COMMENTARY CURRENT SCIENCE, VOL. 93, NO. 12, 25 DECEMBER 2007 1661 Contract farming for organic crop production in India R.
T. Gahukar There is an increasing demand throughout world for organic food and fibre. In India, efforts are being made for organic crop production through contract farming.
Experiences showed that farmers are benefited from technical guidance, supply of quality farm inputs and assured purchasing at remunerative price. This venture, executed by a tripartite agreement, would bring about favourable changes in the present conventional agri- culture to make it sustainable and commercial. Likewise, consumers would get certified organic products at reasonable price.
Indian agriculture is progressing in all spheres to keep up with the ever-increas- ing population. In the Tenth Five-Year Plan (2002 307), the government envis- aged at least 4% growth rate per annum, so that food security is assured and em- ployment opportunities in agriculture are created. The National Agricultural Policy also aimed to strengthen the national economic growth through efficient mar- keting to accelerate foreign exports by establishing Agri-Export Zones for vari- ous crops in major crop-growing areas, where technical know-how and facilities for export will be provided.
Therefore, there is a shift from sustainable to com- mercial agriculture. Farmers can increase ... more. less.
their income from crop production. Simi- larly, in several developed countries, demand for organic food and fibre, and by-products is increasing day-by-day.<br><br> This change is mainly due to overuse or misuse of chemicals, particularly syn- thetic insecticides, fungicides, herbi- cides, fertilizers, plant growth regulators, etc. that resulted in undesirable side ef- fects not only in the agro-ecosystems, but also on human health and life systems of beneficial fauna and microorganisms. These recent trends in consumerism have opened a new vista for agricultural produc- tion on large scale by adopting contract farming, which can transform small farm- ers into viable commercial producers by monitoring quality, quantity and cost of crop production, and can link production with consumption.<br><br> This change can help develop markets and bring about changes in the present conventional agriculture which is expected in India in near future. This note therefore discusses the present situation and future strategies of commu- nity cultivation. Need for contract farming in organic agriculture The organic agriculture includes growing of crops by a set of guidelines that prohibit the use of synthetic products/chemicals such as fertilizers, pesticides, plant growth promoters and livestock additives.<br><br> There- fore, soil fertility and pest management is achieved through cropping patterns (rotations, inter/mix-crops, pest and dis- ease-resistant genotypes), manure (green manuring, organic manures, compost), biofertilizers, cultural practices (weeding, planting, conventional tillage) and biopes- ticides, including plant-derived products. At present, this system seems to be an ideal and valid solution to produce food and fibre without chemicals and to pro- tect the environment. Further, consumers are becoming conscious and critical about the quality of food and by-products that affect their health though the toxicity de- pends, to some extent, on the type of food consumed.<br><br> India being one of the signatories for the World Trade Organization, liberaliza- tion, privatization and globalization has opened new grounds for agricultural mar- keting. The National Programme for Orga- nic Production of the Commerce Ministry, and the State Governments are actively promoting investment in support of pro- mising ventures in organic agriculture. Chellappa 1 mentioned 4 315% growth for organic products in the domestic market also.<br><br> Facilities for export and certifica- tion of farm produce and by-products are being provided in the agri-export zones (Table 1) by the Agricultural Processed Food Products Export Development Agency (APEDA), National Bank for Agriculture and Rural Development (NABARD), Na- tional Boards for commodities like spices, tea, cashew nut, coffee, etc., International Federation for Organic Agriculture Move- ment, and Regional or State Marketing Federations. Additionally, commercial banks have initiated such banking for faci- litating loans. In fact, Uttarakhand, Madhya Pradesh and Kerala have been declared as 8organic states 9, and the State Bank of India has announced Rs 101 crore for contract farming in Maharashtra and Goa 2 .<br><br> Contract farming is an agreement bet- ween farmers and processors and/or marketing firms for the scientific produc- tion and supply of a specified agricultural Table 1. Agri-export zones recently established in India State Products Andhra Pradesh Mango pulp, fresh vegetables, grapes Assam Fresh and processed ginger Bihar Litchi Himachal Pradesh Apple Jammu and Kashmir Apple, walnut Jharkhand Vegetables Karnataka Gherkins, flowers Kerala Horticultural products Madhya Pradesh Potato, onion, garlic, seed spices Maharashtra Mango, grape, onion, flowers, orange Orissa Ginger, turmeric Sikkim Flowers (orchids), cherry, pepper, ginger Uttar Pradesh Mango, potato, vegetables Uttarakhand Litchi, flowers, medicinal and aromatic plants West Bengal Litchi, pineapple, potato, mango, vegetables COMMENTARY CURRENT SCIENCE, VOL. 93, NO.<br><br> 12, 25 DECEMBER 2007 1662 product at a frequently and mutually pre- determined price 3 . Technical guidance on cultivation practices, harvesting, storage, etc. and quality inputs at wholesale rate are assured by the tripartite contract.<br><br> The main objective is to increase crop pro- duction, improve quality farm produce and possibly minimize cultivation cost. The farmer is therefore compelled to pro- vide the produce in a specific quantity and quality determined by the processor. Although legal protection is possible to both parties, the success depends upon physical, social and cultural conditions because all terms and conditions pre- scribed in the agreement are to be fully respected by concerned parties, so that the project gives an impetus to scientific planning and implementation of inte- grated crop cultivation.<br><br> Considering the present socio-economic status of Indian farmers, contract farming seems to be an ideal option because this system would have certain advantages over the present crop production and marketing systems, such as: 1. Profit in produce sale is possible by capitalizing the scientific research in post-harvest technologies. 2.<br><br> Indian agriculture per se is becom- ing commercial due to global demand for a variety of foods and fibre, and food products. 3. Any crop can be cultivated on a large area to obtain produce of uniform quality by adopting appropriate techno- logy.<br><br> Crop production is also possible on small land-holdings through coopera- tive/corporate farming to enhance pro- ductivity and avoid admixture or inferior quality produce. 4. Technology transfer becomes easier due to large-scale adoption.<br><br> 5. Risk involved due to fluctuation in market price is minimized. This point is relevant to the present strategy of farm economics as the Minimum Support Price is generally declared at the end of crop season and it often remains ambiguous.<br><br> 6. Commercial and nationalized banks are coming forward to finance contract farming through soft loans and are revis- ing prime lending rates. 7.<br><br> Additional income from intercrops is certain due to crop diversification. Consolidation of small and marginal lands can make farming economically viable, resulting in higher (>30%) net re- turns than traditional/conventional farm- ing systems. Experiences Contract farming is implemented in three ways: (i) procurement contract, wherein sale and purchase conditions are speci- fied, (ii) partial contract, where the pur- chaser provides some inputs and purchases the farm produce at predetermined prices and (iii) total contract, where the pur- chaser supplies and manages all inputs, but the farmer has to lease land and sup- ply labour.<br><br> These contracts can be exe- cuted with individual farmers, a group of farmers or their cooperatives. In India, contract farming is being implemented successfully for food crops in Punjab, Haryana, Maharashtra, Tamil Nadu, Raja- sthan and Karnataka by private compa- nies. In the fibre sector, cotton farming has been executed by Super Spring Mills in Tamil Nadu and Appachi Mills in Kerala and Karnataka Textile Mills Association and Gokak Forbes in Karnataka, with the help of seed suppliers, insurance compa- nies, banks, and produce purchasing organizations 4,5 .<br><br> The salient feature of these contracts is that farmers are free to sell cotton in the open market, if the price offered by the companies is not at- tractive enough. The involvement of the local self-help groups had created interest in the farming communities having small land-holdings. This participatory approach has resulted in upgrading the livelihood of farmers, particularly through bank loans (Table 2).<br><br> Perspectives In the case of organic food produced by a large number of farmers, marketing has to be arranged at village or taluk level. At present, the Indian food market is valued at Rs 650,000 crore, but only 1.6% of the farm products is exported in comparison to USA (12%), the Nether- lands, Canada (6%), Spain, UK, Italy, Brazil, Australia (3%), and Argentina, Denmark, Thailand (2%). New crop zones that have been created during the last few years (e.g.<br><br> Punjab for basmati rice) may boost such exports, because export has advantages over local/retail market- ing for the following reasons. (i) Since the average growth for orga- nic farming is about 20 325% and higher prices (15 350%) are possible in the in- ternational trade 6 , export of organic food produced by contract farming will cer- tainly increase in near future, as India is recognized as an international agricul- tural hub. (ii) The Government supports contract farming for all crops grown under organic agriculture and biotechnological opportunities are foreseen because of maintenance of soil health, avoidance of environmental pollution, no risk of chemi- cal residues in food and fodder, opportu- nities for rural employment, etc.<br><br> These parameters lead to sustainable agricul- ture. (iii) This system will augment the farmer 9s income; help in the conserva- tion of natural resources, and will have positive effects on the socio-economic aspects of the farming communities (e.g. generation of rural employment, im- proved household nutrition, assured local food security, reduced independence on external farm inputs, etc.).<br><br> (iv) The purchasing companies help farmers identify proper land for contract farming with organic cultivation, plan crop production, arrange timely supply of quality inputs, provide technical guid- ance throughout crop growth and har- Table 2. Progress of self-help groups and bank loans Year No. of self-help groups Loan availed (Rs in million) 1992 393 255 3 1993 394 620 7 1994 395 2,122 24 1995 396 4,757 61 1996 397 8,598 118 1997 398 14,317 238 1998 399 32,995 571 1999 32000 114,775 1,930 2000 301 263,825 4,809 2001 302 461,478 10,263 Source: NABARD, New Delhi.<br><br> COMMENTARY CURRENT SCIENCE, VOL. 93, NO. 12, 25 DECEMBER 2007 1663 vesting, assure purchasing and provide opportunities to add value to the farm produce.<br><br> Thus, marketing risks and un- certainty are eliminated. Challenges (i) Organic farming on contract basis re- quires a long-term approach as it is based on the trust of farmers, for which grass- root intervention is critical for its suc- cess. (ii) If it is not profitable to both par- ties, the written agreement becomes a use- less effort.<br><br> Thus, responsibilities of both parties should be fulfilled. The agree- ments differ according to the commodity produced by contracting farmers. Gener- ally, farmers may not take cognizance at the time of signing of the clauses that might be exploitative in short or long term; such agreements can jeopardize in- vestments and interest.<br><br> For example, the company changes norms of quality dur- ing the crop season and farmers get lower price than the predetermined rate. The purchaser has a right to outright re- ject the produce. Due to deterioration in quality and insufficient quantity, pur- chasing may be delayed or avoided.<br><br> Fur- ther, farmers have no option for crop varieties, pesticides and fertilizers, and purchasing from particular company/ distributor is often made compulsory. (iii) Although 44% of the country 9s GDP comes from retailing, retail market- ing of organic food is limited compared to other countries, e.g. 85% in USA, 40% in Thailand, 35% in Brazil, 20% in China and only 2% in India 6 .<br><br> (iv) Convincing farmers about the eco- nomic benefits of contract farming through field demonstrations should be taken up urgently. This may consist of educating farmers about new farming techniques, marketing skills for organic food and fibre, seeking cooperation from business communities and firms, informing consum- ers about the ill-effects of chemicals, etc. Sufficient number of the trained staff for such extension work in villages is a pre- requisite for the success of contract farm- ing.<br><br> (v) Certification cost for organic pro- duce is comparatively high and needs to be reduced drastically. (vi) Facilities for storing and verifica- tion of quality of agricultural commodi- ties at village level are lacking. (vii) Participation of processing firms/ purchasers is limited, as they are not aware of the long-term benefits and they also need large areas, which is difficult in regions where small and fragmented land-holdings are common.<br><br> (viii) Banks are ready to finance con- tract farming in organic agriculture to only those farmers who are not default- ters. (ix) Under unfavourable climatic con- ditions, the quality of farm produce can- not be maintained or the whole crop may fail. Crop insurance initiated by the Gov- ernment needs to be implemented on a large scale.<br><br> Also, future liabilities of each party in the event of unforeseen cir- cumstances are not included in such con- tracts and the committee for redressal of disputes has not been set up at regional or state level. Conclusion The Government of Maharashtra had de- cided in June 2005 to modify the 1963 APMC Act (Distribution) in which con- tract farming has been included and rename it as 8Model Act 9 7 . Early implementation of this Act would encourage farmers, be- cause despite the present constraints, success with strong linkages between farmers and processors/marketing agencies has been achieved.<br><br> Such partnership is essential so that the objective is fulfilled for a sustainable business relationship and marketing performance. Under unfa- vourable climatic conditions, farmers should be ready to bear some risks for farm production, if appropriate contracts are prepared and respected. The compa- nies should divert some funds towards creating basic facilities for agricultural and community development, so that farmers are encouraged to take up secon- dary activities such as agroforestry, sylvi- culture, horticulture, sericulture, etc.<br><br> Farmers as a group of cooperatives are free to take opinion of experts for both scientific as well as commercial aspects of farming and should join together for producing quality produce under sustain- able agriculture through double-cropping pattern, selection of crops by critical study of the rainfall pattern, marketing avenues, and timely availability of proper farm inputs at proper time. Actions of Government agencies on contract and organic farming are limited to certain ar- eas and a few crops. Therefore, subsidies on organic manures, biopesticides, biocon- trol agents, biofertilizers, etc.<br><br> should be allowed at least to those farmers who are inclined to practice such methods. Unless the Government takes initiatives, farmers would not come forward to adopt such methods in their fields. Government agen- cies should therefore review and formu- late strategies with rigid and appropriate steps to promote these ventures in future, while considering supportive prices and establishing remunerative marketing links for encouraging organic cultivation for export and to enhance local food se- curity.<br><br> 1. Chellappa, S., Times Agric. J ., 2003, 2 , 34 336.<br><br> 2. Anon., The Hitavada , Nagpur edn, 7 March 2005. 3.<br><br> Report, Food and Agriculture Organization of United Nations, Rome, Italy, 2001. 4. Mudholkar, N.<br><br> J. and Gahukar, R. T., Baliraja , 2005, 36 , 76 382.<br><br> 5. Basu, A. K.<br><br> and Tanweer, A., J. Indian Soc. Cotton Improv ., 2005, 30 , 1 320.<br><br> 6. Yadav, N., Times Agric. J ., 2005, 3 , 42 344.<br><br> 7. Patil, H., Shetkari , 2005, 6 , 3 34. R.<br><br> T. Gahukar lives at Plot 220, Reshim- bag, Nagpur 440 009, India. e-mail: Gahukar_ngp@sancharnet.in<br><br>