Define Contract Farming.

The link between agriculture and the global market led to the direct effect on the livelihood of the farmers and in rural society. For example – in the regions of Punjab and Karnataka, farmers enter into a contract with the Multinational companies like PepsiCo to grow certain crops (tomatoes and potatoes). These companies sign a contract with the farmers to grow crops of their choice and later they buy that from them to export or for processing. This is known as ‘Contract Farming’. This farming is common in the production of items like cut flowers, fruits such as grapes, figs and pomegranates, cotton, and oilseeds. Contract farming is suitable only for the production of the selected items as it requires increased use of fertilisers and pesticides.

In this type of farming, it is the decision of the company to make them grow crops according to their demand and also provide them with the seeds, related equipment and also provides with the working capital. They assure farmers of the purchase of the produce at the fixed price predetermined by them. The benefit of contract farming is that it provides financial security to the farmers but it comes with the disadvantage which is that farmers have to depend on these companies to earn their livelihood. For the production of export-oriented products such as flowers and gherkins implies that the agricultural land has been shifted from food grain production.