Medicinal Plant Contract Farming

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. 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.

Contract farming can be described as a halfway house between independent farm creation and corporate farming. It involves a contractual relationship between farmers and central processing or exporting units/firms. These units purchase generate from contract farmers under the agreed terms of the contract.

Aromatic plants and herbs used in herbal medicines and personal care products are the key ingredients of the farm’s high earnings. Shankhapushpi, Ateesh, kutki, kuth, kapikachhu, and karanja are some of the herbs that mean little to the urban consumer but are a big source of income for some farmers. Medicinal plants grow best within certain ranges of various factors includes temperature, soil moisture, soil nutrients, light, air pollutants, humidity, soil structure, and pH level. Although these factors affect all plants are frequently grown or kept in cultural particles such as fertilization, irrigation, spraying with pesticides that may affect their growth considerably.

Medicinal plants play an important role in the development of human cultures around the whole world. Some of the plants contain ginger, green tea, walnuts, aloe, pepper, and turmeric, etc. Some plants and their derivatives are considered as the main source for active ingredients that are used in aspirin and toothpaste etc. Now, let us get into the details of medicinal plants/crops contract farming in India.

Medicinal plants contract farming in India

Contract farming is a system for the production and supply of agriculture produce under a forward contract between producers, suppliers, and farmers. The essence of such an arrangement is the commitment of the producer, seller to provide an agriculture commodity of a certain type at a time and quantity required by a known and committed buyer. Farmers are required to plant the contractor’s crop on his land and to harvest and deliver to the contractor a quantum of products based upon anticipated crop yield. This can be a pre-agreed price. It can indeed be a vehicle for the modernization of agriculture in India. The agro-based industries need timely and adequate inputs for good quality agricultural produce.

The Government of India’s National Agricultural Policy envisages private participation will be promoted contract farming. National Agricultural Policy of Government of India recognized contract farming as an important aspect of agri-business. The Inter-Ministerial Task Force on Agricultural Marketing reforms observed that contract farming was becoming very important. There is no standard and homogenous process in contract farming in agriculture. There are three types of contracts in agriculture as below:

  • Procurement contracts, under which sale and purchase conditions are specified
  • Partial contracts, wherein the contracting firms supply some of the inputs and produce is bought at pre-agreed prices and
  • Total contracts, under which the contracting firm supplies and manages all the inputs on the farm is just a supplier of land and labor.

Advantages of contract farming

The existing literature on contract farming identifies several main areas where contract farming can provide benefits. From farmers, contract farming can provide access to markets, credit, technology and inputs that they would be excluded. Also, contract farming can lead to improvements in income reducing some of the risks farmers face from production and price fluctuations.


  • The assured market for their make at their doorsteps, reducing marketing and transaction costs. Also, it reduces the risk of production, price and marketing costs.
  • Contract farming can open up new markets that would be unavailable to small farmers. It ensures the production of better quality, financial support in cash and technical guidance to the farmers.
  • In the case of agri-processing level and it ensures a consistent supply of agricultural with quality, at the right time and lesser cost.

Agri-based firms

  • Utilize their installed capacity, infrastructure, and respond to food safety concerns of the consumers.
  • Make a direct private investment in the agricultural system and price fixation is done by the negotiation between the producers and firms.
  • The farmers enter into contract farm production with an assured price under terms and conditions.

Importance of the medicinal crops

The Indian farmer is presently in a difficult situation and the majority is looking at options other than farming. The farmer is constrained by the shrinking net income flow due to the increasing cultivation cost and uncertainty in production and prices. Largely, farmers have not diversified from traditional crops. Production costs of traditional crops are now becoming costly and the market system is very poor. These factors have forced the farmers to shift towards other crops that have the potential for better returns compared to the traditional crops. In this backdrop, the cultivation of medicinal crops is risky in terms of the incidence of pest attacks, diseases, and price fluctuations, and has potential returns. This significance is further strengthened by the fact that these crops can be grown in degraded and marginal soils, or raised as inter-crops in plantation crops such as areca nut, coconut, etc. with less difficulty. The trade demand for these crops is increasing with the increased interest in western consumers towards eastern medicinal systems.  Almost 75 percent of the plant material used in indigenous medicines is collected from forests and wild habitats. People hardly have any knowledge about the medicinal plants collect the material and pay little attention to selective harvest or harvesting of natural plants.

India has been considered a treasure house of valuable medicinal plant species. The fact that derivatives of medicinal plants have no side effects, the demand for these plants is on the increase in developing and developed countries. As an effect, the trade of medicinal plants is increasing fast.

Main features of the contract system

The main features of the contract system are;

  • On-farm multiplication of seeds requires the observance of both a specified package of practices and adequate isolation and quarantine procedures to maintain the genetic identity of planting material. thus, multiplication is taken up on contiguous blocks which could be effectively isolated from the remainder of agricultural activity in the vicinity;
  • Seed producers find it helpful to contract all farmers of the area that they want to operate in;
  • Companies have identified respective zones of operation and groups of farmers for reproduction;
  • Companies specify areas, supply parent seeds, give advance at times, supervise production, and estimate likely crop size;
  • Company staff ensures that standard contracted practices are followed on-farm through well-scheduled supervision visits;
  • The initial direct contact with farmers is replaced by organizers, who become effective interfaces between companies and contract farmers. And they are responsible for a group of farmers and meeting the group target. They can be local financiers or suppliers of other inputs. Revisions are invariably implemented through organizers.

Importance of some herbs with their medicinal values

Herbs such as black pepper, cinnamon, myrrh, aloe vera, sandalwood, ginseng, red clover, burdock, bayberry, and safflower are used to heal wounds, sores, and boils.

Cilantro, Basil, Thyme, Golden Oregano, Rosemary, and Variegated Sage are the most important medicinal herbs and can be planted in the kitchen garden. These herbs are very easy to grow, look good, taste and smell amazing and many of them are magnets for bees and butterflies.

Many herbs are used as blood purifiers to change a long-standing condition by eliminating the metabolic toxins. These are known as ‘blood cleansers’. Certain herbs develop the immunity of the person, thereby reducing conditions such as fever.

Some herbs are having antibiotic properties. Turmeric helps inhibit the growth of germs, harmful microbes, and bacteria. Turmeric is usually used as a home remedy to heal cuts and wounds.

Sandalwood and Cinnamon are great astringents apart from being aromatic and sandalwood is used in arresting the discharge of blood, mucus, etc. Indian sages were known to have remedies from Medicinal plants which act against poisons from animals and snake bites.

Herbs such as Cardamom and Coriander are renowned for their appetizing qualities. Other aromatic herbs that are peppermint, cloves, and turmeric add a pleasant aroma to the food, thereby increasing the taste of the meal. Some herbs such as aloe, sandalwood, turmeric are used as antiseptic and are very high in their medicinal values.

Ginger and cloves are mainly used in certain cough syrups. They are known for the expectorant property, which promotes the thinning and ejection of mucus from the lungs, trachea, and bronchi. Eucalyptus, Cardamom, Wild Cherry and cloves are expectorants.

Certain medicinal herbs contain disinfectant property, which destroys disease-causing germs. They inhibit the growth of pathogenic microbes that cause communicable diseases. Herbal medicine practitioners recommend calmative herbs, which give a soothing effect to the body. They are often used as sedatives.

Certain aromatic plants such as Aloe, Goldenseal; Barberry and Chirayata are mainly used as mild tonics. The bitter taste of such plants reduces toxins in blood and they help destroy infection as well.

NABARD’s initiatives in contract farming

NABARD took the important initiative of supporting such arrangements by the banking sector and developed a special refinance package for contract farming aimed at promoting increased production of commercial crops.









Policy initiatives by NABARD

To increase the production of commercial crops as for the creation of marketing avenues for the farmers, contract farming arrangements are made eligible for availing special refinance package from National Bank for Agriculture & Rural Development (NABARD).

The different initiatives undertaken by NABARD in this direction are;

  • Financial Interventions
  • Special Refinance package for financing farmers for 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 (3 years)
  • Fixation of higher scale of finance for medicinal plants under contract farming.
  • Extension of refinances scheme for financing farmers for contract farming in AEZs to outside AEZs besides coverage of medicinal plants.
  • An extension of Refinance scheme for contract farming under the Automatic Refinance Facility.

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