Contract farming involves a pre-agreed price between the company and the farmer. The agreement is defined by the commitment of the farmer to provide an agricultural commodity of a certain type at a time and a price and the quantity required By a committed buyer, mostly a large company.
Contract farming provides a more reliable, regular and timely sources of income to farmers. Broadly speaking, it suggested that for the successful implementation of contract farming there should be appropriate coordination between the farmers and buyers both acting in organized manner and advisable for both sides
Contract farming is a system which refers to production and supply of agricultural produce under a forward contract. It is a commitment to provide an agricultural product at a fixed price, time and required quantity to a known buyer . It Basically, involves four things pre-agreed price, quality, quantity and time. The way farmers perceive contract farming, it is a relationship with the firm while from the purchaser’s point of view; it is a good quality, timely availability of material at a pre-determined price, which is the basic requirement for any successful agro-business firm whether operating at National /International market. Simply, it allows for establishing direct relationship between the farmer and firm, as substitute for open market. It is a flexible means which supports price and production and an assured market in advance. Contract farming is essentially a market driven farming, not like traditional farming, where farmers first produce a product and then search for its market.
Contract farming provides provisions in three main areas are given below-
1.Market Provision
-In this both grower and buyer agree to the terms and conditions of future sale of a product.
2.Resource Provision
-In this buyer agrees to supply selected inputs like seeds, fertilizers, technical advice regarding the cultivation of crop.
3.Management Specification
-The grower agrees to follow the recommended production method and input supply from the firm
The essence of contract farming is production and supply of agricultural produce under advance contract in which supplier has agreed to produce certain agro processing produce quantity under pre-decided price. Prices are fixed at planting time and firm provide proper supervision over the production process to the farmers. Generally, contracts provide benefits to both the firm and contracted growers particularly with respect to risk of crop failure conditions. On the other hand, firm also takes advantage like quantity and quality of the product. In this manner relationship between the firm and farmeris find one of the close one.