Agricultural development through contract farming

Agricultural development through contract farming  

by Dr.Shoukat Ali

Experts are endorsing contract farming to promote private investment in agricultural sector. It is assumed that it would allow accelerated technology transfer, capital inflow and assured market for crop production especially of oilseeds, cotton, sugarcane and horticultural crops. Keeping in view the privatization trend, the government seems inclined to support the idea. Basically, it is not a new idea as it is already being pursued by agro-based industry such as maize and sugarcane industry. These industries provide seeds, fertilizers, pesticides and technical advisory services to the growers and in return, they get assured quantity and quality of commodities on market rates. Textile manufacturers are also working on details for contract farming. It is considered that the idea would help in providing contamination-free cotton to textile industry. It would also promote the proper usage of inputs, improving crop management practices and insect-pest control. Through contract farming, it is also possible to adopt drip irrigation, establishment of warehouses and cold storages at village level.
The Food and Agriculture Organization (FAO) has established a new website on contract farming. The Rural Infrastructure and Agro-industries Division of FAO (AGS) has launched the ‘Contract Farming Resource Centre’ in April 2008, for the international community where information on contract farming issues is available. Many experts and policy makers have argued that it is a win-win state of affairs for farmers and agribusiness companies, especially in the developing world. According to them, it is a good safety net for farmers. They do not have to search for markets and get assured price. In addition, it provides tools, technology and capital. The idea is gaining popularity in those countries where per capita income of farming community is very low and farmers are unable to purchase the inputs and adopt modern farming techniques. Pakistani farmers have both characteristics. So, it is expected that in the near future Pakistan will employ contract farming to achieve desired agricultural targets and goals.
Contract farming is an agreement between buyers and farmers which establish terms and conditions for the production and marketing of the farm products. Farmers provide quality and committed quantity to the buyers and buyers provide the inputs and advisory services to the farmers and purchase the product at agreed price. The contract farming system can be viewed as a partnership between agribusiness organizations and farmers.
In contract farming both farmers and sponsors have advantages. Farmers have advantage of inputs i.e. seed, fertilizers, pesticides, machinery, credit, new technology, price assurance and new market avenues that are made available to the farmers by the sponsors. These facilities would otherwise have been unavailable to the small farmers. Of more importance is the provision of agricultural extension services to the farmers. Private agribusiness companies usually offer technology with more commitment than public agricultural extension services because they have a direct economic interest in improving farmers’ yield. On the other hand, there is equal disadvantage; if sponsoring organizations impose the unnecessary condition to grow specific crops of which farmers have little know-how to cultivate. Similarly, sponsoring agencies have advantage of uninterrupted and regular flow of raw material, protection from price fluctuation and assured supplier base.
In Pakistan, there is great potential for contract farming. Major industry of the country is agro-based. The textile industry, sugar industry, oil industry, leather industry, flour industry, maize industry, etc. depends on agricultural raw material. In case of low production, the industries suffer shortages and are forced to import a raw material which ultimately increases the cost of production. In case of over-production, farmers suffer huge losses due to low market prices of the commodities

In Pakistan, majority of the farming community fall in the category of small farmers. There are 6.62 million farms cultivating an area of 20.41 million hectares in the country. About 86 percent of these farms had less than five hectares. It accounted for 44 percent of the total farm area. Only 16 percent farmers have more then five hectares cultivating 56 percent of area. It is obvious that major land resources of Pakistan are occupied by a small percentage of large farmers. The small farmers are poor and unable to purchase and adopt latest and mechanized agricultural technology. The government is providing credit to the farmers through banks, but majority of the farmers have no access to credits. The high interest rate for agricultural loan as compare to other sectors is another menace. Co-operative farming is one of the solutions to overcome these problems but a study recently conducted in Punjab province reveals that farmers are not willing to adopt co-operative farming. The other alternative is contact farming.

Critics of contract farming tend to emphasis the inequality of the relationship and the stronger position of sponsors with respect to that of growers. There should be a specific legislation to regulate contract between unequal parties: companies, or organization on the one hand and economically weaker farmers on the other. In an era of market liberalisation, globalization and expanding agribusiness, there is a threat that small-scale farmers will find difficulty in participating in the market economy. In a county like Pakistan, where the overwhelming majority is of small and marginalised farmers, there is dire need to convert the threat into an opportunity

origional post here.http://www.agrihunt.com/pak-agri-outlook/1706-agricultural-development-through-contract-farming.html