Contract farming in dairy sector is set to get a big boost in south India with the Hatsun Agro Product Ltd, the Rs 600-crore (Rs 6 billion) private sector dairy, signing up with SBI [Get Quote] to provide loans to dairy farmers for contract farming programme.

The agreement provides for the bank to extend over Rs 58 crore (Rs 580 million) in loans, initially, to dairy farmers identified by Hatsun Agro.

Hatsun Agro procures 1.5 million litres of milk a day from over one lakh farmers.

The agreement with the bank provides for a three-way arrangement, with the bank providing loans to small farmers and Hatsun deducting the repayment on the milk price paid to farmers.

The objective is to bring dairy farming into mainstream farming activity and improve the quality and quantity of milk supplies.

The loan would assist small and marginal farmers to whom dairy farming is a supplementary activity, and promote standalone dairy units that can be run on a scientific basis.

The average farming household keeps one or two cows to augment their income. But they depend on private sources of credit support, where interest costs can be 10-15 per cent a month.

The agreement with the bank provides for loan assistance of Rs 15,000-20,000 at nine per cent a year.

Farmers with five acres of land can set up a dairy unit with 30 cows, feed for which will come from the fodder crop cultivated on the land.

Hatsun Agro has roped in an expert in dairy farming from New Zealand for supporting this programme.

The loan assistance would be beneficial to Hatsun in expanding its milk procurement and marketing. Hatsun procures and markets milk under the Arokya and Komatha brand names.