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Medicinal Plant Contract Farming in India

Medicinal plants are a source of bio-molecules with therapeutic potential and lead to developing new drugs. Herbal medicines are considered as safer, better physiological compatibility and also cost-effective.

Ayushi Raina

Contract farming is basically an agricultural production that is carried out according to a deal between a buyer and farmers, which establishes conditions for the production as well as marketing of a farm product. Generally, the farmer agrees to provide agreed quantities of a specific agricultural product.

Medicinal plants have had a significant role in the evolution of human culture all across the world. Ginger, green tea, walnuts, aloe, pepper, and turmeric are some of the plants. Some plants and their derivatives are considered to be the primary source of active ingredients used in aspirin and toothpaste etc. India is a gold mine of medicinal plants and a rich repository of medicinal knowledge. The demand for the medicinal plant is increasing with expansion in human needs and trade purposes. Let us now look at the specifics of contract farming of medicinal plants and crops in India.

Contract farming of medicinal plants in India

Contract farming is a system that involves producers, suppliers, and farmers entering into a forward contract to produce and supply agricultural products. The essence of such an agreement is the producer's or seller's commitment to provide an agriculture commodity of a specific sort at a specified time and amount to a recognized and committed buyer. Farmers are required to plant the contractor's crop on their land and harvest and deliver a quantity of items to the contractor based on expected crop yield. This can be a fee that has been agreed upon in advance. It has the potential to be a vehicle for India's agricultural modernization. Agro-based industries require timely and sufficient inputs in order to generate high-quality agricultural products.

Contract farming will be promoted as part of the Government of India's National Agricultural Policy. Contract farming was recognized as an important aspect of agri-business in the National Agricultural Policy of Government of India.

Contract farming is becoming increasingly important, according to the Inter-Ministerial Task Force on Agricultural Marketing Reforms. In agriculture, there is no standard or uniform process for contract farming. In agriculture, there are three types of contracts, which are as follows:

  • Procurement contracts in which the terms of sale and purchase are specified

  • Partial contracts in which the contracting firms supply some of the inputs and produce is purchased at pre-agreed prices.

  • Total contracts, in which the contracting firm supplies and manages all farm inputs, are only a supplier of land and labor.

NABARD’S initiatives in contract farming

NABARD took the important initiative of encouraging the banking sector to support such arrangements by developing a special refinance package for contract farming aimed at increasing commercial crop production.

 Policies initiatives by NABARD

Contract farming arrangements have been made eligible for a special refinance package from the National Bank for Agriculture and Rural Development in order to increase the production of commercial crops and create marketing avenues for farmers (NABARD).

NABARD's various initiatives in this regard are as follows:

  • Financial Interventions

  • Special Refinance Package for Farmers Financing Contract Farming in AEZs (agricultural export zones)

  • 100% refinance to disbursements made by CBs, SCBs, RRBs and select SCARDBs (State Cooperative Agriculture and Rural Development Banks)

  • Term facility for repayments(3years)

  • Fixation of a higher financial scale for medicinal plants under contract farming.

  • Extending the refinance scheme for financing farmers for contract farming in AEZs to outside AEZs, in addition to covering medicinal plants.

  • The Automatic Refinance Facility is an extension of the Refinance Scheme for Contract Farming.

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