD would continue to focus on supporting banks towards financing
contract farming arrangements and also provide necessary support for
sensitization initiatives and to study the details of functioning and performance of
contract farming arrangements.
ANNEXURE
State and Contract Farming matrix
State/
Nomencl Short Details Benefit to
Institution ature of of the
Farmers/Benefit
the
Scheme
to Private House
Scheme

States/Districts
where it is
being
implemented

1. Assam
Hindustan
Paper Mill

Area
Developm
ent
Scheme

The Scheme
envisages
cultivation of
Bamboo on
wastelands.

Farmers would be
benefited in terms
of production and
income

8 Districts of
Assam
Cachar,
Hailakandi,
Karimganj,
Nagaon,
Kamrup,
Morigaon,
Udalguri and
Darrang

2. Bihar
1.
Seed
Minimum Rs. Rs. 100 per quintal Ara district
Sarvodaya production 100 per
to Samiti
Krishak
quintal
Sewa
Swablambi
Sahkari

Samiti

2. Doon
Basmati
Valley
rice
through
Aditya
Kumar,
entrepreneu
r

Assured
procurement

Crop grown
through organic
farming methods
prescribed by it.

Munger district

Supply of
quality inputs,
technical
guidance, buy
back of
produce at
pre decided
price.

Assured availability Chhatisgarh

of quality produce
in required
quantities at pre
decided rates

3. Chhatisgarh
MSSL
Mahindra
Krishi
Vihars

4. Himachal Pradesh
Himalayan 3 herbs
Assured
Assured supply
Internationa being
purchase of
l Limited
cultivated crop by the
company at a
prefixed price

Paona block of
Solan district

5. Karnataka
1. M/s
Gherkin
Assured
Assured supply of
Bharati
Processin market, good quality produce
price, 1000
Associates g
farmers
benefited.

Hassan,
Karnataka

2. M/s Sai
Agro Tech

Kolar, Karnataka

6. Madhya Pradesh
1. ITC Ltd.

eChoupal
for
Soybean
& Wheat

Information
on best
agricultural
practices
Supply of
farm inputs
Supply of
information on
weather

Availability of
quality Soybean &
Wheat at
reasonable prices
to ITC Ltd. for
captive
consumption

MP

forecasting
Price
discovery of
commodities
2.
Hindustan
Lever Ltd.

Wheat
Supply of
(Durum & farm inputs
Sharbati
wheat)

Availability of
quality wheat at
reasonable prices
for captive
consumption

MP

3. Cargil
India Pvt.
Ltd.

Wheat
Supply of
(Durum & farm inputs
Sharbati
wheat)

Availability of
quality wheat at
reasonable prices
for captive
consumption

MP

4. Rallies
India Pvt.
Ltd.

Wheat
Supply of
(Durum & farm inputs
Sharbati
wheat)

Availability of
quality wheat at
reasonable prices
for captive
consumption

MP

Purchase is
affected
through
traders. No
direct benefit
to farmers.

Availability of
aromatic oils for
export purposes

MP

Enhanced
farm
productivity &
income

i) achievement of
leadership by
delivering value to
agriculture

5. Reliance Aromatic
oils
(Lemon
Biograss,
Sciences
Palmaros
Ltd.
a,
Citronella,
Tulsi)
7. Punjab and Haryana
1. TATA
Chemicals

TATA
Kisan
Sansar
(TKS)
through
TATA
Krishi
Vikas
Kendra
(TKVK)

TKVK set up in
Sunam in
Sangrur district
of Punjab and
proposed to
cover 2700
ii) Social
villages in
engineering
through community Punjab &
Haryana
service
iii) Serving as a
complete solution
provider to farmers
and building lasting

relationship
iv) establishment of
new identity and
enhanced brand
image
v) Increased sale
of companys
products
(fertilizers,
chemicals etc.)
leading to
enhanced revenue
2.
Vardhaman
led
consortium
of spinning
mills of
North India
& State
Bank of
Patiala

Village
cluster
adoption
programm
e

i) Productivity
of cotton
increased
from 4.6
quintals in
2002-03 to
9.6 quintals
per acre.

Increased
Bathinda &
production & hence Muktsar districts
better capacity
of Punjab
utilization of plants
& machinery.

ii)
Expenditure
reduced from
Rs.7995 per
acre in 200203 to Rs.
7112 in 200304.

8. West Bengal
M/s Fritoley Cultivation
of
India
Processab
le Grade
potato
(with low
sugar
contents)

Farmers get all

critical inputs
through the
company at right
time in right
quantity. Further,
they also get
technical knowhow from the
company.
Company get
assured supply of

Hooghly,
Bardhaman and
Medinipur
(West) of West
Bengal State.

the raw material,

as the key input
supply is under
their regulation, the
quality of the raw
materials are more
or less as per their
specification
8. Maharashtra
Tata
Chemicals
Ltd.

Grapes Nashik
district

i Assured
quality of
grapes for
export and
improving
brand name
'Tata Grapes"

i Easy availability
of crop loan
(Rs.55000 /acre).

i. Scheme
implemented
through SBI.

ii Availability of
technical knowhow and supply of
required inputs
iii. No marketing
problem for
farmers.
Farmers are also
resorting to direst
sale whenever
local processes are
attractive.

2. S. H.
Patchouli
Kelkar
(Aromatic
Group of
oil plant)
companies

i) Availability
of tissue
culture
planting
material

Availability of
Ratnagiri &
assured quality raw Sindhudurg
material
districts

ii) Marketing
facility by the
company
3.
Champagn
e India
Limited

Productio
n of grape
wine Pune
distrit

i Easy
Assured supply of 2500 acres of
availability of quality raw material Wine grapes
planting
under contract
material
(@Rs.65-70 /.

4. Venkate
shwara
Hatcheries

Contract i. Technical
Broiler
inputs and
Farming in marketing of

Assured availability i) Being

of marketable
implemented
through Pune

Private Ltd. Maval

Block of
Pune
district

product is
assured.
ii. All recurring
expenditures
are borne by
the company

product.
The Company is
saving on the
investment cost as
well as
management cost

DCCB. ii) 120

units of 5000
birds each are
envisaged