Contract farming is agricultural production carried out according to an agreement between farmers and a buyer, which places conditions on the production and marketing of the commodity. Contract farming (CF) is defined as forward agreements specifying the obligations of farmers and buyers as partners in business. Legally, farming contracts entail the sellers’ (farmers’) obligation to supply the volumes and qualities as specified, and the buyers’ (processors’/ traders’) obligation to off-take the goods and realize payments as agreed.
Need for contact farming in India
- Distress Farming Situation: There is increasing stances of agitations by farmer groups in several states against plunging crop prices and demands for loan waivers.
- National Agricultural Policy envisages promotion of private participation via contract farming and land leasing arrangements.
- Poor price discovery: There is an APMC monopoly on agriculture produce and restriction on direct buying from the farmers.
- NITI Aayog observed that taxes charged by APMC for contract framing are exploitative. In this context, the Committee of State Ministers on Agricultural Reforms recommended that contract farming should be out of the ambit of APMCs.