Is Contract Farming Beneficial?

The recent spat between the PepsiCo and a handful of potato farmers from Gujarat has again led the debate surrounding contract farming to the forefront. The contract farming has been prevalent for long years in potato growing regions, especially in West Bengal, one of the most productive potatoes growing regions of India.

Advantages of Contract Farming

• Contract Farming offers hassle-free production process. Studies have on contract farming have pointed to the fact that farmers being satisfied with such contracts with the big corporation as it leads to relatively risk-free farming.
• Farmers do not have to bother about the sale of the crop through mandis and make provisions for insurance against crop failures.
• Contract Farming gives them a secure and steady source of income.
• Contract Farming provides easy access to good quality inputs, extension services, grading and sorting of produce as a result of which their productivity and incomes can go up.
• With contract farming in practice, the farmers have not only become prosperous but they also feel secure about their future.

Criticisms against adopting Contract Farming in Large Scale

• Contract Farming promotes monoculture. The ecological damage due to mono-culture is a cause of concern,  as only one type of crop is grown over and over again. It can be vulnerable to pest attacks and plant diseases that can devastate the entire crop production.
• Contract farming across the world has also reduced biodiversity and has led to the destruction of forests and the support for wildlife.
• Driven by the profit motive the big companies are not motivated to opt for organic farming, using natural fertilizers and pesticides.
• In India, contract farming is unlikely to touch the small and marginal farmers, including many women farmers who need more help in accessing better inputs, technology and credit. Only mid-sized farms of a certain acreage are roped in for contract farming.
• Big corporations make mega-profits through the sales of their products but the actual farmers who produce the agricultural core base of the product are paid.
• The big corporations have money power which translates to bargaining power vis-à-vis the farmers. In the beginning, they may agree to pay farmers according to their labour and other input costs, but gradually they can start paying them less because the farmers have no other alternative.
• In cases of rejection of the crop of contract farmers on the basis of the quality of the product or, because it does not match the specific requirements, the farmers face a difficult situation as they do not have other outlets to sell the produce.

Way Forward

With Agriculture under stress and less remunerative, it is possible that in future small farmers pool their land en masse in a cooperative for contract farming.  In any case, there is a need for more effective regulation so that farmers’ rights are protected and the land is not transferred to corporations.

If Farm Producers’ Organization (FPOs) could be involved in dealing with big corporations, the farmers could operate from a position of strength and leverage. Hence the government must institute necessary safeguards to ensure that the contract farming does not turn out to be a necessary evil for farmers.