Contract farming
Contract farming is a world trend in agriculture and a number of other industries because it minimizes the risk of shortage of goods needed by the market and, on the other hand, it eliminates the overproduction of unnecessary goods.
Contract farming is an ecosystem that combines demand with production, logistics, and financial resources into scalable and manageable pools, forms new business models and drives growth in efficient production, and enables tracking of the full product lifecycle.
This is a consequence of a global paradigm shift — from «pushing out» the manufactured product, to «pulling out» the product needed by the consumer, when goods are produced to meet the needs of a particular market and buyer through self-optimizing chains, which is true not only for markets for food and finished products.
For industries with long production cycles, which obviously include agriculture, the introduction of Contract farming makes it possible to plan economic activities for the duration of the contract, which is usually concluded for 5 — 10 years. Contract farming provides objective pricing and guarantees the demand for the goods produced, so that producers can make long-term development plans, attract financing and reinvest the profits generated.
Contract farming is also an internationally recognized effective tool for emerging markets, a mechanism for the development and management of national and export chains of production, cooperation and supply of agricultural products and foodstuffs.
Contract farming in a number of countries is enshrined at the legislative level and is a regulated mechanism, as the boundaries of technological and economic redistribution are fixed and oriented to exchange indicators, participants in their redistribution can increase their own competitiveness, efficiency and, consequently, profit, but have no opportunity to «dig into the wallet» of the participants in other technological redistribution. This makes Contract farming a fair business model, allowing it to develop actively in China, India, Indonesia and other countries.
There are three main models in the world, each of which differs in the level of involvement of participants:
- multilateral model,
- centralized model (the PRC and India),
- intermediary model (South-East Asian countries).