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Contract farming is a method to maximise profit in dealing with agricultural products. In this system, a company enters into a written contract with farmer/farmers with the following objectives: A. To produce a given volume of produce, of specified quality, and that the company will purchase the produce on an agreed price. So briefly, it can be said that marketing enters into contract with production. The company after making the purchase, freezes, dehydrates, and starts canning operation. Sometimes the companies enter into contracts with co-operatives. In contract farming, the major items are fruits, vegetables, flowers and poultry.
B. The farmers gain certain advantages which are briefly given below7:
(i) The sale of their produce is assured.
(ii) They earn higher price than the price in the open market.
(iii) The capital requirements of the fanners are reduced as the contract often agreed for advance payment.
(iv) Very often, the companies also provide specialised knowledge and expertise. Contract farming also leads to certain disadvantages;
(i) If a farmer has produced quality products, he could get a higher price than offered by the contracts in the open market.
(ii) The farmer acts mechanically and loses his independent status.
(iii) The bargaining power is tilted in favour of companies as they are financially more powerful.