MANAGEMENT OF CONTRACT FARMING IN MARIGOLD (Tagetes erecta L.) PRODUCTION

Thesis submitted to the University of Agricultural Sciences, Dharwad

in part ial fulf i l lment of the requirements for the Degree of

MASTER OF BUSINESS ADMINISTRATION (AGRIBUSINESS)

By

NARAYANASWAMY G.

DEPARTMENT OF AGRICULTURAL MARKETING, CO-OPERATION AND AGRIBUSSINESS MANAGEMENT

COLLEGE OF AGRICULTURE, DHARWAD UNIVERSITY OF AGRICULTURAL SCIENCES

DHARWAD – 580005

FEBRUARY, 2006

ADVISORY COMMITTEE

Dharwad (BASAVARAJ BANAKAR) FEBRUARY, 2006 MAJOR ADVISOR Approved by:

Chairman : _____________________ (BASAVARAJ BANAKAR) Members : 1.____________________ (H.S. VIJAYAKUMAR) 2.____________________ (D.M. CHANDARAGI) 3.____________________ (B. HEMLA NAIK) 4.____________________ (A.R.S. BHAT)

CONTENTS

Chapter No.

Title Page No.

I. INTRODUCTION

II. REVIEW OF LITERATURE

III. METHODOLOGY

IV. RESULTS

V. DISCUSSION

VI. SUMMARY AND POLICY IMPLICATIONS

VII. REFERENCES

APPENDIX

LIST OF TABLES

Table No. Title

Page No.

3.1 Demographic profile of study area

3.2 Land use pattern in the study area

3.3 Distribution of sample farmers

1 Terms and conditions prevailing in contract farming of different companies

2 Actual terms and conditions prevailing between contract farmer and company as opined by farmers

3 Inputs supplied by the companies to contract farmers

4 Actual services provided by the companies to contract farmers as opined by them

5 Factors favouring contract farming between farmers and companies

6 Socio-economic features of marigold contract farmers

7 Pattern of employment in marigold production

8 Input use pattern in marigold cultivation

9 Cost structure in marigold production by contract farmers

10 Returns structure in marigold production by sample farmers

11 Resource use efficiency in marigold production by sample farmers of different companies

12 Problems faced as opined by sample farmers in cultivation

13 Problems faced as opined by sample farmers in marketing to companies

APPENDIX

Appendix No.

Title Page No.

I Memorandum of agreement

I. INTRODUCTION

The globalization of Indian agriculture in recent years resulted in the need for the production of export-oriented quality products having comparative advantage. To fulfill the commitment of the World Trade Organization (WTO), the recent dismantling of the system of quantitative restrictions (QRs) on imports by the Union Government has provoked new challenge to the Indian farmers to compete in the world market. With the WTO’s demand for trade liberalization and subsidy cut to farmer, the Indian farmers are facing threats to their survival from every quarter. In this context contract farming could be one of the best solutions which may decrease the polarization of rich and poor and thus encourage Indian farmers to compete with the very large, rich and highly indirect subsidized western farmers. Contract farming can indeed to be a vehicle for the modernization of agriculture in India. It can be a means to bring about a market focus to Indian farming. Also, the contract farming system forms the most heartening part of the vision of the National Policy on agriculture. The agro-based industries requires timely and adequate inputs of good quality agricultural produce. This underlying paradox of the Indian agricultural scenario has given birth to the concept of contract farming which promise to provide a proper linkage between farm and market.

Contract farming is a system of farming wherein farmers grow selected crops under a ‘buy back’ agreement with an agency in trading or processing. It is a system for the production and supply of agricultural/horticultural produce under forward contracts between products/suppliers and buyers. The primary essence of this system of farming is to ensure continuous supply of raw materials and to meet quality and quantity requirements on a steady/seasonal basis to meet customer needs. Contract farming can be described as a half way house between independent farm production and corporate farming.

Contract farming involves four things; Pre-agreed price, quantity or acreage (minimum/maximum), quality and time. Contract farming is a case for bringing the market to the farmers, which is navigated by agribusiness farms. There is no standard and homogenous in contract farming in agriculture. Simple market specification contracts or future purchase agreements in agriculture like supplying labour and machinery are more common (Wright, 1989).

Generally, there are three types of contract in agriculture viz., i) Procurement contracts, under which only sale and purchase conditions are specified ii) Partial contracts, wherein only the contracting firms supply some of the inputs and produce is bought at pre-agreed prices and iii) Total contracts, under which the contracting firm supplies and manages all the inputs on the farm and farmer is just a supplier of land and labour. The relevance and importance of each type varies from product to product and these types are not mutually exclusive (Hill and Ingersent, 1982 and Key and Runsten, 1999). Whereas, the first type is generally referred to as marketing contracts, the other two are of production contracts. But, there is a systematic link between product market and factor markets under the contract arrangements as contracts requires a definite quality of produce. Different types of production contracts allocate production and market risks between the producer and the processor in different ways.

Reasons for contract farming

The production, marketing and distribution of agricultural products are becoming increasingly sophisticated for i) Modern advances in technology have made it feasible for agricultural products to be produced to specifications and preserved in a fresh condition ii) The optimum scale of operations has been increasing, especially in processing and distribution iii) New selling methods have emerged, emphasizing a brand image based on consistent quality. On the demand side, due to raising income, consumers are increasingly discriminating their tastes and especially all time availability of the quality products. This has made complexity in consumer demand which gives an added impetus to search for improving the co-ordination of production, processing and distribution, especially with regard to timing and quality control (Hill and Ingersent, 1982). This provides a strong rationale, from the demand side for the contract farming as a means of raw material supply.

During the 1950’s and 1960’s ‘Contract Farming’ emerged as an important phenomenon in the western developed countries. By 1980, about one-third of the total US farm output and as much as 100 per cent poultry meat, milk and certain vegetables were produced under contracts (Little Peter et al., 1994). Even in Tasmania Island of Australia, by the mid 1990’s, ninety per cent of the potato production was under contracts compared with almost nil in the 1950’s (Fulton and Clark, 1996). On the other hand, in the developing countries, the multinational corporations (MNCs) brought in the system of contract farming during the late 1970’s and the early 1980’s. Besides private and multinational enterprises, contract farming is also practiced by Statal and Parastatal agencies in many countries in different commodities sectors like tea in Kenya, tobacco and livestock in Thailand, rubber in Malaysia, coconut in Indonesia, palm oil in Philippines and seed in India (Nanda and Meera, 1999; White, 1997; Shiva et al., 1998). Contract farming had been promoted in the recent three decades as an institutional innovation to improve agricultural performance in under developed countries, some times as a key element of rural development and/or settlement projects (Ghee and Dorall, 1992). This system was accepted and used as one of the promising institutional framework for the delivery of price incentive technology and other agricultural inputs. Wide support has been received for contract farming under the Structural Adjustment Programme (SAP) and liberalization policies everywhere by the International Development Agencies like the World bank, the United States Agency for International Development (USAID), the International Finance Corporation (IFC) and the Common Wealth Development Corporation (CDC, 1989) (Little and Watts, 1994 and White, 1997).

Sugar mills in Karnataka were practicing the contract farming since many decades, where farmers were growing sugarcane at the specified pre-agreed price. In the same manner, corporate sector has introduced it to horticultural and medicinal crops. Similarly, contract farming in marigold was first introduced in districts like Chamarajnagar, Kolar, Mysore, Tumkur and Bangalore by AV Thomas Natural Products (AVT), a private sector in 1994-95. It has its Head Office at Chennai, colour extracting unit at Kochin. Its flower drying centres situated at Tiptur (Tumkur district), Satyamangalam (Tamil Nadu) and at Hindupur (Andhra Pradesh). These drying centre procure flowers from its contract farmers located in and around the Kolar, Chamarajnagar and Mysore.

Then in 1999-2000, it was Agro-Biochem India Private Limited (ABC) started contract farming in marigold for colour extraction at Haveri and Davanagere districts of Karnataka, having its Head Office at Indiranagar, Bangalore and colour extracting unit at Telagi, Harapanahalli taluk, Davanagere district. The farmers had engaged since long time in the production of marigold in these districts, hence growing of marigold by these farmers seems to be economically feasible and profitable, besides the favourable climatic condition of the region to get better yield.

Benefits of contract farming

Contracts are generally signed prior to planting and specify how much produce the company will buy at what price. Often the firm provides credit, inputs, farm machinery rentals, technical advice and retains the rights to reject the substandard produce (Glover, 1990).

To firm

♦ The companies know the acreage planted and is assured of the grower’s output thus reducing its supply risk.

♦ The company is in control of the contract provision and stipulations that can encourage quality production through the terms of agreement.

♦ The companies know their approximate cost of raw product in advance.

♦ As better growers tend to contract with the same company over several years, some stability in company – grower relationship is attained.

♦ Since, some of the crops have no/less domestic market (at present), the farmers have no option to sell their produce outside and the company is assured to get regular supply of the produce.

To farmers

♦ There is an assured market of their produce, which will eliminate the risk of price fall during glut.

♦ Information on market price is made available ex ante. This instills confidence among the contract farmers.

♦ It saves the difficulties involved in timely transportation and eradicates the exploitation by the middlemen.

♦ Farmer can receive assistance from the processor in the form of technical service and input supply on credit with / without interest cost.

♦ Companies often provide credit to the farmers, which reduce the burden of self-expenses to the farmer. This enables the farmers to escape from the evils of private moneylenders.

♦ Farmer is assured of better returns compared to other field crops as the companies offer relatively better prices.

Flowers symbolize the most sensitive, delicate and loving feelings eloquently what our words fail to express. A flower adds meaning to a life and reinforces faith in nature. It is a celebration of the spectacular colours, condenses and poesics of life. It also symbolizes the quintessence of human spirit, it adorns the surface of earth with a splendid array of colours – soft, mutated and dazzling, filling the whole atmosphere with its delicate fragrance. Flowers are grown and admired by human beings wherever he lives.

The traditional art and modern science of growing flowers to perfection, has become an ever expanding dynamic industry in the field of agriculture particularly horticulture from the last two decades. Besides, its aesthetic and religious offerings today, it is lucrative profession with higher potential for returns. At present, the world trade of floriculture is worth more than US $ 60 billion. In India, flowers occupied an area of 1,06,000 ha with a production of 5,35,000 MT of loose flowers and 2570 million numbers of cut flower stems during 2003-04 (Agriculture Today, 2005). The floriculture exports have gone upto Rs. 20 million US dollars during 2003-04 from a meagre amount of Rs. 14.80 crores in 1991-92 (Bhattacharjee et al., 2003). The business of floriculture besides, cut flowers includes the production of dry flowers, live plants, seed production, perfumes and essential oils, concrete, attar and flower perfumes; floral pigments (xanthophylls from marigold, safforn etc.).

In India, marigold ranks first among the loose flowers followed by chrysanthemum, jasmine, tuberose, crossandra and barleria (Bhattacharjee et al., 2003). Today, there is huge demand for natural colours of marigold, calendula, hibiscus, Gomphrena, Petunia etc. in the international market. marigold is one such potential flower crops for natural colour extraction.

Marigold (Tageres erecta (L.) Asteraceae) is not only grown as ornamental cut flower and landscape plant but also as a source of natural carotenoid pigment for poultry feed. The pigment is added to intensify the yellow-orange colour of eggs yolk by adding in the poultry feed. Today, it is one of the most commercial flowers grown world-over and in India as well, accounting for more than half of the nation’s loose flower production. A native of south and Central America, precisely Mexico; by considering its easy adaptability under Indian conditions, it is presumed that T. erecta is of Indian origin though it is an introduction (Desai, 1967; Vohra, 1979 and Nalawadi, 1982). The genus Tagetes comprises about 33 species, of which the commercially cultivated species includes Tagetes erecta L. (African/American tall marigold), T. patula (French/dwarf marigold), T. minuta, T. signeta and T. lucida are referred as perfume marigolds. Amongst these, T. erecta is commonly grown for their exquisite blooms ad also natural dye (xanthophyll) extraction, while the latter species for their essential oils.

Marigold also has got therapeutic values. The flowers either fresh or dried are much used in stews, soups, mixed with cheese, possets, broths and drinks. Even today, the marigold is used by herbal doctors for simple ailments. The juice extracted from leaves is used for getting relief from boils, carbuncles and earache (Raghava and Saxena, 2001).

Floral extract is a good remedy for eye diseases and ulcers, petal juice heated with an equal quantity of ghee given thrice a day cures the bleeding piles as well as purifies the blood. The dried petals are used against ringworms, stubborn wounds, bedsores, persistent ulcer and a mouth wash for bedgums (Anon., 2003). Essential oil acts as a repellent against files, ants and mosquitoes. Apart from this, essential oil is used in high grade perfumes and cosmetic industries.

Besides, all the above applications today, it is being grown commercially as an important source of carotenoid pigments. The principal pigment in the flowers is the

xanthophylls, particularly lutein accounts for ≈ 80-90 per cent. Marigold carotenoids are the major source of pigment for poultry industry as a feed additive to intensify the yellow colour of egg yolks, broiler skin (Scott et al., 1968).

Marigold are grown for these purpose in various locations in the Western Hemisphere primarily in mexico and Peru, so also in Asian region, by and for various companies who produce feed additives. The main demand for marigold today comes from the recent trend towards the use of natural dyes throughout the world. Advertising campaigns run today by the firms ranging from multi-national corporations to small units stress on the fact that natural dyes are used on their fabrics as these natural dyes offer several advantages over synthetic dyes from the health point of view, safety and eco-friendly in nature. Since, their production and application do not cause any pollution on environment or ecological disturbance. However, the major market of marigold oleoresin is Mexico where it is used in poultry feed as additive to change the skin colour of the chicken and the yolk to orangish. Besides it finds use in food colouring he said. In fact, Mexico, where from marigold came to India and China, continues to be the major market with 50 to 55 per cent, followed by Europe and the US. India’s share in the Rs. 300 core world market is 25 per cent, while China tops with 50 per cent. The other producer is Peru.

Presently the global consumption of synthetic dyes is about 10 lakh metric tonnes against the natural dyes of about 15,000 metric tonnes. This demand gap can be met by extracting the natural dyes from plant source. One popular and potential source is marigold (Khanna et al., 1996 and Rao et al., 2001).

Apart from poultry industry, marigold dye is also used in textile industries for dying the fabrics (Gurumallesh Prabhu and Raja, 1998). By the early part of this century only a small percentage of textile dyes were extracted from plants, of late there has been increasing interest in natural dyes, as the public has become aware of ecological and environmental problems related to the use of synthetic dyes. Hence, the marigold carotenoids are also used in pharmaceuticals, food supplements, cosmetics (Rao et al., 2001) as well as in human food stuffs since they are nutritious in nature (Timberlake and Henry, 1986 and Padma Vasudevan and Kashyap, 1997).

Marigold can be cultivated easily and their petals are the most concentrated source of xanthophylls, can be extracted either from fresh or after having pressed in silose, to remove water. The resulting cake is dried pelletized and extracted with hexane.

The African marigold is a hardy annual plant grows upto one meter and above, bears single or fully double large sized globular heads of yellow, orange and white shades, whereas French marigold is dwarf and grow upto 20-60 cm height. Which bears small, lemon yellow-golden yellow or orange tinged red flowers. Both the species are reportedly the best source for xanthophyll extraction.

In India, the present area under marigold cultivation is 19,600 ha with a production of 2,00,000 metric tonnes. It is cultivated commercially in most parts of India (Naik, 2003). Karnataka alone occupies 3000 ha under its cultivation for xanthophyll extraction. Presently, in our country the commercial extraction of marigold carotenoids is done in Cochin (Kerala), Hyderabad (Andhra Pradesh), near Satyamangalam forest (Tamil Nadu) and Telagi near Harihar and Bangalore (Karnataka), it is being regularly exported to Mexico, Peru, USA, Japan, Spain, Romania, Netherlands, Turkey, Poland, Italy, Australia, Canada, Africa etc. Therefore, large area in Karnataka, Andhra Pradesh and Maharashtra are under contract farming of marigold for xanthophyll extraction.

SCOPE OF THE STUDY

Karnataka is bestowed with suitable agro-climatic condition to take up cultivation of marigold. Thus, a model of contract farming has emerged in a big way. The concept and practice of contract farming that is being practiced by different companies differ. Hence, the comparative study of pigment extraction by the private sectors with following objectives.

OBJECTIVES OF THE STUDY

i. To compare the terms and conditions of different companies adopted by marigold pigment extracting firms in their contract activities.

ii. To study the socio-economic features of marigold growers entered into contract with different companies.

iii. To compare the costs, returns and resource use efficiency in production of marigold by farmers contracted with different companies and

iv. To analyse the problems faced by contract farmers in cultivation and marketing of marigold to different firms.

HYPOTHESES

� Different companies adopted similar terms and conditions in their contract activities.

� Small and marginal farmers are benefited by contract farming.

� The contractual arrangements adopted by different companies yielded more or less same benefits.

� There are problems faced by contract farmer and contract firm.

LIMITATIONS OF THE STUDY

Since, the data was collected by survey method, the inherent lacunae associated with type of enquiry have crept into the study. Eventhough, the estimates were provided by the recall memory on account of the non-maintenance of the farm records, sincere efforts have been made to elicit an accurate and reliable information as far as possible by cross questioning.

II. REVIEW OF LITERATURE

The comparative study of contract farming practised by different companies are not available. In this chapter, the studies pertaining to terms and conditions, socio-economic features, economics of marigold production, resource use efficiency and problems faced by the contract farmer of different companies have been reviewed and presented. The reviews are presented under the following sub-heads

2.1 Contract farming and contractual arrangements

2.2 Socio-economic features of contract farmers

2.3 Economics of production

2.4 Resource use efficiency in crop production

2.5 Problems in contract farming

2.1 CONTRACT FARMING AND CONTRACTUAL ARRANGEMENTS

2.1.1 Contract Farming

Glovar (1990) highlighted the experience of contract farming and out grower’s scheme of seven countries in the Eastern and the Southern Africa. In those schemes, farmers sold their crops under contract to private or public enterprises for processing or export in return for various inputs, services and price guarantee. The researcher identified some of the key determinants of success and evaluated the performance. Also examined the constraints to replication. In most cases, performance in delivering services and providing income to farmers have been quite good although high management costs were widely applied. According to author, lesser control, more reliance on price incentives and farmers participation might have increased overhead costs while developing management capability among growers.

Porter and Kevin (1997) analysed and recorded the travails of farmers in Africa. Examining their own experience of contract farming in Nigeria and South Africa they have drawn attention to important issues which have received little attention in the literature, notably staffing of schemes, farmers previous experience with Multinational Companies (MNC’s), water and labour issues.

Rehber (1998) presented a brief history along with explanation of contract farming concepts. Further, the reasons behind contract farming were also discussed. Success and failure of contract farming were analysed based on several research works and articles. Finally, a simplified model was presented for the success of private contractual arrangements in the light of evidence taken from the experience.

Anonymous (1999) reported a success of contract farming in Nasik district of Maharashtra state. The company supplied inputs viz., high yielding variety seeds, fertilizers etc. to the farmers on cash and carry basis along with technical advice and purchased the produce at the prevailing market rates at the farm itself. The Nasik District Central Cooperative Bank, Dena Bank, State Bank of India and Bank of Maharashtra participated in the project. About 2000 acres of maize involving 2036 farmers and 124 acres of soybean involving 150 farmers had been covered under the scheme. The estimated availability of maize and soybean to the company after harvest was 4032 MTs and 150 MTs, respectively.

Key and Runsten (1999) examined the cause of the observed variations in the scale of production and the success of smallholder contract farming. The authors opined how the organizational structure of agro-processing firms and the characteristics of contract farmers were influenced by imperfections in the markets for credit, insurance, information, factors of production, the raw product and by transaction costs. The main disincentive for firms to contract with small holders appeared to be the transaction costs associated with providing inputs, credit, extension services and product collection and grading. Many firms had found it

easier and more profitable to deal with a few large growers. The study suggested to increase small holders participation in contract farming with a renewed effort on the part of growers to organize themselves or to organise with the help of government agencies, non-profit organizations, or the agro-processors.

Singh (2000) reviewed the logic, practice and implications of contract farming for contract farmers and the local economy with evidence of contract farming experiences from African, Latin America and Asian countries in different sectors of agriculture. He found that agribusiness firms tend to deal with large producers only. Contracting lead to environmental, equity, food security and sustainability problems, though it lead to better incomes for farmers and more employment for labour initially through the introduction of new crop technologies and by providing markets and inputs. In fact, contract farming as a system affected producers positively or negatively was dependent on the context of the economy.

The researcher further studied the role of contract farming in agricultural diversification and development in terms of its practices and implications for the producers and local economy in the Punjab in India. Hindhusthan lever Limited (HLL), Pepsi and Nijjer were engaged in contract farming of tomato, potato and chilli respectively. The main benefits of contracting as perceived by contract farmers were better and reliable income, new and better farming skills, better soil management and outlet for bulk sales.

Abhiram (2001) examined the supply chain management and role of contract farming. He opined that the services of contract farming system were advantageous to both the farmers and company. The impact was clearly brought out by contract farming. Tomato yields increased three fold (from 16 to 52 Mt/ha), chilly yields increased from 6 Mt to 18 Mt/ha, farm incomes increased by more than 2.5 times, processing season linked to fruit availability increased from 28 to more than 55 days and there was an improvement in the quality of produce.

Kiresur et al. (2001) highlighted advantages of contract farming like reduced capital investment, no risk of price fluctuations and guaranteed income. Reduced capital investment, improved efficiency and efficient marketing were the benefits realised by the company through contract farming. He quoted several examples of contract farming of different crops in India and also mentioned the active involvement of the Government of Karnataka to bring some of the agricultural crops such as maize, cotton, tur, bengalgram, barley and chillies under contract farming system to benefit both the farmers and the industry.

Matthew and Key (2001) under took an empirical case study of the impact of a contract-farming scheme on Senegal’s rural community. Small holders in Senegal’s peanut basin contract under the Arachide de Bouche (ARB) programme to provide confectionery peanuts for the international market. ARBS contracting farmers received seeds, fertilizers, pesticides and herbicides on credit and were required to sell back their produce to the programme. The study examined the access of poorer community members to contracts and the effect of the programme on the income of participants. The ARB programme performed very well on both counts; participants and non-participants were indistinguishable by wealth measure and farmers increased their income sustainability by participating in the programme. The study attributed the participants success to the program’s mobilization of local information through its use of village intermediaries, permitting the substitution of social collateral for physical collateral and making the programme more accessible to the poor.

2.1.2 Contractual arrangements

Roy (1963) defined contract farming as those contractual arrangements between farmers and companies, whether oral or written, specifying one or more conditions of production and /or marketing of an agricultural product. He highlighted various contractual arrangements prevailing in vegetables and fruit processing sector in USA. He observed two types of contracts namely bailment coupled with contract to produce and supply and contract to produce and sell. Further, observed that the processors were supplying the seed material for cultivation at a stated price to be paid by the grower after the harvest. Fertilizer and plant protection provisions were not found in such contracts. Researcher also evidenced that the processors provided a variety of services other than technical support. The growers were found to maintain better relationship with the extension worker of the company. The growers

had problems with grading of the produce in some areas. The contracts made were exclusive and growers were not supposed to sell their produce outside, other than the contractor. The violations of the contractual arrangements led to termination of contract with that crop.

Williamson (1979) examined the factors affecting the organization of production systems in a market hierarchy framework. He propounded that in such a framework the organizational criteria were minimization of production and transaction costs. Further, suggested the use of various administered vertical exchange arrangements to reduce the transaction costs and provided insight into the structure of contracts within the vertical co-ordination process and classified contractual arrangements into Classical, Neoclassical and relational contracts. He defined relational contracts as agreement in principle, which circumscribes the contracting parties relationship, including tacit as well as explicit arrangements.

Further, the author argued that increase in transaction complexity, frequency and uncertainty results in a shift in the co-ordination structure from classical to neoclassical then to bilateral and finally to relational contracts. One party typically becomes dominant in this progression.

Barry et al. (1992) opined in Baltimore that, due to self-interest of the agent, limited cognitive powers, information asymmetries and uncertainties about future events, it was virtually impossible to write and complete comprehensive contracts to cover all possible future events. Thus, contracts generally were incomplete. Agency costs were incurred in structuring, administering and enforcing contracts to more closely align the goals of the principal and agent. He concluded those decisions about integration or other forms of vertical control depended on the degree of asset specificity, potentially opportunistic behaviour, contract completeness and on the effect of changes in the asset control on investment of the parties to a transaction.

Sporleder (1992) compared the various inter-firm relationships with particular reference to strategic alliances. He opined that a key differentiating feature of strategic alliance was trust, flexibility and unanticipated actions were discouraged in written contract. The exit costs were relatively low compared to other arrangements. Generally, a third party enforcement was anticipated when breach occurred in a written contract.

Ramesh (1999) observed the contractual farming arrangements in Indian vegetable and fruit processing industry with particular reference to Gherkin crop in karnataka. He found that the contracts were oral in nature and trust on each other was the backbone of such contracts. The crops requiring skilled labour and less government intervention were the best suited for contract farming. Further the author stressed the need for financing agencies and banks in financing the processors and growers.

Arunkumar (2002) opined that written agreement was used in potato and chilli contract farming in Belagaum. The agreements were drafted in short, simple terms, clarifying the responsibilities of both farmer and firms. Breach of contract was included in order to contract the possibility of extra-contractual marketing. The agreements were effective from the time of handing over the seeds to the farmer and terminated upon the farmer handing over the entire of the field produce.

The researcher further studied the various aspects of modus operandi. Majority of the farmers (>50%) took up cultivation of vegetables due to persuation of the company of the staff. The influence of fellow farmers was the second major force in the case of 40 per cent of the farmers of tomato. All the companies provided technical guidance to farmers. In terms of frequency of field visits, chilli farmers had regular contracts while tomato and potato farmers had frequent contact with the officer. The farmers in chilli contract farming realized full payments within 30 and 45 days, respectively after final harvest. In potato 16 per cent of the farmers received payments after 60 days and 70 per cent of the farmers in tomato received payments in 31-45 days time.

2.2 SOCIO-ECONOMIC FEATURES OF CONTRACT FARMERS

Jayale (1992) conducted a study on horticultural crops in Parbhani district and observed that, majority of the respondents (63.33%) had semi medium land holding followed by 23.33 per cent respondents who had small land holding.

Saravanakumar (1996) in his study in Krishnagiri taluk of Dharmapuri district in Tamil Nadu observed that, majority of the mango growers (64.18%) had medium land holding while 21.66 per cent and 14.66 per cent had small and big land holdings, respectively.

Vijaya Kumar (1997) in his study on rose growers in Bangalore reported that, about half of the growers (51 per cent) belonged to medium income category followed by low (47 per cent) and high income category (2 per cent).

Angadi (1999) conducted a study in Bagalkot district of Karnataka state and reported that, majority (65%) of the pomogranate growers were middle aged. The respondents below 35 years of age were 18.75 per cent while 16.25 per cent were of old age.

Meeran and Jayaseelan (1999) in their study in south Arcot district of Tamil Nadu state on shrimp farmers found that, majority of the farmers had received education up to high school (42.00%) followed by pre-university (22.00%) and middle school (16.00%) levels of education.

Karpagam (2000) conducted a study on Erode district of Tamil Nadu state and indicated that, majority (70.83%) of the turmeric growing farmers belonged to middle aged group.

Babanna (2001) in his study on arecanut growers of Shimoga district in Karnataka revealed that 61.60 per cent of the respondents belonged to medium income category while 23.40 and 15.00 per cent were under low and high income category, respectively.

Arunkumar (2002) undertook an empirical study of factors responsible for success/failure of contract farming by using linear regression function. The results revealed that 93 per cent of variation in the success/failure was explained by the independent variables included in the function. The regression coefficients of net returns from contract farming, land under contract, education of the contract farmer and experience of the company were statistically significant. The coefficients of age and family size were positive but statistically not significant.

Arunkumar (2002) opined that major problems faced by the contract farmers were low contract price and irregular payments. The other problems faced were unawareness of potentiality of crops, poor technical assistance, manipulation of norms by firms and higher rejection rate. He also opined that major problems faced by contract firms were land constraints and fixing of contract price. The other problems were farmers discontent and holding up of vehicles. The contract farmers try to put lower grade into higher grade and it was difficulty to check and make sure of the grade as quantity handled was more. Farmers held up vehicles in the villages demanding that they should be paid higher prices eventhough agreement does not say so.

Shashidhara (2003) in his study on socio-economic profile of drip irrigation farmers in Shimoga and Davanagere district of Karnataka state revealed that, comparatively more number of farmers (46.67%) belonged to semi medium category followed by medium (32.22%) and small land holding categories (18.89%).

Shashidhara (2004) conducted a study on drip irrigation farmers in Bijapur district of Karnataka and reported that, 49.17 per cent of the farmers belonged to medium income category followed by low (26.67 per cent) and high (24.16 per cent) income category, respectively.

Sunil Kumar (2004) conducted a study on tomato growers in Belgaum district of Karnataka and found that, majority of the respondents belonged to medium income category

(48.33%), followed by 32.50 per cent and 19.16 per cent were under low and high income category, respectively.

2.3 ECONOMICS OF PRODUCTION

A detailed research study on economics of marigold production has not been done so far. However, some case studies and estimates are available which are presented in this chapter. In addition to this, the studies on cost of cultivation and cost concepts used in medicinal, aromatic and vegetables crops are also presented.

Ravishankar (1993) estimated the average cost of cultivation and net returns of Davana (Artemesia pallens) at Rs. 8,145 per acre and Rs. 6,090 per acre, respectively. The net return per rupee of total cost was found to be Rs. 0.74, while the same per rupee of variable cost was at Rs. 1.07.

Farooqi and Vasundhara (1997) studied the cost of cultivation for medicinal crops like Ashwagandha, Coleus, Long pepper (as inter crop in coconut garden) and Periwinkle. They found that the cost of cultivation and the net returns per acre for Ashwagandha were Rs. 2,267 and Rs. 9,878 respectively followed by Coleus (Rs. 2,631 and Rs. 29,757), Long pepper (Rs. 36,599 and Rs. 86,477) and Periwinkle (Rs. 3,846 and Rs. 16,396).

Suneetha (1998) studied the cost of cultivation of medicinal crops in Kerala. The cost of cultivation for Plumbago, kaempferia, Aloe, Ocimum and long pepper as inter crops in coconut garden was estimated using partial budgeting technique. These medicinal crops provided additional returns of Rs. 30,340 per acre per annum. The additional cost involved in cultivation was Rs. 25,091 per acre for all the above mentioned medicinal crops.

Jarial (1999) estimated the total expenditure in the cultivation of Safed musali at Rs. 2,95,000 and total income at Rs. 6,30,000 per acre. He also estimated that the total cost of cultivation per acre of Senna was Rs. 3,700 and income from the sale of leaves were Rs. 15,000. Net income observed during the first year was Rs. 11,300 and it was Rs. 13,300 during the subsequent years.

Lokesh (1999) estimated the total cost of cultivation of sweet flag at Rs. 28,789 per acre in the case of sewage water farms and Rs. 30,880 in the case of ground water farms. The average yield and gross returns per acre was higher (23.02 quintal and net returns of Rs. 54,374) in the case of sewage water farms than the ground water farms (16 quintal and Rs. 45,152).

Vasudeva (1999) observed that the total cost of cultivation of periwinkle per hectare was Rs. 15,000 and the returns from leaves, stem and root were Rs. 36,000, Rs. 3,000 and Rs. 30,000 respectively. The net profit was Rs, 54,000.

Farooqi and Vasundhara (2001) estimated the cost of cultivation of Ashwagandha and found that the cost on FYM as Rs. 400 (2 tonnes) and cost on seeds was about Rs. 1000 (5.0 kgs). Net returns obtained per acre of Ashwgandha was Rs. 9878 after meeting the cost of production Rs. 2267.

Jadhav et al. (2001) studied per hectare cost of cultivation of Isabgoal and Patchouli and was Rs. 3994.46 and Rs. 32707.16and per acre returns were Rs. 5172 and Rs. Rs. 1012114, respectively. The per acre return of Patchouli was more than the Isabgoal. The Benefit Cost ratio was 1.26 and 2.00 for Isabgoal and Patchouli, respectively.

Subrahmanyam et al. (2001) reported that the growers of lemongrass in Idukki district of Kerala realised Rs. 5,996 as net returns per acre after meeting Rs. 24,017.50 towards the cost of cultivation including distillation.

Vinayak (2005) estimated cost and returns while studying contract farming in Ashwagandha cultivation at Gadag, raichur and Koppal districts of Karnataka. The total cost of Ashwagandha production per acre was Rs. 6896 and total income was Rs. 14820. The maximum cost Rs. 1428 was found in human labour followed by cost on FYM transportation and application (Rs. 832), cost on seeds (Rs. 484) and plant protection chemicals (Rs. 40).

2.4 RESOURCE USE EFFICIENCY IN CROP PRODUCTION

Bal et al. (1983) employed Cob-Douglas type of production function to study the factor share and productivity of various factors in crop cultivation in central districts of Punjab. It was noted that the elasticity of production for human labour, drought power and the rental value of land was less than unity while that for irrigation, fertilizers and weedicides was more than unity, indicating the scope for increasing the output by re-organizing the use of these inputs.

Muralidharan (1987) studied the resource use efficiency in rice production in Kerala employing the Cobb-Douglas type of production function. Adjusted R

2 (0.84) indicated that 84

per cent of the variation in yield of paddy could be explained by the estimated production function. The coefficient of land and human labour were positive and significant at one per cent probability level.

Reddy (1988) studied the resources productivity and allocation efficiency in sunflower and groundnut crops under rainfed conditions in Andhra Pradesh. The functional analysis revealed that seeds, labour and fertilizers significantly influenced the production in both small and large farms. The ratio of MVP to MFC was more than unity for the above said factors indicating the possibility of intensifying the use of these resources to increase the profitability in sunflower and groundnut production.

Radha et al. (1989) evaluated the resource-use efficiency in rice-rice and rice-pulse farming systems in Krishna district of Andhra Pradesh. The results indicated that manures and fertilizers and irrigation were quite productively used in both the farming systems. The sum of production elasticities indicated the operation of constant returns to scale in both farming systems.

Chandrareddy et al. (1990) studied the resource use efficiency in beetle vine cultivation in Cuddapah district of Andhra Pradesh. The study revealed that there was a potential for further use of labour, manures and fertilizers upto their optimum levels. But, use of additional seedlings was not desirable as revealed from its non-significant coefficient.

Karisomanagoudar (1990) employed Cobb-Douglas type of production function in Gadag taluk of Dharwad district to study resource use efficiency in rainfed onion production. It was observed that land and labour inputs significantly increased the gross revenue. The seed variable exercised a significant negative influence on earnings from onion. The variables included in the production function explained 96 per cent of the variation in output.

Nagaraj (1990) while studying the economics of flue cured virginia tobacco production in Periyapatna taluk of Mysore district, found that land, human labour and fuel charges significantly influenced the production. On small farms, the ratio of MVP to MFC was less than unity in the case of bullock labour, plant protection chemicals and capital investment for FVC tobacco. The ratio was greater than unity in the case of land indicating the possibility of optimizing the profits by brining more area under these crops.

Vasudha (1990) assessed the relationship between agricultural output and selected explanatory variables in Karnataka by using Cobb-Douglas production function. It was found that the gross cropped area, fertilizer consumption, bullock labour and human labour were important variables in explaining variation in agriculture output. The study also indicated that the agricultural production was increased at the rate of 3.11 per cent per annum during the period between 1956 and 1983 and fertilizer and irrigation were the predominant contributors for growth.

Manmohan Reddy (1992) reported economics of sugarcane production in Gulbarga taluk of Karnataka State. By using the Cobb-Douglas type of production function, it was concluded that labour and fertilizer significantly increased the gross income. The variable input bullock labour exercised a negative influence on the earnings from sugarcane. The variables included in the function explained 99 per cent of variation in the dependent variable (returns). The summation of production coefficients (1.27) showed that the production was operating in increasing returns to scale.

Nagaraj (1993) studied the resource-use efficiency of various crops included in each cropping system in Tungabhadra command area in Karnataka. The study indicated that land and manures and fertilizers together had maximum influence on gross returns of maize in maize-sunflower system. In the case of sunflower after maize, land was the single most factor which was greatly influencing the gross returns. The ratio of MVP to MFC for machine labour and bullock labour were less than unity, indicating the overuse of these resources in maize production. In the case of cotton in head-reach, seed had the maximum influence on farm income followed by plant protection chemicals. The variables included in the analysis explained 96.18 per cent of the variation in gross income for cotton. Similarly, the same analysis was done for other important crops in the command area.

Aswathareddy et al. (1997) studied resource use efficiency in groundnut production under rainfed conditions in Challakere taluk of Karnataka. The study revealed that land and farmyard manure in the case of small farmers and farmyard manure in the case of large farmers contributed significantly to production. The average mean technical efficiency indices of small and large farm groups were 0.679 and 0.646, respectively showing that small farmer groups were achieving yield levels which were more efficient than the large farmer groups.

Naik et al. (1998) while analysing the resource use efficiency and productivity of various factors involved in onion production using Cobb-Douglas type of production function observed that land and farmyard manure contributed significantly to the yield.

Chulaki (2001) studied the resource use efficiency of different inputs in hybrid seed production using Cobb-Douglas production function. Out of six selected variables in DCH-32, land, fertilizer, irrigation charges and human labour inputs were significant at one per cent level, while FYM was significant at 5 per cent level of probability in the pooled category of KSSC seed growers and Mahyco seed growers.

Varuna (2002) while analyzing economic, production, resource use efficiency, marketing and constrains of garlic production in Indhur district of Madhya Pradesh found that variables included in the regression analysis explained 86.89 per cent of the variation in gross returns. The elasticity of production with respect to seed and bullock labour were 0.503 and 0.1633 respectively. The regression coefficients of manures and fertilizers and plant protection were 0.4795 and 0.3948 respectively. These variables were found positive and significant.

Vinayak (2005) while studying the economics of contract farming in ashwagandha cultivation at Koppal, Gadag and Raichur districts of Karnataka found that variable costs explained 82 per cent of the variation in the production function. Expenditure on human labour, machine labour and FYM found statistically significant and charges on seeds, bullock labour and others were positive but non-significant.

2.5 PROBLEMS IN CONTRACT FARMING

Srivastava and Seetharaman (1989) while providing an overview of agro-processing industries suggested backward linkages as the key element for success of fruit processing units. They observed that larger processing units often faced the problems of severe under utilisation of capacity due to inadequate and unsuitainable supply of raw materials. They concluded that the uncertainty in supply was the major reason for private processing units to forge backward with the farmers for ensuring supplies.

Pandey and Swarup (1994) out constraints relating to water management, soil and fertility, high yielding variety seeds, technical knowledge and institutional constraints in pulse production in Mohindergarh district. The findings revealed that the water management formed major problem (rank-I) followed by the non-availability of location specific drought and pest resistant high yielding variety seeds. The score relating to the technical knowledge and training of farmers indicated the communication gap, which formed constraint in achieving higher yields of crops. The other problems related to soil and fertility, institutional facilities, weeds, insects, pests and diseases ranked fourth, fifth and sixth, respectively.

Rangi and Sidhu (2000) while studying contract farming practiced by Hindustan Lever Ltd. (HLL) and Nijjar Agro Limited in tomato for processing venture at Punjab found that, tomato was mainly attacked tomato fruit borer sometimes leaf minor, aphid, cutworm and fruit

fly also. To have a check on these attacks, the expenses on pesticides/insecticides were high and this also pushed up the labour cost. Continuous cultivation of tomato crop on the same field has also adversely affected yield. Nijjar Agro Limited rejected the poor quality produce brought by the farmers. The HLL did not indulge in such practice. Farmers of both the firms expressed opinion regarding the low contract prices.

Singh (2000) identified the faults of contracting system both at company and at farmers level. About two-thirds of Hindhusthan lever Limited growers and more than 50 per cent of the Nijjer growers did not face any major problem in contracting. The other reported problems were poor coordination of activities, poor technical assistance, delayed payments, outright cheating in dealings and manipulation of norms by the firm. Some of the Pepsi potato farmers had a few problems with the company system, but a large number of them (60%) were happy. The study also highlighted the implications of contract farming on cropping pattern, land lease market, sustainability, farm income and employment. Despite, various problems and conflicts between companies and growers, 62 per cent of Hindhusthan lever Limited, 80 per cent of Nijjer and 68 and 73 per cent of Pepsi (potato and chilli, respectively) farmers wanted to continue contract farming.

Banumathi and Sita Devi (2001) an attempt was made to identify the major problems in marketing of jasmine at Chidambaram taluk of Cuddaloe district of Tamil Nadu. They found that in case of small farmers lack of finance was the problem ranked first. Perishable nature of flowers, price fluctuations, poor market information and forced sale were other important problems. Medium farmers and large farmers ranked price fluctuation and perishable nature of flower as first and second respectively. Long distance to the primary market, lack of finance and poor market information were other important problems in medium farms.

Arunkumar (2002) opined that major problems faced by the contract farmers were low contract price and irregular payments. The other problems faced were unawareness of potentiality of crops, poor technical assistance, manipulation of norms by firms and higher rejection rate. He also opined that major problems faced by contract firms were land constraints and fixing of contract price. The other problems were farmers discontent and holding up of vehicles. The contract farmers try to put lower grade into higher grade and it was difficulty to check and make sure of the grade as quantity handled was more. Farmers held up vehicles in the villages demanding that they should be paid higher prices eventhough agreement does not say so.

Shiva Kumar Gupta (2002) studied major constraint in contract farming as the difficulty in allocating the risk between the firm and farmers, where the distribution of risk was dependent largely on factors such as bargaining power, availability of alternative and access to information. In short duration crops such as vegetables, farmers tend to divert the produce to the open market rather than supply to the processing firm when the prices were high. The cost calculations of the firm crumble, as they were forced to arrange supply of raw materials from alternative sources. In long duration crops such as plantation crops, the firms often fail to honour the contract, as they knew that farmers had no alternative but to sell the products to them at lower prices.

Kattimani et al. (2003) undertook an empirical study of Ashwagandha in selected districts of North Karnataka revealed that, Ashwagandha is a most important and popular crop of rainfed areas under semi-arid tropics of North Karnataka. Problems faced by the Ashwagandha growers in North Karnataka were high cost of seed material, lack of knowledge on production technology, marketing problems, incidence of pest and diseases, harvesting and grading.

III. METHODOLOGY

This chapter deals with the brief descriptions of the study area, techniques used in the selection of the sample, collection of data and analytical tools and techniques. This has been given under the following heads.

3.1 Description of marigold crop

3.2 Description of the study area

3.3 Selection of study area and sampling procedure

3.4 Analytical tools and techniques

3.5 Concepts and terms used in the study

3.1 DESCRIPTION OF MARIGOLD CROP

Marigold is an annual herb belongs to family Composite, it has erect branches and usually of opposite scented leaves, pinnately dissected or rarely undivided or toothed. These are quick growing plants. Marigold has variable heads, 1.5 to 8.0 cm across according to varieties, some hybrids are upto 15 cm across.

Marigold requires less fertile, sandy loamy soil with pH 7.0 - 7.5 and temperature of 14.5 - 28.6

0C, which made it the choice among flowers, it can be grown throughout the year

but monsoon season is the best to get maximum yields.

3.2 DESCRIPTION OF THE STUDY AREA

Karnataka comprises of 27 districts, of which Kolar, Davanagere and Haveri districts were chosen for the present study due to the concentration of marigold crop under contract farming for pigment extraction (Table 3.1 and 3.2).

3.2.1 Kolar district

The district is situated at 1308' North latitude and 78

08' east longitude.

The district has a geographical area of 7,79,467 ha spread in 11 taluks and 2931 villages. It is bounded by Tumkur towards west, Bangalore towards south and Andhra Pradesh towards north. The district has forest area spread over 72,324 ha. Out of total geographical area, net cultivable area accounted 6,26,827 ha, land not available for cultivation is 1,37,047 ha and fallow land covers 84,544 ha.

According to 2001 census, the total population of the district is 25.36 lakhs with literacy rate of 63.14 per cent. The overall population density of the district is 280 per sq. km (2001).

The average rainfall in the district is 744 mm major portion of rainfall received from southwest monsoon. The average rainfall days were 46 during 2002.

The important crops grown in the district are paddy, ragi, jowar, groundnut and horticultural crops such as flowers, mango, potato, tomato, beans, grapes, coconut and mulberry.

3.2.2 Davanagere district

This district has geographical area of 5,97,597 ha spread in six taluks and 817 villages. It is surrounded by Haveri and Bellary towards north, Shimoga and Chitradurga towards south. This district has forest area of about 89,918 ha, net cultivable area accounts 3,83,203 ha, area not available for cultivation is 59481 ha whereas fallow land constitutes 84,544 ha.

Table 3.1: Demographic profile of study area

Sample districts Sl.

No. Particulars

Kolar Davangere Haveri

1. Geographical area (ha) 7,79,467 5,97,597 4,85,156

2. Taluks (numbers) 11 6 7

3. Villages (numbers) 2931 817 699

4. Population (numbers) 25,36,069 17,90,952 14,39,116

5. Density of population (per sq. km)

280 260 156

6. Average rainfall (mm) 744 649 548

7. Literacy rate (%) 63.14 67.67 68.09

Source: Directorate of Economics and Statistics, Bangalore, 2002-03

Table 3.2: Land use pattern in the study area

(Hectares)

Sample districts Sl.

No. Particulars

Kolar Davangere Haveri

1. Geographical area 779467 597597 485156

2. Forest area 70324 89918 47454

3. Land not available for cultivation 137047 59481 37255

4. Fallow land 84544 27108 30339

5. Net cultivable area 626827 383203.05 385216

6. Irrigated area 80089 137408 73627

Source: Directorate of Economics and Statistics, Bangalore, 2002-03.

According to 2001 census, this district has population of 17.90 lakh, literacy rate is 67.67 per cent. population density is 260 sq. km. The average rainfall in the district is 649 mm. Crops like jowar, maize, groundnut, cotton, flower crops, chillies grown in this district.

3.2.3 Haveri district

This district fall under the northern transitional tract of Karnataka state. It geographically lies within the interior of Deccan Peninsular between 14

019' and 14

048' North

latitude and between 70015' and 75

050' East longitude. The geographical area of the district is

4,85,156 ha and it has seven taluks and 699 villages and it is bounded in the North by Dharwad and Gadag district, on the South by Shimoga and Davanagere districts, on the East by Bellary and on West by Uttara Kannada district. This district has forest area of about 4745 ha, net cultivable area of about 385216 ha area of about 37255 ha is not available for cultivation.

According to 2001 census, this district has 14.39 lakh population, literacy rate is 68.09 per cent, population density is 156 sq. km.

Average rainfall of the district is 548 mm. The important crops grown in this area are sorghum, cotton, groundnut, paddy, flower crops. Haveri district has vast area in seed production.

3.3 SELECTION OF STUDY AREA AND SAMPLING PROCEDURES

A purposive sampling procedure was adopted for the purpose of selection of representative districts, taluks and villages which are detailed below.

3.3.1 Selection of the study area

Kolar, Davaneger and Haveri districts were selected for the study, because these are the important and major marigold growing districts in Karnataka. The pigment extraction companies are concentrated in these districts (Table 3.3).

3.3.2 Sampling procedure

To evaluate the objectives of the study all farmers who adopted contract farming in marigold considered.

3.3.3 Selection of taluks

In Kolar district, Gouribidanur and Chikkaballapur taluks were selected. In Haveri district, Haveri and Ranebennur taluks selected. In Davanagere district, Harihar and Harapanahalli taluks were selected for the study because more area was under contract farming in marigold in these taluks of the district.

3.3.4 Selection of villages

From the selected taluks, all the villages were considered, where contracting companies were concentrated in contract farming of marigold for colour extraction.

3.3.5 Selection of sample farmers

All the farmers adopting contract farming were selected from each village in consultation with the contracting companies. Thus, total contract farmers for AVT Natural products were 40 and another 40 samples for Agro-Biochem India Private Limited, leading to the total sample size of 80.

3.3.6 Nature and source of data

For evaluating the objectives of the study necessary data relating to contract farming were obtained from the selected farmers with the help of pre-tested schedule. The farmers were personally interviewed to ensure accuracy and comprehension. Since survey method

Table 3.3: Distribution of sample farmers

Company Districts Taluks Villages No. of

farmers Per cent to

Total

Kolar Gouribidanur Gouribidanur 5

Hirebidanur 2

Kurubanahalli 4

Chikkakaragodu 2

Chigatagere 5

Sanganahalli 4

27.5

Chikkaballapur Poshattahalli 6

Kolmenahalli 3

Sadenahalli 3

Gollalli 4

AVT

Mavinakayipura 2

22.5

Davangere Harapanahalli Telagi 6

Maslada 3

Ingalagundi 2

Singanahalli 3

Karlahalli 2

Duggavatha 3

23.5

Harihar Harihar 2

Guttur 2 5.00

Haveri Haveri Varadalli 3

Sangur 3

Thotadaellapura 4

12.5

Ranebennur Alageri 2

Thumbinakatti 3

ABC

Guthla 2

8.75

Total 80 100

was adopted, heavy reliance was on recall memory of the respondents. They were related to cropping pattern, land holdings, asset position, family size, educational levels and annual income etc. details regarding input use and output obtained were collected. Further, the data on the quantity of produce sold, the price of inputs and outputs were obtained from the samples farmers, data on payment schedule, services provided by the companies, colour of the flower desired by them also recorded. Problems faced by the contract farmers were also recorded. Effort was made to elicit accurate information from the sample farmers.

3.4 ANALYTICAL TOOLS AND TECHNIQUES

In this study, based on the nature and extent of availability of data, the following analytical tools and techniques have been adopted. They are;

1. Tabular analysis

2. Regression analysis

3.4.1 Tabular analysis

The technique of tabular analysis was employed for computing the costs, returns, terms and conditions of contract farming and problems faced by contract farmers were documented using means and percentages.

3.4.2 Regression analysis

Linear regression model was used to analyse the resource use efficiency in contract farming. Variables used per hectare were included on the model.

Y = a + b1x1 + b2x2 + b3x3 + b4x4 + b5x5

Where,

a = Intercept

bi = Regression coefficient

Y = Yield

X1 = Cost of fertilizer used

X2 = Cost of seeds used

X3 = Cost of chemicals used

X4 = Human labour cost

X5 = Bullock labour cost

X6 = Machine labour cost

X7 = Cost of FYM used

X8 = Cost of seed

3.5 TERMS USED IN THE STUDY

In this section, different concepts of cost and returns used in the study are presented. It is observed at the time of data collection that farmers of this region are more familiar with using an acre as the unit of measuring the land area instead of hectare. Hence, in this study, also all calculations pertaining to the cost and returns of marigold production were calculated on per acre basis.

Note: 2.47106 acres = 1 hectare

Costs

Costs incurred on variable inputs such as seeds, farmyard manure, fertilizers, plant protection chemicals, labour (human, bullock and machine), irrigation and interest on working capital have been considered. The computations of different terms of cost components are as follows:

Seed : The cost of the seeds/ha was computed by using the actual price paid by the sample farmer, which prevailed at the time of sowing.

Farmyard manure : considering the rates prevailing in the locality at the time of its application imputed the value of FYM generated in their farm.

Fertilizer : The cost of fertilizer was based on the actual price paid by the sample farmers including the cost of transportation and other incidental charges, if any.

Plant protection chemicals : The actual price paid by the farmers was used to compute the cost of plant protection chemicals.

Labour : The cost of labour was computed by taking the wage rate paid by the sample farmer for human labour and bullock labour. The same wage rates were used while computing the imputed value of family labour and owned bullock labour.

Woman labour was converted into male equivalents. The formula used for conversion was

Male equivalents of female labour = 0.60 × total number of female labour days

Conversion factor 0.60 was taken based on the ratio of wage paid to the men labour v/s women labour.

Interest on working capital : This was calculated at the rate of 11 percent for the duration of crop, on the total value of working capital.

Returns

For contract farmers, after harvest the marigold flowers are marketed for pre-fixed prices.

Pre-fixed prices

Contract sponsor and contract grower mutually agree the price per kg of marigold flowers.

• Gross Returns - Which can be worked out by multiplying total yield of marigold with price. Which can be denoted as

Gross Returns (GR) = yield × price

• Net returns over total cost - This can be obtained by deducting total variable cost from gross return. Which can be denoted as

Net returns over variable cost = GR – TC

• B:C ratio : This can be worked out by dividing gross returns by total cost.

Returns per rupee of investment = NR / TC

IV. RESULTS

The findings of the study are presented in this chapter under the following heads.

4.1 Contractual arrangements

4.2 Socio-economic features of contract farmers

4.3 Pattern of employment

4.4 Input use pattern in production

4.5 Cost and returns structure in production

4.6 Resource use efficiency in production

4.7 Problems faced by the contract farmers in production and marketing

4.1 CONTRACTUAL ARRANGEMENTS

The results in respect of terms and conditions of the companies are presented below.

4.1.1 Terms and conditions prevailing in contract farming of different companies

The two pigment extracting firms viz., AV Thomas Natural Products and Agro-Biochem India Limited have their own system of contract with farmers. Both the companies prefer orange colour flowers. AVT fixes the price before signing an agreement by the farmer to MOU. Whereas, ABC fixes the prices while distributing the seeds for sowing in their plots. Quality parameters with respect to flowers like wet free and free of contamination preferred by both the companies.

Within 24 hours of harvest, the product should be delivered to companies in both the cases. The transportation cost borned by the companies only along with loading and unloading charges.

AVT pays its payment after every harvest before next harvest, whereas ABC pays after 2 harvests, within a month. AVT paid Rs. 2.20 per kg of marigold flowers and ABC paid Rs. 2.50 per kg of marigold flowers.

AVT prefers minimum land of 0.5 acres and maximum of 2.50 acres. ABC goes for contract with minimum land of 0.5 acres and maximum of 3.0 acres. Both the companies, looking into labour and water availability condition was preferred by them that is land must be well ploughed and should have irrigation facility. AVT takes an advance of Rs. 200 per acre towards input supply such as seed. ABC does not take any such advance in the contract. No companies collect charges for technical advice and pays no compensation to crop loss at all.

4.1.2 Opinion of the contractual farmer with respect to actual practice of terms and conditions

The companies have selected the contract farmers based on the locality of the farm, size of the holdings, source of irrigation and his willingness to cultivate. The opinion with respect to actual practice of terms and conditions are presented in Table 2.

In Marigold contract farming with respect to AVT, it was observed that 70 per cent of the farmers were introduced to the crop by company staff and 15 per cent by fellow farmer, 10.50 per cent by friends and relatives, 4.50 per cent by horticultural department advice. The farmer after expressing his willingness to undertake contract farming has to sign the MOU along with witness.

In case of ABC, 64.22 per cent of contract farmers were introduced to the crop by company personnel, 18.25 per cent by fellow farmers, 15 per cent by friends and relatives, finally from the influence of horticulture department 2.52 per cent were taken up this crop.

Table 1: Terms and conditions prevailing in contract farming of different companies

Sl. No. Particulars AVT ABC

1. Colour of the flower preferred Orange Orange

2. Time of fixing price Before signing MOU

During seed distribution

3. Quality parameter Wet free, free of contaminations

Wet free, free of contaminations

4. Delivery of the product Within 24 hours Within 24 hours

5. Transportation cost Borne by company Borne by company

6. Loading and unloading charges Borne by company Borne by company

7. Payment term After every harvest After two harvests

8. Price per kg Rs. 2.20/- Rs. 2.50/-

9. Condition of land preferred Well ploughed with irrigation facility

Well ploughed with irrigation facility

10. Minimum land preferred (acres) 0.5 0.5

11. Maximum land preferred (acres) 2.5 3.0

12. Advance towards inputs Rs. 200 Nil

13. Charges towards technical advice Nil Nil

14. Compensation towards crop loss Nil Nil

15. Agreement Written Oral

Table 2: Actual terms and conditions prevailing between contract farmer and company as

opined by farmers

Sl. No. Particulars AVT (%) ABC(%)

1. Introduced to the crop by

a. Company staff 70.00 64.22

b. Fellow farmer 15.00 18.25

c. Friends and relatives 10.50 15.00

d. Horticultural department 4.50 2.53

e. Others 0.00 0.00

2. Types of agreement

a. Written 100.00 0.00

b. Oral 0.00 100.00

3. Frequency of field visits by field officer

Daily 0.00 0.00

Once a week 35.00 22.84

Twice a week 14.25 4.50

Once in fortnight 48.44 58.44

Once in a month 2.31 14.22

No visits 0.00 0.00

4. Payment schedule

1-15 days 78.50 12.86

16-30 days 14.22 24.55

31-45 day 7.28 52.22

Above 45 days 0.00 10.32

AVT has a written agreement, farmers have to sign MOU if they agree for all terms and conditions of the company. But ABC does not have any MOU, it is just oral. Company personnel go to farmers and ask them whether they are interested to grow or not and convince them to grow, 35 per cent of contract farmers of AVT told that field officer visits the field once a week, 14.25 per cent told twice a week, 48.44 per cent once in fortnight and 2.31 per cent have told that once in a month.

Whereas, in case of ABC 22.84 per cent told that field officer visits once a week, 4.50 per cent told twice a week, 58.44 per cent once in fortnight, 14.22 per cent once in a month, 78.50 per cent contract farmers got settled their payment in AVT within fifteen days, 14.22 per cent have told 16 to 30 days, 7.28 per cent farmers have told 31 to 45 days after harvesting. In ABC 12.86 per cent of contract farmers told payment made in within 15 days after harvesting, 24.55 per cent told, 16 to 30 days, 52.22 per cent told 31 to 45 days after harvesting.

4.1.3 Inputs supplied by the companies

Input supplies to contract farmers by the companies presented in Table 3. The results showed that, AVT company supplies 0.375 kgs of seed @ 1125 per ha. The fertilizer does not supplied by the company. The micronutrients of about 0.185 kg @ Rs. 287 per ha, 0.033 litre of growth regulators supplied @ Rs. 50 and also supplies PPC of about 0.300 kg @ Rs. 375).

ABC supplies 0.312 kg seeds @ Rs. 776.24 per ha, fertilizer of about 500 kg @ Rs. 2400 micronutrients 0.150 kg @ Rs. 240, growth regulators 0.033 litre @ 50 Rs. and also supplies 0.250 kg of PPC @ Rs. 312.

The results indicated that seeds supplied by AVT costs higehr than the seeds supplied by ABC though both the companies preferred same orange colour marigold. Similarly, AVT will not supply fertilizer whereas ABC supplies fertilizers with interest free. The cost with respect to micronutrients and PPC was higher in AVT when compared to ABC.

4.1.4 Actual services provided by the companies to contract farmers as opinioned by them

It could be seen from the Table 4 that, all contract farmers of AVT told that company provides technical advice, input supply (except fertilizers), which include seeds, micronutrients, growth regulators and transportation facility. But, only 70 per cent of the farmers have taken packing material and 45 per cent of farmers have taken the hire services of implements supplied by the company.

Similarly, ABC company do supply technical advice input supply which includes fertilizers, seeds, micronutrients, growth regulators with transportation facility. But, this company does not supply any packing material as well as implementations.

The above results indicated that fertilizer was not supplied by AVT company and all other inputs are supplied whereas ABC supplied all other inputs including fertilizer except packing materials and hired implements to contract farmers.

4.1.5 Factors favouring contract farming

The factors favoured by farmers to enter contract farmring in marigold was given in Table 5. All sample farmers of AVT have told they were into contract farming only because there is buyback system, 95 per cent of them told due to input supply, 50 per cent of them due to service of technical advice, 87.50 per cent due to transportation facility and only 12.50 per cent told because of remunerative prices.

In ABC also all contract farmers told it is due to buyback agreements and input supply, 37.50 per cent due to technical advice, 75 per cent due to transportation facility and only 30 per cent told they are into contract system because of remunerative prices.

The above results showed that the farmers entered into contract farming in marigold was mainly due to the buyback arrangements of the product and input supply from both the

Table 3: Inputs supplied by the companies to contract farmers

(per ha)

AVT ABC

Sl. No.

Particulars Unit

Quantity Cost (Rs.)

Quantity Cost (Rs.)

1. Seeds Kg 0.375 1125.00 0.312 776.24

2. Fertilizer Kg - - 500.00 2400.00

3. Micronutrients Kg 0.185 287.00 0.150 240.00

4. Growth regulator Liter 0.033 50.00 0.033 50.00

6. Plant protection chemicals Kg 0.300 375.00 0.250 312.00

Table 4: Actual services provided by the companies to contract farmers as opined by them

(N=40 each for the company)

AVT (%) ABC (%) Sl. No.

Particulars Supplied

Not supplied

Supplied Not

supplied

1. Technical advice 100 - 100 -

2. Input supply

a. Fertilizers Nil 100 100 -

b. Seeds 100 - 100 -

c. Micronutrients 100 - 100 -

d. Growth regulator 100 - 100 -

e. Packing material 70 - Nil 100

f. Implements on hire 45 - Nil 100

3. Transportation facility 100 - 100 -

Table 5: Factors favouring contract farming between farmers and companies

N=40 each for the company

AVT ABC

Sl. No.

Particulars No. of farmers opined

Per cent No. of

farmers opined

Per cent

1. Buyback agreement 40 100.00 40 100.00

2. Input supply 38 95.00 40 100.00

3. Technical assistance 20 50.00 15 37.50

4. Transportation facility 35 87.50 30 75.00

5. Remunerative prices 5 12.50 12 30.00

companies. However, the farmers in both the companies opinion on prices was scored very less that is from 30 to 12.50 per cent (ABC and AVT companies, respectively).

4.2 SOCIO-ECONOMIC FEATURES OF CONTRACT FARMERS

The results in respect of socio-economic characteristics of the sample farmers of both the companies are presented in Table 6.

The average age of AVT contract farmers was 37 years with an average family size of six. The annual income was found to be Rs. 66950 per family. The education levels concerned, hardly 20 per cent of the farmers were illiterate and remaining 80 per cent were literate. Among the literate 17.50 per cent, 47.50 per cent and 15 per cent of the farmers were studied upto primary, high school and college level, respectively.

In case of ABC, the average age of contract farmers were 42 years with an average family size of eight. The annual income was Rs. 56950 per family. Their educational level concerned, 37.5 per cent of them were found illiterate and 62.5 per cent literate. Among literates about 12.5 per cent, 32.5 per cent, 17.5 per cent of the farmers were studied upto primary, high school and college level, respectively.

Similarly, the land holding of each family, in case of AVT, it was 4.92 ha and 8.40 ha in case of ABC. In the total land holding of the farmer, who were had the contract with AVT showed that nearly hold 1.92 ha was irrigated land, 3.0 ha of dry land. The average area undertaken for marigold was only 0.70 ha, whereas in case of ABC, it was 3.40 ha of irrigated and 5.00 ha of dryland. The area under marigold was 0.84 ha. The results are presented in Table 6.

4.3 PATTERN OF EMPLOYMENT IN MARIGOLD CULTIVATION

The contract farming farmer with AVT used 42 mandays of human labour for harvesting, 15 mandays for irrigation and 9.6 mandays for weeding. The least mandays of human labour used for fertilizer, chemical and micronutrients application that is 0.5 mandays of human labour for each activity.

In case of ABC, they used a maximum mandays human labour of 50.82 for harvesting, 15.64 mandays for irrigation and 12 mandays for weeding. The least mandays was used for fertilizer, chemical and micronutrients application. However, harvesting activities constituted higher mandays of human labour in ABC company compared to AVT company.

In both the cases harvesting, irrigation and weeding activities constituted a maximum consumption of mandays of human labour and least was for fertilizer, chemical and micronutrients application.

The total mandays of human labour consumption by contract farmers was high in ABC company (Rs. 106.12) as compared to AVT (Rs. 94.90).

Among the family and hired labour in both the cases it was constituted maximum that is 88.27 per cent and 88.30 per cent of the total mandays of human labour used in AVT and ABC company contract respectively. Further, it indicated that female labour mandays constituted maximum in both the companies contract farming when compared to men mandays human labour. The above results are presented in Table 7.

4.4 INPUT USE PATTERN IN PRODUCTION

The results in respect of the average quantities of input used by the contract farmers in both the companies are presented in Table 8.

Contract farmers of AVT used 0.375 kg of seeds per ha. FYM used @ 6.25 tonnes per ha, 500 kg of fertilizers, 450 kg of micronutrients, 15 ml of growth regulators and 0.30 kg

Table 6: Socio-economic features of marigold contract farmers

(N=40 farmers in each company)

AVT ABC

Sl. No. Particulars

Average % Average %

1. Age of the farmer (years) 37 - 42 -

2. Size of the family (No.) 6 - 8 -

3. Annual income (Rs.) 66950 - 56950 -

4. Educational level

A. Illiterate (No.) 8 20.00 15 37.5

B. Literate (No.) 32 80.00 25 62.5

i. Primary school 7 17.50 5 12.5

ii. High school 19 47.50 13 32.5

iii. College and above 6 15.00 7 17.5

5. Dryland (ha) 3.0 61.00 5.00 62.00

6. Irrigated land (ha) 1.92 39.00 3.40 38.00

7. Total land holding (ha) (5+ 6) 4.92 100.00 8.40 100.00

8. Average area under marigold (ha) 0.70 - 0.84 -

Table 7: Pattern of employment in marigold production

(per hectare)

AVT ABC

Family Hired Family Hired Sl. No.

Particulars

M F M F

Total human

mandays M F M F

Total human

mandays

1. Land preparation 2 - 2 - 4.00 (4.21) 1 - 4 - 5.00 (4.71)

2. FYM (transportation and application) 1 - 1 1 2.6 (2.75)

1 1 1 1 3.20 (3.01)

3. Transplanting/sowing 1 1 - 12 8.80 (9.27) 2 - - 10 8.00 (7.53)

4. Pinching - 2 - 12 8.40 (8.85) - 2 - 8 6.00 (5.65)

5. Fertilizer (transpiration and application) 1 - 1 - 0.50 (0.47) 1 - 1 - 0.50 (0.47)

6. Micronutrients and growth harmones (transportation and application)

1 - 1 - 0.50 (0.47) 1 - 1 - 0.50 (0.47)

7. Chemical application 1 1 - - 0.50 (0.47) 1 - - - 0.50 (0.47)

8. Weeding - - - 16 9.60 (10.11)

- - - 20 12.00 (11.30)

9. Irrigation 5 - 10 - 15.00 (15.80)

6 1 10 - 16.60 (15.64)

10. Hoeing 1 - 2 - 3.00 (3.16) 1 - 2 - 3.00 (2.98)

11. Harvesting - - - 70 42.00 (44.25)

- - - 77 50.82 (47.88)

Total human labour 13 (8.96)

4 (2.75) 17 (11.72)

111 (76.55)

94.9 (100.00)

14 (9.09)

4 (2.59) 20 (12.98)

116 (75.32)

106.12 (100.00)

Note : Values in parentheses are the percentage to the total human mandays M = Male, F = Female

Table 8: Input use pattern in marigold cultivation (per hectare)

AVT ABC

Sl. No.

Particulars Units

Cost/unit Quantity

used Cost Cost/unit

Quantity used

Cost

A. Inputs

1. Seed Kg 3000 0.375 1125.00 2504.00 0.312 776.24

2. FYM Tonne 200 6.25 1250.00 200.00 5.50 1100.00

3. Fertilizer Kg 4.80 500.00 2400.00 4.80 500.00 2400.00

4. Micronturients Kg 1.56 185.00 288.60 1.56 150 234.16

5. Growth regulator Ml 3.3 15.00 50.00 3.3 15.00 50.00

6. Plant protection chemicals Kg 1250 0.30 375.00 1250.00 0.25 312.00

B. Labour

1. Human labour Mandays 50 94.9 4745.00 50.00 106.12 5306.00

2. Bullock labour Pairdays 200 5 1000.00 200.00 3.75 750.00

3. Machine hour Hours 400 3.5 1400.00 350.00 3.25 1137.50

Table 9: Cost structure in marigold production by contract farmers

(Rs./ha)

AVT ABC

Sl. No. Items

Cost Per cent to

total Cost

Per cent to total

1. Seeds 1125.20 8.10 776.74 5.84

2. FYM 1250.00 9.00 1100.00 8.27

3. Fertilizers 2400.00 17.28 2400.00 18.05

4. Micronutrients 288.60 2.07 234.16 1.70

5. Growth regulator 50.00 0.30 50.00 0.30

6. Plant protection chemicals 375.00 2.70 312.50 2.34

7. Human labour 4745.00 34.17 5306.00 39.90

8. Bullock labour 1000.00 7.20 750.00 5.64

9. Machine hour 1400.00 10.08 1137.00 8.55

10. Gunny bags (@ Rs. 5/bag) 125.00 0.90 125.00 0.90

11. Interest on working capital (@ 9%)

1125.67 8.10 1100.70 8.27

Grand total 13883.17 100.00 13295.90 100.00

of plant protection chemical, 94.9 human labour mandays were used, bullock labour of about 5 pair day, machine used for about 3.5 hours by the sample farmers for one hectare.

Contract farmers of ABC have used 0.312 kg of seeds, 5.50 tonnes of FYM, 500 kg of fertilizers, 375 kg of micronutrients, 15 ml of growth regulators and 0.25 kg of pesticides were used per hectare and 106.12 human labour mandays, 3.75 pair days of bullock labour and 3.25 machine hours used in one hectare.

The contract farmers of AVT used more quantity (0.375 kg/ha) of seeds as compared to farmers of ABC (0.312 kg/ha) company. Similarly, farmers of ABC company used less quantity of micronutrients and plant protection chemicals compared to farmers of AVT company. However, the human labour utilization was more (106.12 mandays) in case of ABC than AVT (94.9 mandays).

4.5 COST AND RETURNS STRUCTURE IN MARIGOLD PRODUCTION

4.5.1 Cost structure in marigold production

The costs in respect of various input used per hectare of marigold cultivation are presented in Table 9 for both the companies.

In AVT among the total cost, expenditure on labour was the major cost, which was Rs. 4745 accounting for 34.17 per cent of the grand total, cost on fertilizers takes share of Rs. 2400 which constitutes 17.28 per cent to the grand total. Expenditure spent on machine labour was Rs. 1400 (10.08%) of the total cost, on FYM 1250 (9.00%), on seed Rs. 1125.20 (8.10%), on bullock labour Rs. 1000 (7.20%), on PPC Rs. 375 (2.70%), on micronutrients Rs. 287.50 (2.07%) and on growth regulators Rs. 50 (0.30%).

In AVT contract farming, total cost of marigold production was Rs. 13833.17 per hectare.

In ABC also, amount spent on human labour was the major chunk i.e., Rs. 5306 accounting for 39.90 per cent of the total cost, amount on fertilizer used was 2400 (18.05%), expenditure on FYM was Rs. 1137, on bullock labour Rs. 750, micronutrients 239.16, growth regulators Rs. 50, plant protection chemicals Rs. 312.50 on gunny bags it was Rs. 125 which accounting 8.55, 5.64, 1.70 and 0.30 per cent of the total cost, respectively. Interest on working capital was 1100.70 (9% per annum). Total cost of production per hectare was Rs. 13295.90.

Among the cost components, the cost incurred on seeds, FYM, micronutrients, plant protection chemicals, bullock labour, hired machine hours was high in AVT contract farmers as compared to ABC contract farmers. However, cost incurred on human labour was high in ABC contract farmers than AVT contract farmers. The total cost in production of marigold was slightly high (Rs. 13833.17/ha) in AVT contract farmers than ABC contract farmers (Rs. 13295.90/ha).

4.5.2 Returns structure

The details of returns structure of per hectare are presented in Table 10.

In AVT, the yield per hectare was 10225 kgs and obtained a gross returns of Rs. 22495 per ha. They incurred a total cost of Rs. 13833.17 per ha, net returns over total cost was Rs. 8611.83 per ha. Benefit cost ratio worked out to be 0.65. Similarly, in ABC, the yield per hectare was 9750 kgs and obtained gross returns of Rs. 24375. Similarly, the incurred Rs. 13295.90 per ha and obtained a net returns of Rs. 11079.10 per ha which accounted for a benefit cost ratio of 0.83. Though, the yield was low in ABC contract farmers compared to AVT contract farmers, B:C ratio was high in ABC contract farmers as compared to AVT contract farmers.

Table 10: Returns structure in marigold production by sample farmers

(per hectare)

Sl. No. Particulars AVT ABC

1. Fresh flowers (kgs) 10225.00 9750.00

2. Total cost (Rs.) 13833.17 13295.90

3. Gross returns (Rs.) 22495.00 24375.00

4. Net returns over total cost (Rs.) 8661.83 11079.10

5. B:C ratio 0.65 0.83

Table 11: Resource use efficiency in marigold production by sample farmers of different companies

Explanatory variables Parameters AVT ABC

Intercept a 0.780 0.662

Area (ha) b1 16335.36 (14234.58)

1922.15 (12329.35)

Labour cost (Rs.) b2 0.8569* (0.4092)

0.1875** (0.0597)

Fertilizer cost (Rs.) b3 0.5410** (0.1212)

1.059** (0.470)

Seed cost (Rs.) b4 1.140** (0.459)

0.360 (0.383)

R2 0.80* 0.87*

F 53.397 72.673

Note : Figures in the parentheses are standard errors

* : Significant at 1% level ** : Significant at 5% level

4.6 RESOURCE USE EFFICIENCY

The estimated coefficients of multiple regression analysis for both the companies are presented in Table 11. The variables included in the backward linear regression function explained 80 per cent of the variation in the production of marigold with respect to AVT contract farmers. The coefficients of labour cost (0.8569) and fertilizer cost (0.5410) were significant at 1 and 5 per cent level, respectively. The coefficient of seed cost (1.140) also found significant at 5 per cent level in AVT contract farmers. The coefficients of land (16335.36) was also positive but non-significant.

In case of ABC, the variables included in the model explained 87 per cent of the total production. The coefficients of labour cost (0.1875) and fertilizer cost (1.059) found significant at 5 per cent level. The seed cost (0.360) and land coefficient (1922.15) found positive but non-significant.

4.7 PROBLEMS FACED BY SAMPLE FARMERS IN PRODUCTION AND MARKETING

4.7.1 Problems faced by farmers during cultivation

There were many problems found in both the companies contract farmers with respect to cultivation. The results are presented in Table 12.

The major problems in cultivation with respect to sample farmers of AVT found to be labour availability (35%), no compensation to crop loss (92.50%), instability in yield (70%), irregular power supply (87.50%), high input cost (75%), scarcity of own fund (22.50%), lack of credit facility (12.50%), pest and disease attack (22.50%),and lack of technical assistance (2.1%)

Problems during cultivation by sample farmers of ABC were high input cost (92.50%) compensation to crop loss (70%), irregular power supply (75%), instability in yield (50%), lack of credit facility (30%) and pest and disease attack (37%) and scarcity of own fund (20%).

The above results indicated that in both the companies farmers in cultivation of marigold was found to be a problem of labour, irregular power supply and no compensation to crop loss.

4.7.2 Problems faced by farmers during marketing

The marketing problems faced by contract farmers are presented in Table 13.

In AVT, the major problems were, low contract prices (87.50%), high rejection rate (45%), delay in payment (30%) and manipulation of norms (30%).

In ABC, the major problem were delay in payment (75%), low contract price (75%), manipulation of norms (72.50%), high rejection rate (57.50%), improper weighment (30%).

Table 12: Problems faced as opined by sample farmers in cultivation

AVT (N=40) ABC (N=40)

Sl. No. Problems No. of

farmers Per cent of opinions

No. of farmers

Per cent of opinions

1. Scarcity of own fund 9 22.50 8 20.00

2. Labour problem 14 35.00 10 25.00

3. Lack of credit facility 5 12.50 12 30.00

4. No compensation to crop loss 37 92.50 28 70.00

5. Instability in yield 28 70.00 20 50.00

6. Irregular power supply 35 87.50 30 75.00

7. Pest and disease attack 9 22.50 15 37.50

8. High input cost 30 75.00 25 62.50

9. Lack of technical assistance 8 20.00 12 30.00

Table 13: Problems faced as opined by sample farmers in marketing to companies

AVT (N=40) ABC (N=40)

Sl. No. Particulars No. of

farmers Per cent of opinions

No. of farmers

Per cent of opinions

1. Manipulation of norms 12 30.00 29 72.50

2. Improper weighment 8 20.00 12 30.00

3. High rejection rate 18 45.00 23 57.50

4. Low contract price 35 87.50 30 75.00

5. Delay in payment 12 30.00 30 75.00

V. DISCUSSION

The results of the study are discussed in this chapter under the following headings.

5.1 Contractual arrangements

5.2 Socio-economic features of sample farmers

5.3 Pattern of employment

5.4 Input use pattern in production

5.5 Cost and returns structure in production

5.6 Resource use efficiency in production

5.7 Problems faced by the contract farmers in production and marketing

5.1 CONTRACTUAL ARRANGEMENTS

Contractual arrangements include terms and conditions between sample farmers and pigment extracting companies, opinion of the sample farmers about the terms and conditions, input supplied by the companies to sample farmers, services provided by the companies to farmers and factors favouring contract farming are discussed.

5.1.1 Terms and conditions prevailing in contract farming with different companies

Results revealing terms and conditions prevailing in contact farming presented in table 1. Both the companies involved in pigment extraction from marigold AV Thomas Natural Products and Agro-Biochem India Limited preferred orange colour flowers (African marigold) because orange flowers contains more of carotenoid pigments. These products are very much used in poultry industry as a feed additive in order to intensify the yellow colour in egg yolk and skin of the broilers. Similarly, it is also used in dye industry (Schott et al., 1968).

AVT fixes price before signed by the farmer who actually wants to take up contract farming with this company. Along with a witness AVT makes a written arrangements whereas ABC does not have written form of agreement and they fix price before distributing seeds to sow in the plot of the farmer.

Both pigment extracting companies prefer flowers which should be wet free and free of contamination as these parameters will increase the quality of pigments, flowers should be free from mud and other foreign material and crop should not be irrigated two days before harvesting takes place. Otherwise this will increase the water content which spoils the pigment quality and also gives more weight for less number of flowers.

Farmers of both companies were found that, adding stones and mixing with other flowers, leaves, stubbles to get more weight, to avoid this both companies takes over flowers as soon as harvesting is over (within 24 hours).

Company people come and collect harvested flowers with their own vehicle paying loading and unloading charges. This saves transportation cost to farmers

AVT clears the bills of its sample farmers after every harvest before next harvest takes place. But, ABC company clears their payment after two harvests (within a month). Both companies are paying different rates per kg of marigold. AVT pay Rs. 2.20 per kg and ABC pays Rs. 2.50 per kg of marigold. Sample farmers were not happy with these rates and services provided by the company might have paved the way to go for contract farming.

These two companies prefer a minimum of 0.5 acres and maximum 2.5 acres for contract by AVT. Whereas, ABC goes for minimum of 0.5 acre and maximum of 3.0 acre looking into availability of irrigation facility, labour availability and capacity of the farmers as well as experience of the farmer with the crop.

AVT collects Rs. 200 per acre as advance towards seed supply. So that farmer will have some kind of interest and responsibility towards the crop from the beginning itself.

ABC company does not collected any such advances towards the seeds. The results further lead to the conclusion that the companies followed their own strategies in having contract farming that is AVT takes the written agreement and ABC taken oral consent in contract farming. These strategies can be honoured or modified looking into the profitability to the companies or to the contract farmer hence this needs to be regulated in order to have a fair deal for both the parties. Similarly, at the time of fixing prices in advance, price of the product, supply of inputs by taking advance are all varies from company to company. Therefore contract farming activities need to be regulated in order to share the profits equally without exploitation of farmers.

5.1.2 Terms and conditions as opined by the sample farmers

The success of contract farming was determined by the contractual relationships between farmers and the company. The results of these arrangements presented in Table 2 of both the companies.

The crop was introduced by the company staff to the farmers which could be seen from the table. So, it is more effective way of spreading the cultivation of marigold looking into the demand. The other factors does not have much impact on expansion of the crop area. Type of agreement on which contract activities under taken was based on written or oral nature showed that AVT company has taken a written agreement, but ABC entered oral agreement. Therefore, there is a scope for exploitation of farmers in case of oral agreement. Hence, written agreement is the better form of agreement which needs to be introduced. This was also observed by Roy (1963), Williams (1999) and Glover (1990).

From the point of view of frequency of field visits by field officer was good. However, payment to farmers was made immediately after handing over the product in AVT and it will be only at the end of the season in ABC company hence this difference will prevail from company to company. Therefore, payment should be given immediately after the handing over of the produce. This calls for a legislation to regulate the contract farming practices uniformly.

5.1.3 Inputs supplied by the companies

Both the companies supplied inputs, which could be seen in Table 3. AVT supply 0.375 kg of seeds at the rate of Rs. 1125 per ha. Micronutrients about 0.185 kg at the rate of Rs. 287 per ha and 0.300 kg of PPC at the rate of Rs. 375 per ha and 3.3 kg of growth regulators at the rate of 50 per ha.

ABC supply all inputs including fertilizers of about 500 kg at the rate of Rs. 2400 per ha, seeds about 0.312 kg at the rate of 776.24 per ha, micronutrients 0.150 kg at the rate of Rs. 240 per ha and PPC about 0.250 kg at the rate of Rs. 312. All the inputs supplied by the companies to each farmer recorded in a record book after receiving every input and farmer had to sign to avoid further complications. Seed rate and inputs recommended by the field officers found to be in more in AVT as compared to ABC companies. This might be due to the soil conditions, quality of the inputs supplied made this difference.

However, AVT will not supply fertilizer because it may be available in all most all place but farmers may not have the cash on hand to purchase this input, hence AVT should supply fertilizer in order to achieve increased yield on an expected levels.

5.1.4 Services provided by the companies to contract farmers as opinion by them

Opinion about services provided by companies are presented in Table 4.

Contract farmers of both companies have taken services like technical advice, input supply and transportation facility. But, AVT does not supply fertilizer the reason beyond this is that, full quota of fertilizer supplied by the company was not used up for the marigold.

However, this can be cultivated by supervision by the field officer and continue the supply of fertilizers.

AVT also provide services like packing material (Rs. 5/bag) and supply power spray on hire basis charging Rs. 10 per day. All the above results indicated that the services provided by the companies are also not uniform. This needs to evolve a guidelines under contract farming activities.

5.1.5 Factors favouring contract farming

From the Table 5, it could be concluded that, buyback agreement had overcome the risk of price fluctuations in the market for marigold. This was the major factor responsible for success of the contract farming in both the cases.

The other factors like input supply helped the farmer to avoid borrowings, input supply would help farmer to grow the crops with confidently as the company met the basic requirement of farmer. Transportation facility was another important factor that was responsible for success in contract farming. This reduced the transportation cost to the farmer. These findings are in corroboration with the findings of Key and Runsetn (1999). Farmers are not happy with respect to price but still they are in contract farming may be due to the services that were provided to them and better returns compared to other crops from pigment extracting companies.

5.2 SOCIO-ECONOMIC FEATURES OF CONTRACT FARMERS

The socio-economic characteristics of the respondents include general features, details of land holdings and cropping pattern of the sample farmers of different companies are discussed below.

5.2.1 General features of contract farmers

The Table 6 revealed that majority (92%) of sample farmers of AVT were educated and nearly 15 per cent had completed college level education. It was also interesting to note that most of the farmers were aged 37, indicating better awareness regarding modern concepts. Their experience with agriculture made the farmers to increase their farm income by adopting commercial agriculture.

Sample farmer of ABC, the average age of the respondents were 42 and 62.5 per cent of them literate and 7.5 per cent of them even completed college level education. Again here also farmers with their experience with crop as well as price fluctuation of the agricultural goods might have paved the way to enter the contract farming to reduce risk.

5.2.2 Pattern of land holding

The data presented in Table 6 shown that 60 to 90 per cent of the land holding was dryland which was due to the non-availability of irrigation sources in case of AVT sample farmers and comparatively less (39.11%) area under irrigation. On an average area under contract farming in marigold constituted around 14.22 per cent, mainly under irrigation conditions. Only small portion of area under marigold under marigold was undertaken due non-availability of irrigated facility.

Sample farmers of ABC also had larger area (62%) of dryland in the total land holding, again in the total land holding 38 per cent of the land was under irrigation. On an average 9.43 per cent of the land found under marigold cultivation.

Farmers of both the companies wish to grow marigold in more area but companies enter contract only for small portion of the acre may be because to give more interest on production of quality product.

5.3 PATTERN OF EMPLOYMENT IN MARIGOLD PRODUCTION

It was found from the Table 7 that the labour employed in marigold production, human labour constituted a major portion that is about 94.9 mandays in the contract farmers of AVT for different operations like land preparation and other activities.

Contract farmers of ABC also used maximum number of human mandays (106.12) for various operations for harvesting operation and other related activities. Among the different operations, harvesting operation taken maximum number (50.82) of human labour mandays followed by weeding (12.00) and transplanting (8.00). In case of contract farmers of AVT have used 42 mandays of labour for harvesting and 8.80 mandays of human labour for transplanting and 9.60 mandays of human labour per hectare of crop.

This showed that harvesting of marigold is a labour intensive hence consumed more labour. So this crop production is a labour intensive hence generates more employment to the farmers as well.

5.4 INPUT USE PATTERN IN PRODUCTION

The results of Table 8, indicate that both the companies have supplied seeds. The AVT supplied 375 g of seeds per hectare to its contract farmers and 312.50 grams of seeds per hectare in case of ABC to its contract farmers. This difference in seed rate may be due to the soil, cultivation of practices and viability of seed and area in which the companies operating. However, it costs the farmer cultivation practices and viability of seeds according to the quantity used by them.

To have better quality of flowers both the companies have suggested to use micronutrients and growth regulators optimally. As there was no serious pest and disease, farmers of AVT used only 0.30 kg of plant protection chemicals and 0.20 kg per ha by ABC contract farmers.

Human labour was the crucial input use in both the cases, 94.9 mandays of human labour, 5 pair days of bullock labour and 3.5 hours of machine labour was used to AVT. Similarly, it was found that 106.1 mandays of human labour was used by the ABC contract farmers. This is little more than AVT farmer because of more weeding and harvesting needs in this company farmers, 3.75 pair days of bullock labour and 3.25 hours of machine labour by the company farmers. Contract farmers of both the companies have used optimum quantity of fertilizers, FYM and other inputs which would boost the yield. Marigold is such a crop which needs maximum labour for various operations like transplanting, pinching and weeding.

5.5 COST AND RETURNS STRUCTURE IN PRODUCTION

Different items of cost and returns in marigold production are discussed below.

5.5.1 Cost structure in marigold production

It was estimated that the total cost of marigold production was Rs. 13833.17 per ha in case of contract farmers of AVT company. Among the various cost items, the maximum cost (Rs. 4745) was found in human labour i.e., 34.17 per cent of the total cost, because this crop itself is labour intensive. This was followed by fertilizer application and transportation operation (Rs. 2400), machine labour (Rs. 1400), FYM transportation and its application (Rs. 1250) and cost on seeds (Rs. 1125) and these forms 17.28, 10.08, 9.00 and 8.10 per cent, respectively to the total cost of production per ha.

It was also found in case of ABC contract farmers that Rs, 5306 used on human labour which forms 39.90 per cent of the total cost of production per hectare. This was mainly because of more human labour used for weeding and harvesting operations as compared to AVT company. The other operational items of costs are more or less same between this companies. Followed by fertilizer application and transportation (Rs. 2400), machine labour (Rs. 750), FYM transportation and application (Rs. 1100 and cost on the seed (Rs. 776).

These forms 18.05, 5.64, 8.27 and 5.84 per cent, respectively to the total cost per ha. The above results can be seen from Table 9.

5.5.2 Returns structure

The results of returns structure in production of marigold is given in Table 10. The average yield of marigold per hectare was 10225 kgs in case of AVT and 9750 kg in case of ABC company. This difference in yield due to more quantity of seed and FYM used in production in contract farmers of AVT as compared to ABC farmers.

This difference was mainly due to the price difference for the marigold procured by the companies. Therefore contract farmers of ABC got higher net returns due to the procured price was Rs. 2.50 than the AVT contract farmers where the procurement price was Rs. 2.20 per kg. The other cost of production was no much difference between the farmers of both companies. Hence, it is better for the farmers to have contract with ABC company than AVT company on one hand and in the other there is a scope to increase the price of procurement in general and AVT company in particular.

Further, B:C ratio was 0.65 in AVT and 0.83 in ABC contract farmers. So, the production of marigold is found to be more profitable on one hand and on the other due less price offered by AVTc compared to ABC due to higher price fixed by it.

5.6 RESOURCE USE EFFICIENCY

To study the resource use efficiency in marigold enterprise, linear regression model was specified and the results are presented in Table 11.

The estimate coefficients of determination (R2) was 0.80 for AVT contract farming,

thus a high variation in the gross returns was explained by the variation in the resources included in the model.

The coefficients for labour cost, fertilizer and seed cost found positive and significant. This showed that increase in the use of these inputs would result in efficiency of production, contributing significantly towards gross returns.

Similarly, the coefficient of determination for ABC contract farming was 0.87, hence a high variation in the gross returns was explained by the variation in the resources included in the model. Here also, the coefficient for labour cost, fertilizer cost and seed cost found positive and significant which shown that these inputs would add more to the output. The coefficient of land showed positive but non-significant in both the cases.

5.7 PROBLEMS FACED BY THE CONTRACT FARMERS IN PRODUCTION AND MARKETING OF MARIGOLD

The major problems faced by contract farmers of both the companies in production and marketing are presented in Table 12 and 13 respectively.

5.7.1 Problems of the contract farmers in marigold production

It is concluded from the results of Table 12 that the major problems faced by marigold grower were no compensation to crop loss (92.50%), instability in yield (70.00%), irregular power supply (87.50%), which affects irrigation operation. Therefore, crop insurance should evolved by the company to mitigate the problems of instability in yield and crop loss so that farmers are benefited by over coming in production risks and contract farming agreement was already taken care of the price risk. ABC contract farmers also faced similar problems. Therefore, same thing was hold good to these farmers.

5.7.2 Problems while marketing to companies

The problem in marketing as opinion by farmers given in Table 13. Main problems of contract farmers were manipulation of norms by the companies that is 72.50 per cent in case of ABC). This may be due to more price offered by this company may be involved in such activities. Improper weighment occurred while weighing by the company personnel (30% in

ABC) and high rejection rate (57.50%) by the firm. The contract prices was the main problem found (87.50%) in AVT contract farmers because it offered Rs. 2.20 per kg of marigold, which is lower than ABC. Hence, a need got upward revision of the rates required. At the same time, 75 per cent of the contract farmers in AVT faced with the problem of non-release of funds to purchase inputs at appropriate time led farmers to borrow and irregular payment for output, which could affect farmers to go for next crop or to pay back the credit. These findings of the study are in confirmity with the findings of Singh and Arunkumar (2002). Therefore, it is regulated further in contract farming.

Though company officers give technical guidance and supervise the production the rejection rate was high. But they indulge in such strategies in procurement which causes losses to farmers eventhough there is an agreement hence to regulate all practices the contract farming a legislation is essential.

VI. SUMMARY AND POLICY IMPLICATIONS

The globalization of Indian agriculture in recent years resulted in the need for the production and export of quality products due to better comparative advantage. In this context, contract farming could be one of the best solutions which may decrease the polarization of rich and poor and thus encourage Indian farmers to compete with the very large, rich and highly indirect subsidized western farmers. Contract farming can indeed to be a vehicle for the modernization of agriculture in India. It basically involves four things. Pre-agreed price, quantity or acreage (minimum/maximum) quality and time, contracted farming is a case for bringing the market to the farmers, which is navigated by agribusiness farms. The production, marketing and distribution of agricultural products are becoming increasingly sophisticated. The modern advances in technology have made it feasible for agricultural products to be produced to specifications and preserved in fresh condition on one hand and on the other hand the optimum scale of operations has been increasing, especially in processing and distribution. This provides a strong rationale, from the demand side for the contract farming as a means of raw material supply. Therefore, contract farming activities are expanding in the present environment in most of the crops linking the industry both backward and forward. In this context, the marigold crop was one of the important crop considered under contract farming activities.

The marigold specially African marigold is a hardy annual plant grows upto one meter and above, bears single or fully double large sized globular heads of yellow, orange and white shades, whereas French marigold is dwarf and grow upto 20-60 cm height. Which bears small, lemon yellow-golden yellow or orange tinged red flowers. Both the species are reportedly the best source for xanthophyll extraction.

Marigold (Tagetes spp. Linn; Asteraceae) is not only grown as ornamental cut flower and landscape plant but also as a source of natural carotenoid pigment for poultry feed. The pigment is added to intensify the yellow-orange colour of eggs yolk and skin of broiler. Today, it is one of the most commercial flowers grown world-over and in India as well, accounting for more than half of the nation’s loose flower production. A native of south and Central America, precisely Mexico; by considering its easy adaptability under Indian conditions. The genus Tagetes comprises about 33 aspects, of which the commercially cultivated species includes Tagetes erecta L. (African/American tall marigold), T. patula (French/dwarf marigold), T. minuta, T. signeta and T. lucida are referred as perfume marigolds. Amongst these, T. erecta and T. patula are commonly grown for their exquisite blooms ad also natural dye (xanthophyll) extraction, while the latter species for their essential oils.

Marigold also has got therapeutic values. The flowers either fresh or dried are much used in stews, soups, mixed with cheese, possets, broths and drinks. Even today, the marigold is used by herbal doctors for simple ailments. The juice extracted from leaves is used for getting relief from boils, carbuncles and earache (Raghava and Saxena, 2001). Floral extract is a good remedy for eye diseases and ulcers, petal juice heated with an equal quantity of ghee given thrice a day cures the bleeding piles as well as purifies the blood. The dried petals are used against ringworms, stubborn wounds, bedsores, persistent ulcer and a mouth wash for bedgums (Anon., 2003). Essential oil acts as a repellent against files, ants and mosquitoes. Apart from this, essential oil is used in high grade perfumes and cosmetic industries.

Besides, all the above applications today, it is being grown commercially as an important source of carotenoid pigments. The principal pigment in the flowers is the

xanthophylls, particularly lutein accounts for ≈ 80-90 per cent. Marigold carotenoids and the major source of pigment for poultry industry as a feed additive to intensify the yellow colour of egg yolks, broiler skin (Scott et al., 1968).

SCOPE OF THE STUDY

Karnataka has suitable agro-climatic condition to take up cultivation of marigold. Thus, a model of contract farming has emerged in a big way. However, the practice of contract farming varies between the companies and a proper linkage between producer and consumer is lacking in the present context. Hence, a comparative study was undertaken and

attempt to explore the different aspects of contract farming followed by different companies in marigold for pigment extraction with the following objectives.

i. To compare the terms and conditions of different companies adopted by marigold pigment extracting firms in their contract activities.

ii. To study the socio-economic features of marigold growers entered into contract with different companies.

iii. To compare the costs, returns and resource use efficiency in production of marigold by farmers contracted with different companies.

iv. To analyse the problems faced by contract farmers in cultivation and marketing of marigold to different firms.

METHODOLOGY

There are two companies operating in contract farming activities of marigold in the state, hence both the companies are selected. The AVT company operating in Kolar and ABC company in Davanagere and Haveri district.

All the farmers who undertaken marigold contract farming in the Kolar district where, AVT company was operating was taken for collection of required primary data with respect to type of agreement, socio-economic character of the contract farmer, cost and return structure in production of marigold and problems faced in production and marketing. Similarly, all the farmers in Davanagere and Haveri districts in which ABC company is operating considered for collection of primary data as explained above. So, the total sample size account for 40 farmers in AVT company and 40 farmers in ABC company accounting to totally 80 farmers considered for detailed study.

The techniques of tabular analysis was employed for comparing the costs, returns, terms and conditions of contract in contract farming and problems faced by contract farmers of both the companies. In order to study resource use efficiency in marigold, linear regression model was used.

SALIENT FINDINGS OF THE STUDY

Terms and conditions prevailing in pigment extracting firms:

The results revealed that both the pigment-extracting companies have given seeds of marigold. AVT fixed the price per kg of marigold when farmers came to sign MOU. ABC fixed the price when company given seeds to sow. To avoid impurity in pigment of marigold both the companies have asked the farmers to keep flowers free from wet condition and contaminations. It also takes over the flowers within 24 hours of harvesting. Both the companies paid loading and unloading charges and vehicle charge as well.

The AVT companies had agreed to pay the bills after every harvest, whereas ABC makes payment after every two harvests. Again both pigment extracting companies expected well-ploughed land with minimum irrigation facilities. This is to ensure that the quality of flowers must be good enough. If farmers of both the companies become strong and vigilant enough to convince the companies regarding maintenance of the quality. They can grow marigold in large areas. However, AVT fixes size of the area for contract between 0.50 to 2.50 acres per farmer. Similarly, ABC fixes 0.50 to 3.00 acres per farmer.

Actual terms and conditions prevailing

Majority of the farmers (70%) took up cultivation with AVT due to persuasion of the company staff and 64.22 per cent of the farmers of ABC have taken up marigold due to persuasion of the company staff. second major influence was the fellow farmer (15% in AVT and 18.25% in ABC), influence of friends and relatives (10.50%.

The results revealed that the written agreements which is existing in AVT company refers to assigned confirmation from the farmer that he/she wishes the company to reserve a contract for him/her. The technical aspect of the agreement was drafted in short, simple

terms, clarifying the responsibilities of both farmer and company. The result of breach of contract was included in order to control the possibility of extra contractual marketing. The agreements were effective from the time of handing over the seeds to the farmer and terminated upon the farmer handing over entire yield.

ABC has quite opposite to above system, it does not have written agreement. Company personnel keep in touch with farmers and records the inputs given and take signature of the farmer then and there itself. If we consider frequency of field visits, marigold contract farmers had frequent contact with the officer, 48.44 per cent of AVT and 58.44 per cent of ABC had opined that staff of the company visited at least once in a fortnight.

Usually in case of AVT, payment made within 15 days after harvest whereas ABC company farmers got payment after a month of harvesting.

Services provided by the companies

Contract farmers of both companies have taken technical advise, input supply and transportation facility. Eventhough, fertilizer is a important input, AVT does not supply it. Services like packing material on payment and power spray on hire basis.

Factors favouring contract farming

Farmers had come to contract with companies, only became there was buyback agreement, input supply, transportation facility and technical advise.

Inputs supplied

Both the companies have supplied seeds. AVT supplied seeds of about 0.375 kg per ha for an account of Rs. 1125 and ABC supplied 0.312 kg per ha for Rs. 998.40. AVT does not supply fertilizer, but ABC supplied 500 kg per ha of fertilizer for Rs. 2400. micronutrients and growth regulators also supplied to increase the yield and to have better quality pigments.

Socio-economic features of marigold contract farmers

The average family size of the AVT contract farmers was six and eight in AVT and ABC company respectively. Average age of contract farmer was 37 years and 42 years in AVT and ABC company respectively, majority of them were educated. Young age coupled with better education had made the farmer to increase their farm income by adopting commercial agriculture.

Average land holding

The average size of land holdings of AVT contract farmer was 4.92 ha and the average area under marigold was only 0.70 ha. Similarly, the average size of the land holding of ABC contract farmer was 8.40 ha and 0.84 ha was found under marigold cultivation.Only small farmers and some extent medium farmers were found under marigold contract farming.

Pattern of employment

Contract farmers of AVT employed about 94.9 mandays of human labour which 42 mandays for human labour was used. Whereas in case of ABC, employed 106.12 mandays of human labour, of which 50.82 mandays of human labour was used for harvesting operations.

Input use pattern

It was found from the study that AVT contract farmers used about 0.375 kg seeds per ha and 0.312 kg by ABC contract farmer. Contract farmer of AVT used 6.25 tonnes of FYM, 500 kg of fertilizer, 450 kg of micronutrients and 15 ml of growth regulators and 0.30 kg of PPC.

Contract farmers of ABC found using 5.50 tonnes of FYM, 500 kg of fertilizers, 375 kg of micronutrients, 15 ml of growth regulators and 0.25 kg of PPC.

Cost structure in marigold production

The results revealed that the total cost of marigold production per ha was Rs. 13633.17 per ha in case of AVT contract farmers. Among the various cost items, the maximum cost (Rs. 4745) incurred was found in human labour that is 34.80 per cent of the total cost. Hence, it is a labour intensive crop, this followed by cost incurred on fertilizers Rs. 2400 (17.60%) of the total cost. Cost on machine labour Rs. 1400 (10.26), cost of FYM Rs. 1250 (9.16%) and cost on seeds Rs. 1125 (8.25%).

Similarly, in ABC cost of marigold production by the contract farmers was Rs. 13,333.76. Among the items of cost Rs. 5306 (39.80%) was on human labour. This followed by cost on incurred on fertilizers Rs. 2400 (17.60%), cost incurred on machine labour was Rs. 1137 (8.52), cost on FYM used was Rs. 1100 (8.25%) and cost on seeds use was Rs. 998.40 (7.48%) of total.

Return structure in marigold production

The yield realised was higher in AVT contract farmers as compared to ABC contract farmers. However, the gross returns obtained wa shigher in case of ABC farmers (Rs. 24375/ha) as compared to AVT farmers (Rs. 22495/ha) due to higher prices given by ABC company (Rs. 2.50/kg) compared to AVT (Rs. 2.20/kg). Similarly, no much difference in case of production found between the farmers of different companies, but the net returns realized was Rs. 11042.24 per ha in case of ABC company farmers and Rs. 8861.83 per ha in case of AVT company. So, B:C ratio found to be higher (1.83) in ABC company farmers compared to AVT company farmers (1.65).

Resource use efficiency

Linear multiple regression function carried out to study the resource use efficiency showed that there was increasing return to scale in marigold production in both the cases.

The coefficient of multiple determination was 0.80 in AVT and 0.87 in ABC contract farming. Expenditure on human labour, fertilizer and seed exerted significant influence on the variation in gross returns in case of AVT contract farmers. Whereas, in case of ABC contract farmers, expenditure on human labour and fertilizer found to be a significant influence on the gross returns.

Problems faced by sample farmers in production and marketing

The major problems faced by the AVT marigold contract farmer in production was that, no compensation to crop loss (92.50%), irregular supply (87.50%), high input cost (75%) and instability in yield (70%). Whereas, in case of ABC the major problems faced by farmers were irregular power supply (75%), no compensation to crop loss (70%) and high input cost (62.50%).

The major problems found during marketing to AVT company were low contract price of about 87.50 per cent, high rejection rate (45%), manipulation of norms (30%) and delay in payment (30%).

Main problems of contract farmers were manipulation of norms by the companies that is 72.50 per cent in case of ABC. This may be due to more price offered by this company may be involved in such activities. Improper weighment occurred while weighing by the company personnel (30% in ABC) and high rejection rate 57.50 per cent by the firm.

POLICY IMPLICATIONS

1. In view of different practices and strategies followed by the companies in contract farming activities which resulted in wide variation of net returns for the same crop and irregular payment. Hence, contract farming activities should be brought under legal framework to regulate the practices of contract farming activities.

2. Introduction of any of the crop under contract farming found to be influenced by the farmer through personal persuation by the staff of the companies. Hence, this is the best strategies for the companies to expand their activities in the contract farming.

3. The contract farming activities found to be labour intensive in both the companies. Hence, it has a greater potential for generation of employment in the agriculture sectors, therefore further it needs to be encouraged in other crops in general and expand in marigold production activities.

4. The farmers expressed the greater risk in yield of this marigold crop. So, the companies should insure about the risk in yield while entering into contract.

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Appendix I. Memorandum of agreement

This agreement executed on this day of two thousand three between AVT. Natural Products Limited, a Company registered under the Companies Act, 1956, having its Registered office at Chennai and having an Administrative office at Ernakulam (herein after called the company which expression shall include its successors and assignees) on the one part Mr. Son of aged years, residing at (herein after called the Grower which expression shall include his legal heirs and assignees) on the other part.

WHEREAS, the company is engaged in the business of producing extracts from the flower known as marigold and the company requires large quantities of said flowers in fresh form for their industry.

AND WHEREAS, the grower has approached the company at ERNAKULAM and has agreed to plant in ___________________acres in village __________________________and grow and supply the flowers to the company for the season _______________________in the year.

1. The company shall supply the seeds of Marigold flower required for planting at a price fixed by the company for each season. The grower shall plant the same strictly un accordance with the guidelines and advise given by the company from time to time. However, the company shall not be liable for meeting any cost, expense of charges for planting of taking crop.

2. The entire crop raised by the grower shall be sold only to the company at the price of per kilogram fixed for season.

3. The flower shall be supplied by the grower at the collection centres of the company duly intimated to the grower. The company shall get the flowers inspected by the concerned quality control official of the company whose decision shall be final and binding on the grower. The company shall reject the flowers which are defective or otherwise unfit for use including for want of required number of fresh petals.

4. If the flowers brought to the centres are wet or otherwise containing other contaminants that increase the weight, the company will either effect an appropriate deduction in the gross weight or will summarily reject the produce.

5. The payment or price of the flowers accepted by the company shall be settled by company on a weekly basis.

6. The grower shall comply forth with all instructions if the company with regard to planting growing and plucking the flowers. In case, there is any violation of the instruction of the company be entitles to reject such crop offered for sale by the grower.

7. The company shall not be responsible for any compensation or damages in case the grower does not succeed or raise the crop profitability or if the plantation gets destroyed either on account of natural calamities or otherwise.

8. In case the grower for any reason does not plant the seeds and supply the flowers to the company as agreed the grower shall be liable to compensate the company at the rate of Rs. 5,000/- per acre per season, agreed to be planted under this agreement.

9. If in violation of this agreement the grower sells the flowers to any body else or otherwise misappropriate the flowers, the company shall be entitles to claim damages which is fixed at Rs. 5/ for every kg of flower sold or diverted.

10. The company reserves its right to terminate this agreement without assignment without assigning any reason and the grower shall not be entitled to claim any compensation or damages.

11. This contract is entered into between parties at Ernakulm and the courts at Ernakulam alone shall have jurisdiction any matter in connection with or/arising out of this agreement.

If any dispute or difference arises between the grower and the company including any claim or right arising out of this agreement, it shall be referred for arbitration of the Chief Executive of the company.

12. Any decision of the said sole arbitrator shall be final and binding on parties. The provisions of Indian Arbitration Act shall apply to the proceedings of the Arbitration.

IN WRITTEN WHERE OF the parties here to have signed this agreement on the date and year first above written.

For AVT NATURAL PRODUCTS LTD.,

Witness :

1.

2.

MANAGEMENT OF CONTRACT FARMING IN MARIGOLD (Tagetes erecta L.) PRODUCTION

NARAYANASWAMY G. 2006 Dr. BASAVARAJ BANAKAR Major Advisor

ABSTRACT

Contract farming can be described as a half way house between independent farm production and corporate farming. Contract farming involves a contractual relationship between farmers and a central processing or exporting units/firms. These units purchases produce from contract farmers under the agreed terms of contract. Marigold ranks first among the loose flowers. Today there is huge demand for natural colour of marigold in the international market. Marigold is the important source for natural carotenoid pigment for poultry feed. The pigment is added to intensify the yellow orange colour of egg yolk by adding in the poultry feed. Apart from the poultry industry also used in textile industries. The study was under taken in three districts Kolar, Davangere and Haveri where the pigment-extracting firms are located and contract farming in practice. Two firms involved in contract farming in marigold A. V. Thomas Natural Products Limited (AVT) and Agro-Biochem India Limited for colour extraction were selected and compared. Sample size was 40 for each firm and total sample size was 80. The study revealed that family size and young age coupled with better education (ABC 80% and AVT 6.25%) increased their farm income by adopting commercial agriculture. The total cost/ha was Rs. 13833.17 and Rs. 13295.90 with respect to AVT and ABC. Net returns were Rs. 11079.83 and Rs. 8611.90 respectively. AVT has written agreement, but ABC doesn’t have. Prefixed prices were different, Rs. 2.50/kg in AVT and Rs. 2.20/kg in ABC. Both the companies supplied inputs but ABC does not supply fertilizers. it was found that farmers were not using full quota of fertilizers exclusively to marigold in ABC contract farming. Buyback system was the major factor for farmers to go for contract farming. There were several problems faced by the both the companies, which can be well handled with proper policy implications.