Contract farming: A study of an impact analysis

Diversification of agriculture has been considered very necessary to raise income ofthe cultivators and generate additional employment for the ruralcommunity. Contract farmingmay help in the diversification of agriculture by providing financial support, technology andassured market to the growers. Various agricultural and horticultural crops such as tomatoes,potatoes, chillies, gherkin, baby corn, onions, cotton, wheat, basmati rice, groundnuts,flowers,medicinal plants, etc. are cultivated in the form of contractual agreements withfarmers in India (Eaton & Shephard, 2001). Contract farming is a system for production and supply of agricultural/horticulturalproduce under forward contracts between producers/suppliers and buyers (Haque, 2000). InIndia, the contract farming concept was prevalent in the sugar industry where farmers agreedto grow sugarcane at a pre-notified price for decades. Later on established business houseslike Pepsi Co., Reliance, ITC,Hindustan Unilever Ltd. and McDonalds have entered intoagricultural production and introduced a number of horticultural crops and now their productshave a high demand in the international markets. The National Agricultural Policy 2000,announced by the Government of India, seeks topromote contract farming by involving theprivate sector to ‘accelerate technology transfer, capital inflow and assured marketing of cropproduction’ (Asokan, 2005). As with any form of contractualrelationship, contract farminghas both advantages and disadvantages. If any party does not follow the terms of the contract,then the affected party stands to lose. Despite the problems, contract farming isgainingpopularity in rural India. This study reviews the major advantages and disadvantages ofcontract farming in India.