- Risks:
- If terms are not respected by one party, the affected party loses.
- Farmer sales to different buyer (side selling).
- Company’s refusal to buy at agreed prices.
- Downgrading of produce quality by company.
- Uneven nature of business relationship (firms more powerful than farmers).
- Challenges in India:
- Supply Side:
- Small scale of farm produce (86% marginal/small farmers).
- High transaction and marketing costs for buyers with many small farmers.
- Heterogeneity in quality of produce.
- Need to consolidate farmers through FPOs/SHGs.
- Demand Side:
- Limited presence of big foreign retail chains (FDI in food retail opened only in 2016).
- These chains bring technology and expertise for direct sourcing.