Contract farming is an effective and efficient system of success for production and consumption systems of agricultural and allied sectors. It is an essentially agreement between unequal parties, which include the growers, processors and consumers (Eaton, 1998: Gahukar, 2007). Contract farming is viewed as essentially benefiting the promoters or user agencies by enabling them to obtain the necessary raw material on sustainable basis. In the era of market liberalization, globalization and expanding agribusiness, there is a danger that small scale farmers will find difficulty in participating in the market economy (Jackson and Cheater, 1994). In many cases, small farmers could become marginalized as larger farms become increasingly necessary for profitable operations.  This system of contractual farming existed from time immemorial but the success in many sectors of agricultural production is of recent origin.

In contrast to agriculture, the production in forestry is of long rotation in nature. Besides, the forests of the country are under acute socio- economic pressure and till recently, the deforestation rate in the country was estimated to be 1.5 million ha year -1. Currently the forest area in the country is around 23.57 % and Tamil Nadu state is around 17.41% (FSI, 2005),  which is low against the mandated requirement of 33%. The less forest area coupled with low productivity of Indian forest has ushered in a large gap between demand and supply of both domestic and industrial wood requirements (Parthiban and Govinda Rao, 2007). 

The biggest challenge faced by wood based industries is the raw material shortage.  A conservative forest policy coupled with promotion of farmers/ industries linked plantation activities on under-utilized cultivable and marginal agricultural lands will help to mitigate the crisis.  This necessitates a business farm forestry model, in order to expand the area under farm and agro forestry plantations through multi-stake holder’s participation. A multi functional agroforestry systems in India has already been elaborately indicated (Pandey, 2007)

The success of industrial wood plantation schemes and the related plantation establishment is widely questioned. The reasons for the failure are numerous; but the key reasons are non-involvement of local people, lack of quality planting stock, lack of assured buy back / minimal support price etc. The middlemen and local contractors in the existing marketing system play a significant role and in most of the cases, they decide the harvesting time and also price fixation. Absence of efficient production to consumption system coupled with price incentives and assured buy back agreement is a major constraint faced by the tree growing farmers. This constraint on industrial agroforestry can be overcome through augmenting the existing supply chain system by linking the farmers directly with industries through contract farming system. The success of WIMCO seedling Ltd. for popular in North-Western states and ITC for clonal eucalyptus are the resultant initiatives of mult-istakeholder’s partnership on quality planting stock, marketing, finances, etc. (Pande and Pandey, 2004; Dhiman, 2008; Karmarkar and Haque, 2008). Hence the quad – partite model contract farming system through public private partnership has been introduced in the state of Tamil Nadu through NAIP funded  project  involving various levels of stake holders and implemented successfully in five districts directly and through horizontal expansion it has spread across the state

Contract Farming Model

To meet the above needs and increase the area under pulp wood plantation through farm forestry, the two paper industries in association with Tamil Nadu Agricultural University has developed a tripartite and quad-partite model for promotion of pulp wood based contract farming system. Through the system, it is intended to produce quality and sustained raw material through a strong supply chain.

Tri-partite Model

This model incorporates industry, growers and financial institutions. Under this system, the industry supplies quality planting material at subsidized rate and assures minimum support price of Rs. 2000 per tonnes or the prevailing market price which ever is higher. The financial institutions viz., Indian Bank, State Bank of India and Syndicate Bank provide credit facilities to the growers at the rate of Rs. 15000 to 20000 per acre in three installments. For credit facilities, a simple interest rate at 8. 5 per cent is followed and the repayment starts after felling. The contract farming system extends no collateral security for loan amount up to Rs.1, 00,000/- per farmer.

Fig 1. Tri-partite Model contract tree farming

Quad-partite Model

This system is similar to tri-partite model barring the involvement of research institute (Fig. 1). In this system, research institute particularly Forest College and Research Institute (TNAU) play a significant role for technological advancements through varietal development and also to advice site specific precision silvicultural technology to the growers. A pre and post-plantation scientific advice helps to develop human resources through on and off institute mode to farmers and plantation staff of the industries.

Quad-Partite Model contract tree farming

Similarly, the industries mass multiply the potential genetic materials identified by the research institute in a decentralized manner and supply them at subsidized costs. The industry also facilitates felling and transport at their own costs, which resulted in strong linkage between industry and the farmers. The industry also help to repay the loan amount after felling of farm grown raw materials there by help the financial institutions for timely repayment, which resulted in strong institutional mechanism for sustainability of the contract tree farming system in the state.

For contract farming model
Dean
Forest College and Research insitute
Tamil Nadu Agricultural University,
Mettupalyam,
Coimbatore

Pulp wood
1.    Mr.Seenivasan,
Senoir Manger (Plantations)
Tamil Nadu Newsprint and papers Limited
Kagithapuram – 639 136.
Karur District
Ph No:94425 91411
Fax No: 91-4324-277025

2.    Mr. M.Shanmugam
Seshasayee Papers and Boards Ltd
Pallipalayam
Nammakkal District, 
Erode,  Tamil Nadu -638 007.
Phone No: 94433 40236

Match Wood
3.    Mr.V.V.Rajan
Vasan Match Works
No.21, New Street, Bosepet
Gudiyatham Taluk, Vellore District
Tamil Nadu – 632 602.
Phone No: 91-4171-320416, 222251

The origanization involved in promotion of tree farming can approach the insitute for successful implementaion of contract farming involving various stake holders