Contract Farming and Outgrower Management: Incentivizing Agricultural Transformation

By Bhanudas S. | 19 November 2020



An agricultural economy offering sustainability and an impartial reward framework for the cultivators requires responsibly driven contract farming and outgrower management. Outgrower schemes not only ensure steady returns but also help farmers earn more income by focusing on cultivating high-quality produce. With growing farm management capabilities, these schemes are becoming even more effective in making various farm activities more productive and profitable.


The lack of knowledge, infrastructure deficit, and high input costs are amongst the most critical issues plaguing the agriculture sector. The power imbalances between farmers and agribusinesses need to be addressed in order to solve these issues.

Contract farming and outgrower management schemes can be helpful in bridging this gap and encouraging better farming outcomes. However, this type of farming also brings with it the risks of legal discrepancies, extra-contractual selling, etc. While challenges are many, regular training sessions to disseminate new-age information is providing a big fillip to agriculture.

Contract farming and outgrower management are enhancing farming with long term solutions in the form of financial interventions, on-ground mechanisms. Outgrower schemes are thus growing into an effective tool to solve multiple market access and input supply problems across the agriculture value chain.


Farm-firm Linkages Creating Unparalleled Value Addition for Agriculture

Contract farming and outgrower management have emerged as an effective production model to uplift the socio-economic status of smallholder farmers. It can link smallholders to market opportunities otherwise inaccessible due to distance, processing standards, or access to technology. Contract farmers generally obtain about 10% higher incomes than their counterparts without contracts.

Outgrower schemes are helping in determining a minimum guaranteed price to ensure profits for farmers even in worst situations. It is proving to be beneficial in educating and training farmers about the most efficient farming techniques to attain maximum productivity. Contract farming also tackles the financial hurdles by provisioning farmers with access to credit facilities, inputs, etc.

Contract farming and outgrower management can be helpful to the farmers in overcoming price-related uncertainties. It is bringing together small farm management efficiencies, corporate management skills, and decreasing transaction costs through efficient tech-integration. This, in turn, is guaranteeing improved outcomes for both farmers and contract farming companies.


Major Roadblocks Deterring Farmer-Agribusiness Partnerships

One of the major issues with contract farming and outgrower management across the world is the lack of a credible enforcement mechanism. It leads to weak legal frameworks with unclear, incomplete, or poorly understood contract terms. This, in turn, results in misunderstandings, and can even lead to manipulation by one of the parties.

Lack of proper farm management activities can result in low yields and poor quality crop produce. This can mean very less profits for smallholders after paying off their input debt. Similarly, limited cash flows can compel farmers to default on their contracts and use inputs provided by the buyers for other crops. These factors can lead to the termination of the contract and severely affect the farmer’s livelihood.

From the buyer’s perspective, a major hurdle in contract farming is side selling, when farmers sell outside of the contract to other buyers. Lack of third party financing and risk-sharing mechanisms with traditional finance institutions can also hinder the companies’ abilities and aspirations of expansion.


Technology can Ensure Better Margin Structure for Farmers and Outgrower Organizations

An efficient farm management system can take care of all contractual formalities and keeps complete track of the inputs offered. It can also help farmers to take note of all the details about the procured crops. In this way, with access to all pertinent contract data, the farm management system can be helpful in managing the entire cost component of each contract.

FarmERP’s farm management system helps in building robust contract farming and outgrower management frameworks. We can develop efficient organizational models to boost farmer-company interactions in the form of effective knowledge and skill transfers. This can play a key role in eliminating unnecessary misunderstandings between farmers and contract farming companies.

FarmERP optimizes supply chain management for contract farming companies while also empowering smallholders with access to inputs, services, and technologies. This can improve farm management efforts and significantly boost profits for smallholder farmers. By enforcing risk-sharing clauses and transparent contract terms, FarmERP is enhancing the effectiveness of outgrower schemes with improved coordination.


Expanding Reach and Value for Contract Farming and Outgrower Management

Mutual trust and confidence are key parameters in successful contract farming and outgrower management arrangements. By creating market-related incentives, outgrower schemes are effectively aiding the growth prospects for both farmers and contract farming companies. With proper implementation, outgrower schemes can revolutionize agriculture and pave the way for a more sustainable farming future.

With growing policies regulating the actions and clauses of agreements in contracts, outgrower schemes will facilitate even better farm management. This is increasing the market-related incentives for both farmers and contract farming companies. It is also enhancing the farmers’ connectivity with the market by ensuring the provision of all necessary information and inputs.

Contract farming and outgrower management has been substantially effective in raising supply of farm inputs and aiding smart crop rotation, soil management, etc. With rising integration and coordination capabilities, it will be helpful in reaping even better benefits across the entire agricultural cycle. Outgrower schemes are thus set to accelerate agriculture with improved measures and successfully safeguard the interests of smallholder farmers.

With significant advances in farm management practices, the potential of contract farming and outgrower management is also rising rapidly. FarmERP helps in designing and managing effective outgrower schemes to ensure improved outcomes for both farmers and companies. Contact us to learn about how we can increase smallholder incomes by bringing them into mutually beneficial relationships with large buyers.