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Is Fixed Price Contract a Viable Option for Farmers?
This paper explores the economics of contract versus non-contract potato farming in West Bengal, India, using primary data collected from a household survey of 263 farmers (2021–22 potato season). While proponents of contract farming argue that fixed prices and secure markets provide farmers with better returns, this study shows that non-contract farmers actually obtained much higher farm investment income (`42,413.63) per acre than contract farmers (`9,703.94). Without any significant differences in yield and production costs, the higher open market price (`1,458) per quintal benefits non-contract potato farmers despite production loss, while the fixed price in contract farming (`1,106) leads to significantly less farm returns for contract potato farmers.
Tomatoes, onions, and potatoes (collectively known as TOP vegetables) are the three highest cultivated, produced, and consumed vegetables in India. Despite the relatively advanced state of procurement and marketing within the cereal and dairy sectors, farmers engaged in the cultivation of high-value crops, such as vegetables and fruits, encounter formidable challenges, notably encompassing post-harvest losses and market failures (Gulati et al 2022). Frequently, the prices of vegetables experience a significant surge in the open market; nonetheless, the portion attributed to farmers within consumer expenditure remains unaffected. It has been argued that contract farming can offer a solution by linking farmers to an alternative market and providing them with farm support to cultivate high-value crops. As a result, contract farming is increasingly viewed as an alternative institutional arrangement that can effectively mitigate market risks, enhance production, and secure a minimum income for smallholders.
Contract farming is not a novel phenomenon in India. It has been legal in most states following the Model Agricultural Produce Marketing Committee (APMC) Act, 2003 (Singh 2022). Following the economic reforms in 1990, the central and some state governments have attempted to foster contract farming and promote private sector involvement in agriculture by implementing neo-liberal economic policies (Shrimali 2016; Vicol 2019; Ray et al 2021). Contract farming renewed the attention of critical agrarian studies in India after the announcement of the Farm Bills, 2020,1 and one of the long-standing nationwide farmer protests (Lerche 2021). Subsequently, it garnered criticism from numerous stakeholders, as it appeared to inadequately safeguard the interests of farmers, instead fostering a conducive business environment for corporate agribusiness companies (Swain 2020; Barik 2021; Jodhka 2021; Jha 2022; Nair et al 2022; Singh 2022). This ultimately compelled the government to retract the contentious act.
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