History of Contract Farming in India -

The colonial period saw the introduction of cash crops such as tea, coffee
and rubber, poppy, and indigo in various parts of the country, mostly
through a central, expatriate-owned estate surrounded by small
outgrowers model. Most such arrangements exploited small peasantry
and resulted in indenture and alienation in some instances. ITC
introduced cultivation of Virginia tobacco in coastal Andhra Pradesh in the
1920s incorporating most elements of a fair contract farming system and
met with good farmer response. This was replaced by auctions in 1984.
Organised public and private seed companies, which emerged in the
1960s, had to necessarily depend on multiplication of seeds on individual
farms under contract to them since they did not own lands. Faced with an
acute shortage of soft wood, Wimco, the country’s sole mechanized match
manufacturer, instituted an innovative farm-forestry scheme for the
cultivation of poplars in Punjab, Haryana and Uttar Pradesh. It met with a
good farm response and success despite the trees being exotic to the
regions. 

Wimco also tried to procure tomatoes at the same time for its processing
factories in the South through a halting recourse to contract purchase.
Pepsico introduced tomato cultivation in Punjab in the 1990s under
contract farming to obtain inputs for its paste-manufacturing facility
established as a pre-condition to its entry into India. This was sold to
Hindustan Lever in 2000, which had earlier acquired the Kissan tomato
processing facility in Karnataka. Nijjer in Punjab and Bhilai Engineering in
Madhya Pradesh also took up tomato contract cultivation programmes
shortly after Pepsico. Contract farming was the strategy of choice for
almost all food processing projects contemplated in the 1980s and 1990s,
most of which never came up. Unreliable and uneconomic raw material
availability has been their major handicap. Smaller projects involving
specialised export crops, aromatics, medicinal plants and herbs, etc still
actively use contracts in their own restricted areas.

Contract farming is again in vogue, and even tried for bulk production of
subsistence crops, such as paddy-rice, maize and wheat. Punjab
government has actively encouraged it as a means of crop diversification.
Most such contracts now have specialised contract agencies as interfaces
between farmers and input suppliers/crop purchasers.

Commodity co-operatives (dairies in Gujarat, sugarcane in Maharashtra),

which emerged in the 1950s, provided most services envisaged under
ideal contract farming to their members and bought back the supplies
offered at contracted prices, although these were not strictly contract
arrangements. They succeeded enormously, leading to their replication
and compelling private companies also to adopt similar approaches.
Contract farming is now considered to be a corrective to market
imperfections and serving a useful purpose in India in its own limited
sphere.

[Above information is based on recommendations from National Agriculture Research System. The
Effectiveness of the recommendations varies from place to place with changes in natural resource and climate.
Farmers are advised to use the information on their own responsibility. KVK Baramati shall not be responsible
for any consequences.]