Pepsi Co could contract with farmers to buy tomatoes in bulk at a predetermined price on a particular date. A chain of restaurants may enter into a contract to purchase mushrooms directly from farmers. Such arrangements are possible with contract farming.

Contract Farming is agricultural production carried out based on a forward agreement between a buyer and farmers. Such an agreement establishes conditions for the production and marketing of a farm product or products. The farmer is bound by the contract to supply specific quantities of an agricultural product meeting the quality standards of the purchaser at a particular time. In turn, the buyer commits to purchase the product. In some cases, the buyer may support production with inputs on best practices and preparation of land. We may view contract farming as a partnership between agribusiness and farmers. Multinational companies, smaller companies, government agencies, farmer cooperatives, and individual entrepreneurs may enter into such agreements with farmers.

Benefits

• It helps in the skilling of farmers as they learn to use resources efficiently like pesticides, fertilizers, and technology.
• They can diversify their production of crops
• As contracts specify prices in advance, the risk of fluctuating prices is absent
• Contract farming helps farmers access new markets which are otherwise unavailable to them. Under such agreements, farmers can avail of credit
• Buyers get a steady supply of high-quality raw material without volatile prices, thus enabling long-term planning

<aside> 🥔 Although contract farming has been practised in India, it has not reached a significant proportion of small farmers. The rising domestic demand for high-value agricultural products, the entry of more private firms in the food processing sector, and the rapid growth of supermarkets and modern retail chains require a steady and timely supply of fresh and quality agricultural produce. Contract farming emerged as a model to meet these requirements.

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Over the years, many Central governments tried to enact laws to introduce contract farming with mixed success. In June 2020, the Centre issued an ordinance to facilitate contract farming which the Parliament passed as an Act in September 2020. For more than six months, many farmers have been protesting against the provisions of these laws, especially concerning contract farming. They fear that the big corporate buyers will eventually corner the small farmers and deny them an alternative route to marketing their produce. They argue that they will be at the mercy of a few private players who could organise themselves as cartels, thus setting an unremunerative price.

The government has sought to allay their fears by reaffirming its commitment to the regime of Minimum Support Prices. The ordinance allows contract farming in any agricultural product, leaves pricing to the parties' discretion, and enables central e-registration of contracts.

Prof. Anand S