MUMBAI:
In order to ensure that economies of scale accrue to the agricultural sector, new models of farming have been advocated in recent years.

One leading model is that of contract farming, where the farm producers enter into a contract with the buyer to supply the produce at a pre-determined price, quantity and quality. Often, the buying company also provides some inputs and technology to the farmers so as to ensure a steady and quality supply.

The recent agricultural policy statement of the government also champions the model, saying, "Private sector participation will be promoted through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured markets for crop production, especially of oilseeds, cotton and horticultural crops.

"This model, which emerged in the developed countries during 1950s and 1960s, can raise productivity and, hence, farmers' incomes, says the theory.

It is particularly desirable if the crop is perishable, non-bulky, perennial in nature, needs heavy processing and strict quality adherence, according to some of the international studies.

Such model is already in practice in certain pockets in the country. Sukhpal Singh of the Institute of Rural Management has reviewed some such cases in Punjab in a paper titled, Contract Farming For Agricultural Diversification In The Indian Punjab: A Study Of Performance And Problems. He has reviewed the performance of contract farming undertaken by Hindustan Lever Ltd (tomato), Pepsi (tomato and chillies) and Nijjer (tomato).

The study found that the farmers, on the whole, were happy about the contract system. Nearly 62 per cent of the growers associated with HLL, 80 per cent of those associated with Nijjer and 68 and 73 per cent of those associated with Pepsi (potato and chilly respectively) wanted to continue the contracting system. Many other farmers also wanted to get into contract production.

However, the study also detected several operational problems in the functioning of the contract system. The farmers reported problems like poor technical assistance, delayed payments, outright cheating in dealings and manipulation of norms by the firms.

For instance, some farmers had to wait at the factory gate for a day or more - which leads to weight loss of the tomatoes due to evaporation - and the company ends up receiving more concentrated produce at the same price.

In general, the lack of transparency regarding the contracts and a lop-sided distribution of bargaining power (in favour of the companies) seem to be responsible for most of these problems. Hence, the study suggests three major remedial factors to enhance the utility of the contract system from the viewpoint of farmers.

First, that the non-governmental and community organisations should play a role in monitoring the working of contracts and encourage a wide publicity of contract terms to stimulate competition.

Secondly, the study recommends, the kind of legal protection that is given to the ancillary industrial units in some countries against delayed payments or frivolous rejection should be given to the contract growers too.

And lastly, the farmers should organise themselves through cooperatives to manage their relationships with the companies as equal partners. "Contract farming and cooperatives are not necessarily competing institutions. A proper marriage of the two could work much better," says Mr Singh.

ruralmural@indiatimes.com