Definition-
Contract farming is the contractual arrangement between farmer and the firm, whether oral or written, specifying one or more conditions of production and/or marketing of an agricultural product.
Contract farming minimally demands a crop agreement made in advance, the firms, in varying degrees, shares the decision making power with the farmer. The farmer lends to the production process labour and land in his possession. Conversely the firm provides some of the production, knowledge inputs, marketing facility and participates in production decision and supervision.
Objectives-
- Supplying planting material
- Guiding production of crops
- Facilitate bank loan
- Assured buy back agreement
Types-
Several types of contracts are distinguished according to the sharing of risks and specification of contract terms. From the management view point, two types of contracts are determined.
- Limited Management Contract where a farmer gets production input and sells the produce to the firm. There is no real guarantee for the price for the produce.
- Full Management Contract where the farmer and the firm have entered into contract for certain amount of production. In this kind of contract the price is announced before the season thus the price risk is minimised. The firm provides market for the produce provided the quality specifications are met.
Khols and Uhl (1985) classified contracts into three broad categories.
- Market specification contract where contract is a pre-harvest arrangement that binds the firm and grower to a particular set of conditions governing the sale of the crop. These conditions often specify price, quality and timing of delivery of the produce.
- Resource providing contract where the contract oblige the contracting firms to supply production inputs, extension or credit in exchange for a marketing arrangement.
- Management and income guaranteeing contract where contract includes the production and marketing stipulations of the former two types. In addition, market and price risks were transferred from farmers to firm and the farmer is assured of a certain level of revenue. But the contracting firms take a substantial part of the managerial responsibility of the farmer.
Models-
Tri-partite Model
This model incorporates industry, growers and financial institutions. Under this system, the industry supplies quality planting material at subsidized rate and assures minimum support price.The financial institutions viz., Indian Bank, State Bank of India and Syndicate Bank provide credit facilities to the growers.
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| Fig 1. Tri-partite Model contract tree farming |
Quad-partite Model
This system is similar to tri-partite model barring the involvement of research institute. In this system, research institute play a significant role for technological advancements through varietal development and also to advice site specific precision technology to the growers. A pre and post-plantation scientific advice helps to develop human resources through on and off institute mode to farmers and plantation staff of the industries.
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| Fig 2. Quad-Partite Model contract tree farming |
Similarly, the industries mass multiply the potential genetic materials identified by the research institute in a decentralized manner and supply them at subsidized costs. The industry also facilitates felling and transport at their own costs, which resulted in strong linkage between industry and the farmers. The industry also help to repay the loan amount after felling of farm grown raw materials there by help the financial institutions for timely repayment, which resulted in strong institutional mechanism for sustainability of the contract tree farming system in the state.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.