In the recent era of rapid economic changes, slow agricultural growth has become a major area of concern in academic and public domains. In order to galvanize this sector, there are increasing efforts from various corners of the economy through an alternative institutional arrangement. In response to this, contract farming has evolved as an alternative institution. However, there is a growing debate in the academic world whether contract farming would benefit Indian agriculture or not. The pro-contract farming researchers argue that the contract-farming system could raise the income of farmers by increasing productivity. The critics argue that contract production is one mode of capitalist penetration into agriculture for capital accumulation and exploitation of the farming sector. This even leads to loss to the farmers and gain to the companies. However, the contractual arrangement depends upon the structure of the economy and how the market functions. The present study tries to analyze how the contract-farming system would be suitable for agricultural development by considering a village from the state of Orissa, whose economy is closely associated with a sugar industry. The study concludes that by entering into the contractual arrangement, the income level of the farmer and employment level in the rural economy has increased despite certain problems faced by the farmers like delayed payment, delay in procurement and low supply of agricultural inputs to them.

The slow growth in the agricultural sector and increasing farmer suicides have become a major concern in academic and policy discussions. In response to these challenges, there are increasing efforts to revive the agricultural sector through different institutional arrangements, such as contract farming, self-help groups for agricultural marketing and cooperative farming. This paper discusses contract farming which has evolved in Indian agriculture to minimize the risk between the producer (farmer) and the buyer (company). But there is increasing controversy among the academic world whether contract farming will benefit Indian agriculture or not. On the one hand, policy makers and academicians like Ashok Gulati, Abijeet Banarjee, Sukhpal Singh and Gurudev Singh visualize contract farming as an alternative policy intervention for reviving the agriculture sector from a serious crisis. On the other hand, critics like Jayati Ghosh and Devinder Sharma argue that contract farming is not a suitable solution for Indian agriculture, which is largely manned by small farmers. Further, they also argue that usually in contracts between a weak party (the farmer) and a strong party (company or big trader), the stronger party always tries to exploit the weaker one. Nonetheless, if one examines the participation of the private sector in agriculture, one could find that domestic firms like Reliance, Mahindra, Global Green and ITC, and Multinational Companies (MNCs) like PepsiCo and Pioneer are practising different types of contracting systems with farmers all over India. It is well known that the sugar and tobacco industries in the colonial period were procuring raw materials from farmers through the contracting system. However, the modern contracting system was initiated in 1989 by PepsiCo at Hoshiarpur in the state of Punjab. Now this system has spread to all regions and different crops such as tomato, potato, cotton, hybrid rice and baby corn.

In this background, the present study explores how and to what extent contract farming would be beneficial for the farmer in the presence of market imperfections. The main objective of this paper is to examine how the linkage between agriculture and industry through contract farming helps the farmers. The rest of the paper is organized as follows: the second section discusses data and methodology. The third section examines the logic of contract farming, with special reference to India. The fourth section analyzes the experience of contract farming in the world and also India. The fifth section focuses on the performance of the agricultural sector in Orissa. The sixth section discusses the outcome of contracting scheme.

To examine the importance of contract farming in India, the study has reviewed articles relating to contracting scheme in India and also in other developing countries. To assess the performance of contract farming, the study has considered the village, Hatisara in Bolangir district of Orissa, where contract farming is being practised for the past 10 years between farmers and agro-industries. The farmers of this village are cultivating and supplying sugarcane to a company named as Bijayananda Sugar Cooperative limited. The survey was done in the year 2004-2005. This survey included 81 farm households in this village. Among them, 31 are contracting households, whereas 50 are non-contract households, who are not cultivating sugarcane. Purposive sampling method was used for data collection. Data were collected through a well-structured questionnaire designed for collecting information on socioeconomic characteristics of farm households. The farmers were asked questions regarding their land holdings, crops grown and ownership of the factors of production. The information was collected with respect to the composition and occupational structure and their assets and their credit situation. To access the contractual relationship between the farmer and the company, questions like—what type of facilities were provided by the company and whether the company was violating the agreement—were asked.

Contract Farming and Agricultural Development, academic and public domains, galvanize, capital accumulation, delay in procurement, farmer suicides, contract farming, self-help groups, agricultural marketing, cooperative farming, tomato, potato, cotton, hybrid rice, baby corn.