For the past decade and a half, contract farming, also referred as the outgrower scheme, has been reshaping Bangladesh’s agribusiness landscape. This innovative approach, where corporate companies offer necessary support such as bank loans, training, fertiliser, and seeds while setting product prices, is creating waves in the traditional agricultural process of Bangladesh. By ensuring that farmers receive the maximum market prices for their produce, this model is being hailed as a game-changer.
Agriculture remains the backbone of Bangladesh’s economy, with 70 per cent of the population and 55 per cent of the labour force engaged in various forms of farming, including poultry, dairy, food processing, and fisheries, according to the Bangladesh Bureau of Statistics. The rise of contract farming marks a significant evolution in this vital sector, promising fresh opportunities for farmers and the broader economy alike.
Despite a lack of specific research or data, industry insiders estimate that over 2,00,000 contract farmers operate in the country. In this farming model, farmers bear the costs of water, electricity, and labour, while companies handle and share the expenses.
Unlike traditional farming, where prices drop as production increases, contract farmers receive a fixed price for their products, ensuring stable income. Profitable agriculture in Bangladesh involves using accessible resources to produce high-quality products through eco-friendly methods, allowing farmers to earn substantial profits in both local markets and/or through exports. Agriculture management, encompassing everything from production to marketing, is deeply linked to economic outcomes.
Farmers now focus on profitability
However, a well-regulated and structured market is the primary driver for profitable agriculture. While agriculture was once simply associated with cultivating the land and producing crops, farmers now are increasingly focusing on profitability, according to agricultural scientists.
According to a research report, contract farmers take home some 26 per cent more in profits than regular producers and the produce’s quality is 13 per cent higher than the averages made using traditional production method. International Food Policy Research Institute (IFPRI) published this research report about various steps of poultry contract farming in June 2021.
15 years ago, Bombay Sweets launched the maiden voyage of institutional contract farming in Bangladesh. Following its success, many top industries and conglomerates, such as PRAN, ACI, Basundhara, Bengal Meat, BRAC, Akij Group, Partex, Kazi & Kazi, Supreme Seed, Lal Teer Seed, Kishoan, etc., started practicing contract farming.
Ensuring high-grade produce
PRAN, one of the largest agri-crops processing company of Bangladesh, started its contract farming process back in 2001. They started their operations in different areas in Bangladesh such as Rangpur, Bogura, Rajshahi, Chapainawabganj, Naogaon, Natore, Dinajpur, Satkhira, Meherpur, and Habiganj, collecting some products such as mango, milk, tomato, mustard, lentil, nuts, pineapple, cassava, corn, potato, chinigura rice, cabbage, etc, directly from farmers. Through this contractual process, they are benefiting directly.
PRAN-RFL Group Marketing Director, Kamruzzaman Kamal, told The Business Post, “We work to mobilise Bangladesh’s farmers and the agricultural industry through contract farming.
“It’s quite difficult to find consistent, high-quality products in the open market, and there’s always a risk of substandard crops. By providing farmers with quality seeds, we ensure that they produce high-grade crops. Also, knowing the source of our raw materials helps us protect farmers from middlemen, maintaining fair prices,” he added.
PRAN works with nearly 1,00,000 contract farmers, including 15,000 mango producers, 15,000 dairy producers, 10,000 tomato growers, 12,000 rice producers, and 6,000 lentil and mustard producers.
PRAN-RFL claims this approach not only ensures product quality but also contributes significantly to poverty alleviation and employment creation, especially for women, developing the socio-economic conditions of the region.
‘Doubled our income’
Selina Begum, a contract farmer from Kowcharpara in Natore, shared her experience, saying, “We have seven bighas of land, and our four-member family has always relied on it for our livelihood. Before contract farming, we earned around Tk 1,00,000, which was enough for us to get by. But since we started contract farming, our income has doubled.”
After receiving training and ongoing support from the contract farming company, she cultivates various high-quality seasonal crops like peas, rice, and mangoes. “Their team visits our land regularly to check on the crops, ensuring we grow healthy, high-quality produce,” she added.
Wahab Ali from Birampur, Natore, has transformed his life through contract farming. Once the owner of just four to five bighas of land, he now owns nine bighas and leads a network of 300 farmers in his area who are also engaged in contract farming. Through his partnership with PRAN Group, Wahab Ali facilitates loans and provides comprehensive support to these farmers. This success has significantly boosted his annual income, which now stands at approximately Tk 4,00,000.
He said, “Earlier, a wholesaler from the local market used to buy the crops in the area. As a result, farmers had to sell their crops at whatever price he offered. But now times have changed. Now, thanks to PRAN, farmers are getting the right price for their crops.
“PRAN doesn’t cheat them. On the contrary, they are giving interest on loans at the same rate as banks while also providing trainings and are supervising the crops,” he said.
Bombay Sweets, the pioneer of contract farming in Bangladesh, is now cultivating a potato variety called ‘Karej,’ specifically designed for chip production. Farmers across the country are growing this variety to meet the company’s needs.
Khurshid Ahmad Farhad, general manager of Bombay Sweets & Company Ltd, explained, “We require 12-13 thousand tonnes of potatoes annually for making chips. Contract farming is essential to maintain the quality and ensure a consistent supply of potatoes.
“In addition to cultivating on our own land, we began this initiative some 15-16 years ago. Today, hundreds of contract farmers are growing potatoes for us, ensuring they remain profitable even when market prices drop,” he added.
Full transparency
Similarly, Bashundhara Group has entered the packaged spices market, offering turmeric, chili, cumin, and coriander sourced directly from their contract farmers. Bashundhara Group Chief Operating Officer (Marketing), M M Jasim Uddin, stated, “The benefit of contract farming is that we have full transparency over the source, allowing us to predict the quality of the products. At the same time, farmers receive fair prices for their produce.”
Bengal Meat, a leading meat processing company, relies on over a thousand contract farmers who supply cattle year-round, contributing to half of the company’s 400-tonne meat supply. These farmers follow strict company guidelines to ensure the production of ‘safe meat,’ a key selling point for Bengal Meat.
To maintain high product standards and boost production, the company is actively working to expand its network of contract farmers.
Bengal Meat CEO, AFM Asif, explained, “We offer a fixed price to our producers, even when market prices rise, we don’t increase our rates because they consistently provide us with quality products at a stable margin. This has built a strong rapport of trust between us and our farmers.”
Pran, Akij, Aarong, and Milk Vita are at the forefront of the country’s dairy processing industry. While Milk Vita operates cooperatively with farmers, the other three companies source milk from contract farmers. Despite ongoing concerns over milk prices, many farmers continue raising cows due to the consistent demand from these processing companies.
In the poultry sector, Bangladesh hosts around 1.5 lakh poultry farms of varying sizes, with approximately two and a half dozen companies operating in the sector. According to Bangladesh Poultry Association (BPA) President Suman Hawladar, about 5,000 farms are under contracts with various companies.
Banks loan to farmers
Data from Bangladesh Bank (BB) shows that nine commercial banks, including Prime Bank, National Bank, UCB, First Security Bank, Mercantile Bank, Dhaka Bank, NRBC Bank, and Standard Chartered Bank, are actively involved in contract farming. Agricultural processing companies like Kazi & Kazi, Pran, Supreme Seed, Lal Teer Seed Company, Bengal Group, and ACI, secure loans from these banks and distribute them to farmers at the interest rates set by the central bank.
BB sources indicate that contract farming creates a win-win situation for farmers, commercial banks, and agricultural product marketers. As commercial banks lack branches in rural areas, they are partnering with these private institutions to efficiently distribute loans to farmers, benefiting all parties involved.
Agriculture entrepreneurs say that while the sector is becoming increasingly technology-dependent, it has also transformed into a capital-intensive sector, resulting in it becoming difficult for small-scale farmers to produce good quality crops. Moreover, due to the inability to process perishable crops like tomatoes and potatoes after harvesting, these crops go to waste.
Consequently, farmers do not get the fair price for their produce, leading to significant financial losses.
Since the introduction of contract farming, the price of such produce has been assured. Simultaneously, it has contributed to food security.
However, the success of contract farming depends on the sincerity of commercial banks, the continued oversight of the central bank, and the commitment of entrepreneurs. If all stakeholders are sincere, it will usher in a revolutionary change in the agriculture sector.
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