Contract farming

Contract farming (pronunciation: /ˈkɒntrækt ˈfɑːrmɪŋ/) is a system in which a central processing or exporting unit contracts agricultural production with farmers by providing them with input and buying their produce at predetermined prices.

Etymology

The term "contract farming" is derived from the practice of establishing a contract between the farmer and the buyer, specifying the obligations of both parties, such as the quality, quantity, and price of the product.

Overview

Contract farming is often integrated into a value chain approach, which refers to the full range of activities required to bring a product or service from conception to its final use and beyond. This includes activities such as design, production, marketing, distribution, and support services up to the final consumer. The entities involved in the value chain include producers, processors, distributors, and retailers.

Contract farming can be classified into different types based on the nature of the contract, such as centralized, multipartite, informal, intermediary, and satellite. The choice of the type of contract farming depends on the nature of the product, the market, and the legal environment.

Benefits and Risks

Contract farming can provide benefits to both farmers and buyers. For farmers, it can provide access to a guaranteed market, reduce price risks, and provide access to inputs and technology. For buyers, it can ensure a stable supply of agricultural products with specific quality characteristics.

However, contract farming also involves risks. For farmers, these include the risk of the buyer not fulfilling the contract and the risk of price fluctuations. For buyers, risks include the risk of farmers not delivering the products as agreed.

Related Terms

• Agriculture
• Farmer
• Value chain
• Market
• Price risk
• Quality characteristics

External links

• Medical encyclopedia article on Contract farming
• Wikipedia's article - Contract farming

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