Professional Documents
Culture Documents
CMA
IIM
Ahmedabad
Input and output market failure for farmers
• Procurement failure for agro-industry (Cost
and Quality Competitiveness reasons)
Promoting high-value new crops
Lowering cost of production (either by raising
productivity or cutting costs directly)
Raise returns by value addition
Lowering transaction costs
An arrangement for the production and supply of
agril./allied produce under advance contracts, with
a commitment to provide a commodity of a type, at
a time and a price, and in the quantity required by
a known buyer.
Four major aspects - pre-agreed price, quality,
quantity or acreage (mini./maxi.) and time.
Three types of contracts: Procurement/marketing,
Partial input supply and purchase (resource
provision), and Complete - (production mgt.)
Flexible for both parties
Less resource demands on integrator
Sharing of risk
Non-availability/-viability of corporate farming
option
Access to market/technology/credit by farmers
Pressures/opportunities like organic trade, fair
trade, ethical trade
supermarket chain growth including FDI in
retail
international trade and quality issues like
SPS measures, organic trade/fair
trade/ethical trade
banking and input industry push for CF
farming crisis
failure of traditional cooperatives, and
withdrawal of state from agricultural space
!
Supply of
produce
Credit and
Payment after
Supply of inputs
on credit Farmer/AoF deduction of dues
/Cooperativ (in some cases)
e
Produce
Payment
Produce
MoU
Farmer
Payment Company
for service
Input
Extension
Company/ies
Extension
co./buying
Machines co./PAFC
and
equipment
PAFC Reimbursement of
extension fee, waiver
of purchase taxes,
and approval of CF
Agri
input Payment P
company for inputs a Processor/
y Marketer
m
e
n
Supply of
inputs
t
Contract production
organization, supply of Local
company seed (with Middleman
Grower part advance payment /Facilitator/
by grower), extension,
Farmer and input credit under
production
selection, agreement with no organiser
package of liability on company
practices,
payment for Farmer
produce (thru adoption and
bank* to tripartite
Procurement
farmer and agreements,
at fixed or
facilitator), and procurement
mkt. linked
supervision , & local
price,
under quality lab Seed supply, payment of
grading &
agreement mgt. under commission for extension,
quality
agreement procurement & seed
testing of Supply of produce
produce by through facilitator distribution services under
facilitator under tripartite agreement &
agreement with no reimbursement of
liability on company Company seed/other costs & seed
for any loss replacement
Company
Collection
Centre/
Factory
* Bank finances contract production @ Rs. 10,000/acre (NABARD norm is Rs. 13,000/acre for potato) at
7.5% rate of interest. It receives the money from the company for payment to the farmer for his produce,
from which it pays the facilitator (as per the authorization given by the grower), deducts its own dues, and
transfers the remaining amount in the farmer’s bank account.
Intermediary model due to the transactions
cost logic and competitive national and
international food/fibre markets where
cost and quality will determine success. It
is already being practiced in different forms
by many CF agencies. But, the exclusion of
small farmers will remain an issue and their
deprivation is likely to increase in the
absence of more competitive open markets
Co-operative-Corporate Alignment
Thai PGC with Frito-Lay Thailand (Pepsico)
Bimandiri model in Indonesia
It works with farmer groups on the basis of agreed
quantities for supply only to Carrefour.
Prices are either fixed in advance or related to
returns within a floor/ceiling price range.
The company’s margins are said to be fully
transparent.
Contract Farming System in Thailand
(Direct)
Produce Produce
Credit &
Coordination &
Extension
Facilitation
State (BAAC & DOAE)
"!
Competition in CF
Let CF whither away? But, it may not
Small farmer upgradation
/organisation/incentives for inclusion
Too many hopes from CF?
Regulation must - not more, but better
! ' ! #
Target
Educated small farmers only? Needed and Relevant
for south Asia?
Niche markets- product differentiation and branding
e.g. fair trade, organic, place of origin, poor
producer concern, co-op. products
Domestic markets – supermarkets and
fresh/processed markets
Large scale Corporate farming- poverty reduction
through wage linkage? Bharti’s Fieldfresh model in
Punjab
Thanks