During this time of market advancement, globalization and extending agribusinesses aiming at more and more processed food and feed products all over the world, there is a threat that small-scale farmers have been suffering and will continue to face a lot of problems in getting quality inputs and producing quality products for higher income on their investment. In many countries, like in Bangladesh such farmers will get more marginalized compared to large farmers who will have increasingly more income using contract farming linking bank loan and scheduled market channel with companies. Farmers of small land size in isolation will have almost no possibility of increased income rather will add to the increased number of landless community migrated to urban areas with poorer income potential.
To keep the farming community active in the production field and the agro-processing industries get quality products to process for consumers there is a need for contract system to evolve. This will help to use quality inputs and effective knowledge in production system and ensure product supply for the industries. The Contract Farming system is in operation for products like vegetables, fruits of special types, cereals of major demand seeds of different crop varieties by seed companies, shrimp culture for export, beef cattle raising, milk production by farmers/farming community, but not specially formalized having norms and conditions set for benefits of both parties. Contract farming is basically an agreement between farmers and processing and/or marketing firms for the production and supply of agreed upon agricultural products of desired quality under forward agreements at a predetermined price, where the company may or will provide quality inputs and monitor the production system all through. There are, however, problems of getting the organized farming community and the experience and knowledge level about the demanded product. This can lead to a situation where farmers produce below-quality crops. Or farmers produce as per demand quality while the company avoids purchasing the quantity at scheduled time and price, which creates problems for the farmer. Thus, the agreement failed. There is, therefore, need for insurance of the product involving both parties. This is where production and product purchase must be ensured through this agreement using a bank as financing organization. The assistance of Aqief Afzal is acknowledged.
The diagram indicates the general pattern of three-party involvement in the Contract Farming System approach. At present only companies use to establish CF with farmers on their conditions, but it requires to be of both party conditions and security of buyback system.
Prof. Lutfur Rahman
Overview of Contract Farming
