Title: Total Factor Productivity in Andhra Pradesh Agriculture
Abstract: Uncertainties due to agricultural commodity price fluctuations hamper the economic growth and are associated with accentuating poverty among the farming community. The situation is likely to be exacerbated further in the wake of integration of agricultural trade in the global system. As a result, prices of agricultural commodities are determined by market forces (domestic market and import), and the fluctuating demand and supply of agricultural commodities is expected to result in high price risk for agribusiness. Price supports have been the principal means by which Indian farmers have received some protection against market risks. However, it has limitations as well. Contract farming and forward markets are the most convenient and safer option, which have come to the rescue of not only the small and marginal farmers in terms of guaranteed income and low capital investment but also the nation as a whole, making it globally competitive. It can provide insurance against price volatility. Contract farming could be the tone of the best solutions that may decrease the polarisation of rich and poor and encourage the Indian farmers to compete with the very large, rich and highly (indirectly) subsidised western farmers. Also, the contract farming system and futures markets form the most heartening part of the vision of the National Agricultural Policy 2000. Contract farming can serve as a mechanism to reduce the market and income risks faced by the farmers when diversifying away from food crop to new commodities. It has been found that price stability is a major benefit of contract farming for producers. The studies of contract farming have shown that the farmers agreed that contracting helps them in better farming, and provides them more reliable income, zero price uncertainty, less production risks, new skills of farming and generates more employment, especially for women. Contracting allows the transfer of market risks from the farmer to the processor. The successful cases should encourage the rest of the producing and the consuming enterprises to emulate them for mutual benefits in specific and Indian agriculture in general. A future trading is a market-based institution for trading price risks. Theoretically, it allows farmers to hedge against market risks. However, transaction costs are a formidable barrier to the participation of farmers in futures markets. Further, futures markets in India suffer from the lack of liquidity. Their performance in insuring spot prices is also doubtful because the basis risk from futures trading is high relative to spot price risk. The government can foster the development of contractual arrangements by facilitating the creation of producers’ organizations, legislating an appropriate contract law and enforcing it effectively, strengthening and improving the quality of (public and private) agricultural extension services, providing complementary infrastructure, and developing effective land administration systems. Contract farming will require amendments in the Agricultural Produce Market Act of the states to legally permit farmers to enter into agribusiness directly.
Publication Year: 2005
Publication Date: 2005-01-01
Language: en
Type: article
Access and Citation
Cited By Count: 19
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