India - India’s agrarian crisis and smallholder producers’ participation in new farm supply chain initiatives: Contract farming

Vijay Paul Sharma

Indian Institute of Management

This case study has highlighted the importance of new and growing features of corporate-led Indian agriculture through contract farming, but the success of these initiatives will depend on how they include the large number of small and marginal farmers under the changing market structures and policy environment.

The experience of contract farming initiatives discussed in this paper suggests that contract farming is a good initiative for medium- and large-scale farmers producing for the market. The results of a survey of farmers participating in contract farming show that private companies providing access to both selected input and output markets, combined with timely advice, significantly improves the productivity and profitability of farmers. The lessons from this case also have wider significance in connection with the question of how successful approaches to contract farming can be developed.

These lessons include the following. Firstly, it is important to provide an integrated set of services, including credit, and not just extension services and seed. Secondly, partnerships between public and private sector companies or organizations are needed in order to provide these integrated services. The third and perhaps most important lesson is that there is a need to improve the bargaining power of smallholder producers while also reducing transaction costs for companies through the promotion of producers' groups, associations, or cooperatives. Small farmers will be able effectively to participate in the changing markets and establish links with new market chains (supermarkets, agribusiness companies, processors, exporters, etc.) only if they have access to basic infrastructure, inputs and services, and are organized.