India’s Agrarian Crisis and Smallholder Producers’ Participation in New Farm Supply Chain Initiatives: A Case Study of Contract Farming

Indian agriculture is at crossroads and one of the major challenges is to reverse deceleration in agricultural growth. Main reason for deceleration in agricultural growth is declining investment particularly public investment in agriculture research and development and irrigation, combined with inefficiency of institutions providing inputs and services including rural credit and extension. Other factors such as land fragmentation, out-dated tenancy laws, lack of modern market and rural infrastructure, inappropriate input pricing policies, etc. are also responsible for agrarian and ecological crisis in the country. The crisis of stagnation in agriculture needs urgent attention. The government has renewed focus on agriculture and promoting public-private partnership to accelerate growth in the rural economy. Many Indian and multi-national agribusiness companies have entered Indian agribusiness sector. The central government has also initiated reforms in outdated laws such as Agricultural Produce Marketing Committee (APMC) Act, Essential Commodities Act (ECA), and given some incentives like waiver of market fee, rural development tax, etc. for companies making investment in agribusiness sector. The central as well as state governments are promoting involvement of corporate sector in agriculture through contract farming with a view to enable farmer to have access to better inputs, extension services and credit from agribusiness companies. Contract farming is also supposed to eliminate and/or reduce markets and price risks, which farmers face. However, it all depends on the nature of contracts, legislation for regulation of contract farming, enforcement, dispute resolution mechanisms, etc. This paper tries to understand socio-economic implications of corporate-led initiatives in agriculture (mainly contract farming) in the state of Punjab, which has more experience in contract farming compared to other states. The results indicate that contract farming is a good initiative for medium and large-scale farmers producing for the market but the long-term success of such initiatives will depend on how a large number of small and marginal farmers can be linked to restructured markets under changing market and policy environment. The study points out that it is important to provide an integrated set of services including credit and not just seed and limited extension services. Partnership between public and private sector companies/organizations is needed in order to provide these integrated services. More important is to improve bargaining power of smallholder producers while also reducing transaction costs for companies through promotion of producers’ groups/association/cooperatives. Small farmers will be able to effectively 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, quality inputs and services and are organized.