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CONTRACT FARMING IN INDIA

INTRODUCTION
Contract Farming has been in existence Ior many years as a means oI organizing the
commercial agricultural production oI both large scale and small scale Iarmers. In an age
oI market liberalization, globalization and expanding agri business, there is a danger that
small- scale Iarmers will Iind diIIiculty in Iully participating in the market economy. The era
oI globalization, the concept oI Contract Farming` is an eIIective way to co-ordinate and
promotes production and marketing in agriculture. 'Contract Farming can be deIined as an
agreement between Iarmers and processing or marketing Iirms Ior the production and supply
oI agricultural products under Iorward agreements, Irequently at predetermined prices.

Contract Iarming is agricultural production carried out according to an agreement
between a buyer and Iarmers, which establishes conditions Ior the production and marketing
oI a Iarm product or products.Typically, the Iarmer agrees to provide established quantities oI
a speciIic agricultural product, meeting the quality standards and delivery schedule set by the
purchaser. In turn, the buyer commits to purchase the product, oIten at a pre-determined
price. In some cases the buyer also commits to support production through, Ior example,
supplying Iarm inputs, land preparation, providing technical advice and arranging transport oI
produce to the buyer`s premises.
Contract Farming is essentially an agreement between unequal parties, companies,
Government bodies or individual entrepreneurs on the one hand and economically weaker
Iarmers on the other. The main Ieature oI Contract Farming is that the buyer/contractor
supplies all the material inputs and technical advise required Ior cultivation to the cultivator.
This approach is widely used, not only Ior tree and cash crops but also, increasingly Ior Iruits
and vegetables, poultry, pigs, dairy products and even prawn and Iish. Indeed, Contract
Farming is characterized by its 'enormous diversity not only with regard to the products
contracted but also in relation to many diIIerent ways in which it can carry out.

The advantages, disadvantages and problems arising Irom contract Iarming will vary
according to the physical, social and market environments. More speciIically, the distribution
oI risks will depend on such Iactors as the nature oI the markets Ior both the raw material and
the processed product, the availability oI alternative earning opportunities Ior Iarmers, and
the extent to which relevant technical inIormation is provided to the contracted Iarmers.
These Iactors are likely to change over time, as will the distribution oI risks.
History of Contract Farming
Contract Farming can be traced back to colonial period when commodities like Collin
Indigo were produced by the Indian Iarmers Ior English Iactories. Seed production has been
carried out through contract Iarming by the seed companies quite successIully Ior more than
Iour decades in the country. The new agricultural policy oI 2000 sought to promote growth oI
private sector participation in agribusiness through contract Iarming and land bearing
arrangements to accelerate technology transIers, capital inIlows and assured market Ior crops.
The colonial period saw the introduction oI cash crops such as tea, coIIee, and rubber,
poppy and indigo in various parts oI the country, mostly through a central expatriate-owned
estate surrounded by small out growers model. ITC introduced cultivation oI Virginia
tobacco in Coastal Andhra Pradesh in the 1920`s incorporating most elements oI a Iair
contract Iarming system and met with good Iarmer response. This was replaced by auctions
in 1984. Organized public and private seed companies, which emerged in the 1960`s. The
Pepsico introduced tomato cultivation in Punjab in the 1990`s under Iarming to obtain inputs
Ior its paste-manuIacturing Iacility established as a pre-condition to its entry in to India. This
was sold to Hindustan Lever in 2000, which had earlier acquired the kissan Karnataka.
Contract Farming was the strategy oI choice Ior almost all Iood processing projects
contemplated in the 1980`s and 1990`s.Contract Farming is again vogue, and even tried Ior
bulk production oI subsistence crops, such as paddy-rice, maize and wheat. Commodity co-
operatives, which emerged in the 1950,s provided most services envisaged under ideal
contract Iarming to their members and bought back the supplies oIIered at contracted prices,
although these were not strictly contract arrangements. The succeeded enormously, leading to
their replication and compelling private companies also to adopt similar approaches.
Contract Farming has been promoted in the recent three decades as an institutional
innovation to improve agricultural perIormance in less developed countries. This system was
accepted and used as one oI the promising institutional Irameworks Ior the delivery oI price
incentives, technology and other agricultural inputs. Local Governments, private local Iirms,
Multinational companies, some international aid and lending agencies etc have been involved
in these contract Iarming schemes (Glover 1994).
TYPES OF CONTRACT FARMING
These are a Iew oI the models oI contract Iarming that are accepted globally:
Centralized model
ucleus Estate model
Multipartite model
InIormal model
Intermediary model
Centralized model: The contracting company provides support to the production oI the crop
by smallholder Iarmers, purchases the crop Irom the Iarmers, and then processes, packages
and markets the product, thereby tightly controlling its quality. This can be used Ior crops
such as tobacco, cotton, paprika, sugar cane, banana, coIIee, tea, cocoa and rubber. This may
involve tens oI thousands oI Iarmers. The level oI involvement oI the contracting company in
supporting production may vary.
Nucleus Estate model: This is a variation oI the centralized model. The promoter also owns
and manages an estate plantation (usually close to a processing plant) and the estate is oIten
Iairly large in order to provide some guarantee oI throughput Ior the plant. It is mainly used
Ior tree crops, but can also be Ior, e.g., Iresh vegetables and Iruits Ior export.
Multipartite model: The multipartite model usually involves the government, statutory
bodies and private companies jointly participating with the local Iarmers. The model may
have separate organizations responsible Ior credit provision, production, and management,
processing and marketing oI the produce.
Informal model: This model is basically run by individual entrepreneurs or small companies
who make simple, inIormal production contracts with Iarmers on a seasonal basis. The crops
usually require only a minimal amount oI processing or packaging Ior resale to the retail
trade or local markets, as with vegetables, watermelons, and Iruits. Financial investment is
usually minimal. This is perhaps the most speculative oI all contract-Iarming models, with a
risk oI deIault by both promoter and Iarmer.
Intermediary model: This model has Iormal subcontracting by companies to intermediaries
(collectors, Iarmer groups, GOs) and the intermediaries have their own (inIormal)
arrangements with Iarmers. The main disadvantage in this model is it disconnects the link
between company and Iarmer.
ADVANTAGES FOR FARMERS

The prime advantage oI a contractual agreement Ior Iarmers is that the sponsor will normally
undertake to purchase all produce grown, within speciIied quality and quantity parameters.
Contracts can also provide Iarmers with access to a wide range oI managerial, technical and
extension services that otherwise may be unobtainable. Farmers can use the contract
agreement as collateral to arrange credit with a commercial bank in order to Iund inputs.
Thus, the main potential advantages Ior Iarmers are:
1. Provision oI inputs and production services;
2. Access to credit;
3. Introduction oI appropriate technology;
4. Skill transIer;
5. Guaranteed and Iixed pricing structures; and
6. Access to reliable markets.
Provision of inputs and production services
Many contractual arrangements involve considerable production support in addition
to the supply oI basic inputs such as seed and Iertilizer. Sponsors may also provide land
preparation, Iield cultivation and harvesting as well as Iree training and extension. This is
primarily to ensure that proper crop husbandry practices are Iollowed in order to achieve
projected yields and required qualities.
There is, however, a danger that such arrangements may lead to the Iarmer being little more
than a laborer on his or her own land. It is oIten diIIicult Ior small-scale Iarmers outside the
contract-Iarming context to gain access to inputs. In AIrica, in particular, Iertilizer
distribution arrangements have been disrupted by structural adjustment measures, with the
private sector having yet to Iill adequately the void created by the closure oI parasitical
agencies. In many countries a vicious circle has developed whereby the low demand Ior
inputs provides no incentive Ior the development oI commercial distribution networks and
this, in turn, Iurther adversely aIIects input availability and use. Contract Iarming can help to
overcome many oI these problems through bulk ordering by management.
Access to credit
The majority oI smallholder producers experience diIIiculties in obtaining credit Ior
production inputs. With the collapse or restructuring oI many agricultural development banks
and the closure oI many export crop marketing boards (particularly in AIrica), which in the
past supplied Iarmers with inputs on credit, diIIiculties have increased rather than decreased.
Contract Iarming usually allows Iarmers access to some Iorm oI credit to Iinance production
inputs. In most cases it is the sponsors who advance credit through their managers. However,
arrangements can be made with commercial banks or government agencies through crop liens
that are guaranteed by the sponsor, i.e. the contract serves as collateral. When substantial
investments are required oI Iarmers, such as packing or grading sheds, tobacco barns or
heavy machinery, banks will not normally advance credit without guarantees Irom the
sponsor. The tendency oI certain Iarmers to abuse credit arrangements by selling crops to
buyers other than the sponsor (extra-contractual marketing), or by diverting inputs supplied
by management to other purposes, has caused some sponsors to reconsider supplying most
inputs, opting instead to provide only seeds and essential agrochemicals. The policies and
conditions that control advances are normally described in attachments to contract.

Introduction of appropriate technology
ew techniques are oIten required to upgrade agricultural commodities Ior markets
that demand high quality standards. ew production techniques are oIten necessary to
increase productivity as well as to ensure that the commodity meets market demands.
However, small-scale Iarmers are Irequently reluctant to adopt new technologies because oI
the possible risks and costs involved. They are more likely to accept new practices when they
can rely on external resources Ior material and technological inputs. evertheless, the
introduction oI new technology will not be successIul unless it is initiated within a well
managed and structured Iarming operation. Private agribusiness will usually oIIer technology
more diligently than government agricultural extension services because it has a direct
economic interest in improving Iarmers` production. Most oI the larger sponsors preIer to
provide their own extension rather than rely on government services.
Skill transfer
The skills the Iarmer learns through contract Iarming may include record keeping, the
eIIicient use oI Iarm resources, improved methods oI applying chemicals and Iertilizers, a
knowledge oI the importance oI quality and the characteristics and demands oI export
markets. Farmers can gain experience in carrying out Iield activities Iollowing a strict
timetable imposed by the extension service. In addition, spillover eIIects Irom contract
Iarming activities could lead to investment in market inIrastructure and human capital, thus
improving the productivity oI other Iarm activities. Farmers oIten apply techniques
introduced by management (ridging, Iertilizing, transplanting, pest control, etc.) to other cash
and subsistence crops.
Guaranteed and fixed pricing structures
The returns Iarmers receive Ior their crops on the open market depend on the
prevailing market prices as well as on their ability to negotiate with buyers. This can create
considerable uncertainty which, to a certain extent, contract Iarming can overcome.
Frequently, sponsors indicate in advance the price(s) to be paid and these are speciIied in the
agreement. On the other hand, some contracts are not based on Iixed prices but are related to
the market prices at the time oI delivery.

Access to reliable markets
Small-scale Iarmers are oIten constrained in what they can produce by limited
marketing opportunities, which oIten makes diversiIication into new crops very diIIicult.
Farmers will not cultivate unless they know they can sell their crop, and traders or processors
will not invest in ventures unless they are assured that the required commodities can be
consistently produced. Contract Iarming oIIers a potential solution to this situation by
providing market guarantees to the Iarmers and assuring supply to the purchasers. Even
where there are existing outlets Ior the same crops, contract Iarming can oIIer signiIicant
advantages to Iarmers. They do not have to search Ior and negotiate with local and
international buyers, and project sponsors usually organize transport Ior their crops, normally
Irom the Iarm gate.
PROBLEMS FACED BY FARMERS
For Iarmers, the potential problems associated with contract Iarming include:
1. Increased risk;
2. Unsuitable technology and crop incompatibility;
3. Manipulation oI quotas and quality speciIications;
4. Corruption;
5. Domination by monopolies; and
6. Indebtedness and over reliance on advances.
Increased risk
Farmers entering new contract Iarming ventures should be prepared to balance the
prospect oI higher returns with the possibility oI greater risk. Such risk is more likely when
the agribusiness venture is introducing a new crop to the area. There may be production risks,
particularly where prior Iield tests are inadequate, resulting in lower-than-expected yields Ior
the Iarmers. Market risks may occur when the company`s Iorecasts oI market size or price
levels are not accurate. Considerable problems can result iI Iarmers perceive that the
company is unwilling to share any oI the risk, even iI partly responsible Ior the losses. In
Thailand, Ior example, a company that contracted Iarmers to rear chickens charged a levy on
Iarmers` incomes in order to oIIset the possibility oI a high chicken mortality rate. This was
much resented by the Iarmers, as they believed that the poor quality oI the day-old chicks
supplied by the company was one reason Ior the problem.
Unsuitable technology and crop incompatibility
The introduction oI a new crop to be grown under conditions rigorously controlled by
the sponsor can cause disruption to the existing Iarming system. For example, the managers
may identiIy land traditionally reserved Ior Iood crops as the most suitable Ior the contracted
crop. Harvesting oI the contracted crop may Iall at the same time as the harvesting oI Iood
crops, thus causing competition Ior scarce labour resources. Particular problems may be
experienced when contract Iarming is related to resettlement programmers.

In Papua ew Guinea, Ior example, people Irom the Highlands were resettled in coastal
areas to grow oil palm and rubber. This required the Iarmers, who were traditionally sweet
potato eaters, to learn cultivation techniques Ior new Iood crops and to adapt their dietary
practices accordingly. Two Iactors should be considered beIore innovations are introduced to
any agricultural environment. The Iirst is the possible adverse eIIect on the social liIe oI the
community. When tobacco growers in Fiji were encouraged to cure tobacco themselves
rather than sell it in the Iresh green Iorm, it was Iound that they were unable to handle the
highly technical curing operation with any degree oI continuity. This was attributed to
intermittent social commitments and customary obligations that overrode contractual
responsibilities and eventually resulted in the cancellation oI their contracts.

The second Iactor is the practicality oI introducing innovations or adaptations. The
introduction oI sophisticated machines (e.g. Ior transplanting) may result in a loss oI local
employment and overcapitalization oI the contracted Iarmer. Furthermore, in Iield activities
such as transplanting and weed control, mechanical methods oIten produce less eIIective
results than do traditional cultivation methods. Field extension services must always ensure
that the contracted crop Iits in with the Iarmer`s total cropping regime, particularly in the
areas oI pest control and Iield rotation practices.
Manipulation of quotas and quality specifications
IneIIicient management can lead to production exceeding original targets. For example,
Iailures oI Iield staII to measure Iields Iollowing transplanting can result in gross over
planting. Sponsors may have unrealistic expectations oI the market Ior their product or the
market may collapse unexpectedly owing to transport problems, civil unrest, change in
government policy or the arrival oI a competitor. Such occurrences can lead managers to
reduce Iarmers` quotas. Few contracts speciIy penalties in such circumstances. In some
situations management may be tempted to manipulate quality standards in order to reduce
purchases while appearing to honor the contract. Such practices will cause sponsor-Iarmer
conIrontation, especially iI Iarmers have no method to dispute grading irregularities. All
contract Iarming ventures should have Iorums where Iarmers can raise concerns and
grievances relating to such issues.
Corruption
Problems occur when staII responsible Ior issuing contracts and buying crops exploits
their position. Such practices result in a collapse oI trust and communication between the
contracted parties and soon undermine any contract. Management needs to ensure that
corruption in any Iorm does not occur. On a larger scale, the sponsors can themselves be
dishonest or corrupt. Governments have sometimes Iallen victim to dubious or 'Ily-by-night
companies who have seen the opportunity Ior a quick proIit. Techniques could include
charging excessive Iees to manage a government-owned venture or persuading the
government and other investors to set up a new contract Iarming company and then sell that
company overpriced and poor quality processing equipment. In such cases Iarmers who make
investments in production and primary processing Iacilities run the risk oI losing everything.
Domination by monopolies
The monopoly oI a single crop by a sponsor can have a negative eIIect. Allowing only
one purchaser encourages monopolistic tendencies, particularly where Iarmers are locked into
a Iairly sizeable investment, such as with tree crops, and cannot easily change to other crops.
On the other hand, large-scale investments, such as Ior nucleus estates, oIten require a
monopoly in order to be viable. In order to protect Iarmers when there is only a single buyer
Ior one commodity, the government should have some role in determining the prices paid.

Drucker suggests that privately managed monopolies under public regulation are
preIerable to non-regulated private or public monopolies. The greatest abuses do tend to
occur when there are public monopolies, where buying prices are set by the government, or
where Iarmers have made long-term investments in perennial crops. In 1999 the Kenya Tea
Development Authority experienced serious unrest amongst its growers, reportedly because
oI the Authority`s ineIIicient extension services and alleged 'manipulation oI Iarmers. There
was also discontent in Kenya among sugar Iarmers because the price set by the government
did not change between 1997 and 1999.

Indebtedness and over reliance on advances were high, as they thought contract
Iarming did not pay. One oI the major attractions oI contract Iarming Ior Iarmers is the
availability oI credit provided either directly by the company or through a third party.
However, Iarmers can Iace considerable indebtedness iI they are conIronted with production
problems, iI the company provides poor technical advice, iI there are signiIicant changes in
market conditions, or iI the company Iails to honour the contract. This is oI particular concern
with long-term investments, either Ior tree crops or Ior on-Iarm processing Iacilities. II
advances are uncontrolled, the indebtedness oI Iarmers can increase to uneconomic levels. In
one venture 'compassionate advances Ior school Iees, weddings and even alimony resulted
in many Iarmers receiving no payments at the end oI the season. Dropout rates Ior Iarmers in
that particular project.


ADVANTAGES FOR SPONSORS
Companies and government agencies have a number oI options to obtain raw materials
Ior their processing and marketing activities. The beneIits oI contract Iarming are best
examined in the light oI the other alternatives, namely spot market purchases and large-scale
estates. The main potential advantages Ior sponsors can be seen as:
1.Political acceptability;
2.Overcoming land constraints;
3.Production reliability and shared risk;
4.Quality consistency; and
5.Promotion oI Iarm inputs.

Political acceptability
It can be more politically expedient Ior a sponsor to involve smallholder Iarmers in
production rather than to operate plantations. Many governments are reluctant to have large
plantations and some are actively involved in closing down such estates and redistributing
their land. Contract Iarming, particularly when the Iarmer is not a tenant oI the sponsor, is
less likely to be subject to political criticism. As a result oI the restructuring oI their
economies, many AIrican governments have promoted contract Iarming as an alternative to
private, corporate and state-owned plantations.
In recent years many countries have seen a move away Irom the plantation system oI
production to one where smaller-scale Iarmers grow crops under contract Ior processing
and/or marketing. The decision to choose contract Iarming does not make a company totally
immune Irom criticism. For example, the considerable opposition to the role oI multinational
corporations in India in the late 1990s had a negative eIIect on investment in contract Iarming
by Ioreign agribusiness corporations.
Overcoming land constraints
Most oI the world`s plantations were established in the colonial era when land was
relatively plentiIul and the colonial powers had Iew scruples about either simply annexing it
or paying landowners minimal compensation. That is, Iortunately, no longer the situation.
Most large tracts oI suitable land are now either traditionally owned, costly to purchase or
unavailable Ior commercial development. Moreover, even iI it were possible Ior companies to
purchase land at an aIIordable price, it would rarely be possible to purchase large enough
parcels oI land to oIIer the necessary economies oI scale achieved by estate agriculture.
Contract Iarming, thereIore, oIIers access to crop production Iromland that would not
otherwise be available to a company, with the additional advantage that it does not have to
purchase it.
Production reliability and shared risk
The Iailure to supply agreed contracts could seriously jeopardize Iuture sales.
Plantation agriculture and contract Iarming both oIIer reasonable supply reliability. Sponsors
oI contract Iarming, even with the best management, always run the risk that Iarmers will Iail
to honor agreements. On the other hand, plantation agriculture always runs the risk oI labour
disputes. In the case oI horticultural production some companies do preIer estate rather than
contracted production. In Gambia and Ghana, Ior example, a number oI crops are grown
under the estate model, as are strawberries and Ilowers in Kenya. Working with contracted
Iarmers enables sponsors to share the risk oI production Iailure due to poor weather, disease,
etc. The Iarmer takes the risk oI loss oI production while the company absorbs losses
associated with reduced or nonexistent throughput Ior the processing Iacility. Where
production problems are widespread and no Iault oI the Iarmers, sponsors will oIten deIer
repayment oI production advances to the Iollowing season. Both estate and contract Iarming
methods oI obtaining raw materials are considerably more reliable than making purchases on
the open market.
The open market is rarely an acceptable option Ior organizations that have signiIicant
assets tied up in processing Iacilities and need to have guaranteed quantities oI raw material
to justiIy their investment. For example, it is hardly ever an acceptable option Ior companies
who make regular shipments oI horticultural produce to supermarkets and Ior export.
Companies must ensure that crops are harvested and sold on a careIully scheduled and
consistent basis: a Iactor that is normally assured under a well-directed contract Iarming
scheme.
"uality consistency
Markets Ior Iresh and processed agricultural produce require consistent quality
standards. Moreover, these markets are moving increasingly to a situation where the supplier
must also conIorm to regulatory controls regarding production techniques, particularly the
use oI pesticides. For Iresh produce there is an growing requirement Ior 'traceability, i.e.
suppliers to major markets increasingly need to be conIident oI identiIying the source oI
production iI problems related to Iood saIety arise. Both estate and contracted crop
production require close supervision to control and maintain product quality, especially when
Iarmers are unIamiliar with new harvesting and grading methods. OIten, large numbers oI
crops within a single project have to be transplanted, harvested and purchased in a uniIorm
manner so as to achieve product consistency.

Agribusiness producing Ior markets demanding high quality standards, such as Iruits
and vegetables Ior export, oIten Iind that small-scale Iarmers and their Iamilies are more
likely to produce high-quality products than Iarmers who must supervise hired labour.Also
contract Iarming makes quarantine controls more manageable. It is easier Ior quarantine
authorities to inspect a limited number oI exporters oI a single commodity, who closely
supervise Iarmers, than to inspect hundreds, or sometimes thousands, oI individual producers
selling through open markets. Much oI the production oI 'organic Ioods is being done on
contract, as an integrated operation Iacilitates a clear crop identity Irom Iarmer to retailer. In
some highly sophisticated operations, containers are now being loaded on the Iarm Ior direct
delivery to the supermarket.




Promotion of farm inputs
An example oI an unusual but, nevertheless, interesting beneIit Ior sponsors comes
Irom the Philippines. A Ieed milling company experienced diIIiculties in marketing its Ieed,
which was more expensive than that produced by competing companies. To solve this
problem it developed rearing schemes Ior pigs and poultry under contract in order to provide
a market outlet Ior its Ieeds and to demonstrate their perIormance to other Iarmers living near
the contracted Iarmers.
PROBLEMS FACED BY SPONSORS

The main disadvantages Iaced by contract Iarming developers are:
1. Land availability constraints;
2. Social and cultural constraints;
3. Farmer discontent;
4. Extra-contractual marketing; and
5. Input diversion.

Land availability constraints
Farmers must have suitable land on which to cultivate their contracted crops. Problems
can arise when Iarmers have minimal or no security oI tenure as there is a danger oI the
sponsor`s investment being wasted as a result oI Iarmer landlord disputes. DiIIiculties are
also common when sponsors lease land to Iarmers. Such arrangements normally have
eviction clauses included as part oI the conditions.

Some contract Iarming ventures are dominated by customary land usage arrangements
negotiated by landless Iarmers with traditional landowners. While such a situation allows the
poorest cultivator to take part in contract Iarming ventures, discrete management measures
need to be applied to ensure that landless Iarmers are not exploited by their landlords. BeIore
entering into contracts, the sponsor must ensure that access to land is secured, at least Ior the
term oI the agreement.
Social and cultural constraints
Problems can arise when management chooses Iarmers who are unable to comply with
strict timetables and regulations because oI social obligations. Promoting agriculture through
contracts is also a cultural issue. In communities where custom and tradition play an
important role, diIIiculties may arise when Iarming innovations are introduced. BeIore
introducing new cropping schedules, sponsors must consider the social attitudes and the
traditional Iarming practices oI the community and assess how a new crop could be
introduced. Customary belieIs and religious issues are also important Iactors. For example,
Easter Ior some Christians is an inappropriate time Ior sowing vegetable crops. Harvesting
activities should not be programmed to take place during Iestivals, and Iailure to
accommodate such traditions will result in negative Iarmer reaction. It must also be
recognized that Iarmers require time to adjust to new practices.

Farmer discontent
A number oI situations can lead to Iarmer dissatisIaction. Discriminatory buying, late
payments, ineIIicient extension services, poor agronomic advice, unreliable transportation Ior
crops, a mid-season change in pricing or management`s rudeness to Iarmers will all normally
generate dissent. II not readily addressed, such circumstances will cause hostility towards the
sponsors that may result in Iarmers withdrawing Irom projects.
Extra-contractual marketing
The sale oI produce by Iarmers to a third party, outside the conditions oI a contract, can
be a major problem. Extra-contractual sales are always possible and are not easily controlled
when an alternative market exists. For example, a Iarmer cooperative in Croatia bought
cucumbers, red peppers and aborigines on contract. The cooperative`s advances to the
Iarmers included all necessary production inputs. UnIortunately members oIten sold their
vegetables to traders at higher prices than the cooperative had contracted. The outside buyers
oIIered cash to Iarmers as opposed to the prolonged and diIIicult collection oI payments
negotiated through the cooperative. Sponsors themselves can sometimes be a cause oI extra-
contractual practices. There are several companies working with the same crop (e.g. cotton in
some southern AIrican countries), they could collaborate by establishing a register oI
contracted Iarmers.
Input diversion
A Irequent problem is that Iarmers are tempted to use inputs supplied under contract Ior
purposes other than those Ior which they were intended. They may choose to use the inputs
on their other cash and subsistence crops or even to sell them. Clearly this is not acceptable to
the sponsor, as the contracted crop`s yields will be reduced and the quality aIIected. Steps to
overcome such problems include improved monitoring by extension staII, Iarmer training and
the issuing oI realistic quantities oI inputs. However, the knowledge that a contract has the
advantages oI technical inputs, cash advances and a guaranteed market usually makes the
majority oI Iarmers conIorm to the agreement. Unless a project is very poorly managed, input
diversion is usually an annoyance rather a serious problem.
Conclusion
Contract Farming is not a panacea to solve all related problems oI agricultural
production and marketing systems. But contract Iarming could be evaluated as a way oI
providing earlier access to credit, input, inIormation and technology and product markets Ior
the small scale Iarming structure. Contract Iarming might also be seen as a way or as a part oI
rural development and promoted to improve agricultural perIormance especially in Third
World Countries. Besides Iarming to both sides, there is some problems. For successIul
implementation oI contract Iarming, having co-ordination and collaboration consciousness
and acting in an organized manner are advisable Ior both sides. On the Other hand,
Government attitudes and incentives are also important aspects.