In the last two decades, India has witnessed a major shift in its workforce. According to World Bank and Business Standard, the percentage of farmers dropped from 63.9% in 2000 to 53.8% in 2019. Many moved from agriculture to the service sector, largely because “farming alone was not enough to survive.”
Today, about 80% of Indian farmers are small-scale cultivators, contributing over 51% of total agricultural output. Yet, farming accounts for less than half their income, forcing them to rely on non-farm activities. The core problem? Lack of access to fair markets and organised buyers.
Contract farming has emerged as a practical solution to bridge this gap.
What is Contract Farming?
The FAO defines it as an agreement between farmers and processing or marketing firms for the production and supply of agricultural products under forward agreements, often at predetermined prices.
In simple terms:
Farmers grow crops for a buyer at an agreed price.
Buyers provide inputs, technical support, and guaranteed purchase.
Agreements cover price, quantity, quality, transport, and delivery.
Objectives of Contract Farming in India
Steady income for small farmers.
Promote market-oriented crops.
Boost private sector investment in agriculture.
Encourage food processing and value addition.
Diversify crops and reduce over-reliance on traditional cultivation.
Types of Contract Farming Models
FAO identifies five main models:
Informal Model – Seasonal contracts between individual entrepreneurs/small firms and farmers; common in India but riskier.
Intermediary Model – Firms use middlemen to link with farmers; risk of losing control over quality and pricing.
Multipartite Model – Multiple partners (government + private firms) share responsibilities like production, processing, and marketing.
Centralized Model – A single sponsor buys from many farmers, often for high-processing products like tea, dairy, or vegetables.
Nucleus Estate Model – Sponsor owns a central estate/plantation while sourcing additional produce from farmers; common for tree crops.
India also uses hybrid versions like Private–Farmer, Private–Community Group–Farmer, and SHG–Farmer models.
Advantages of Contract Farming
| For Farmers | For Buyers |
|---|---|
| Guaranteed income and prices | Assured quality and quantity |
| Access to modern technology and credit | Steady raw material supply |
| Reduced marketing costs | Efficient use of resources |
| Lower production risks | Brand strengthening through quality control |
| Knowledge transfer | Better control over inputs and outputs |
Societal benefits include:
Price stability despite market fluctuations.
Food safety compliance.
Reduced waste and better infrastructure.
Employment generation.
Challenges in Contract Farming
Exploitation of Small Farmers – Power imbalance leads to delayed payments, poor inputs, or low prices.
High Risks – Crop pattern changes create dependency on firms.
Lack of Legal Protection – Many contracts are verbal; enforcement is weak.
Monopsony – A single buyer dominates multiple farmers, reducing bargaining power.
Unequal Contracts – Large farmers get better terms than small farmers.
Top Contract Farming Companies in India
Big India Farms – Organic fruits, herbs, honey.
Dabur – Medicinal plants for Ayurvedic products.
Goodricke Group – Premium Darjeeling tea.
Rallis India Ltd – Seeds, pesticides, agri-services.
Tata Coffee Ltd – Coffee and pepper for global markets.
Pacific Herbs Agro Farms – Large-scale herbal cultivation.
Patanjali – Ayurvedic herbs across 12 states.
Anand Agro Group – Broiler farming.
Baramati Agro Ltd – Poultry, dairy, and crops.
Himalaya Herbal Healthcare – Herbal raw materials.
Successful Case Studies
1. PepsiCo India – Started tomato contract farming in Punjab, later expanded to potatoes and chillies. Provided seeds, fertilisers, technical help, and guaranteed buy-back.
2. Appachi Cotton Company (ACC) – Launched Integrated Cotton Cultivation in Tamil Nadu, offering inputs, credit, crop insurance, and sustainable practices.
3. Ugar Sugar Works – Introduced barley farming in saline soils of Karnataka, providing inputs, technical support, and a ready market.
Role of Government
Indian Contract Act, 1872 – General legal framework.
Model APMC Act, 2003 – Registration of firms, dispute resolution, protection of farmer land rights.
Model Agriculture Produce and Livestock Contract Farming Act, 2018 – Stronger farmer safeguards, crop insurance, unbiased authorities.
Farmers’ Agreement on Price Assurance and Farm Services Act, 2020 – Guaranteed pricing, protection against land acquisition, and faster dispute resolution. (Later repealed in 2021 after farmer protests.)
Conclusion
Contract farming isn’t new — India’s first recorded case dates back to the 1850s cotton exports to Britain. It offers huge potential to improve farmer incomes, modernise agriculture, and connect producers with markets.
However, for it to be sustainable:
Farmers must be equal partners, not just price takers.
Contracts should be transparent, fair, and legally binding.
Education and awareness are key to empowering farmers to negotiate better terms.
With the right balance of government oversight, private sector participation, and farmer empowerment, contract farming can reshape India’s agricultural future.