Comparative analysis on contract scheme: security or a peril

Abstract

Contract farming is usually seen as a useful mechanism to assist smallholders in overcoming market access constraints. However, in spite of economic benefits, high smallholder dropout rates from contract schemes are commonplace. The aim of this study is to postulate a mechanism that uses quantitative and qualitative data from the Indian States to show that smallholder farmers benefit from a resource-providing contract in terms of higher yields and incomes, but that most of them still regret their decision to participate within the contract scheme and would like to exit if they might. The analysis underlines that research that specialize in narrowly defined economic indicators alone cannot explain farmers’ satisfaction with contracts and their dropout behaviour. The main problem within the contract scheme is insufficient information provided by the corporate. Farmers don't understand all the contract details, which results in substantial mistrust. Farmers believe that the corporate behaves opportunistically, as an example during the output weighing procedure, and these beliefs are significantly correlated with the farmers’ wish to exit. Moreover comparing such an instance to recent spike in dissatisfaction amongst farmers in the Punjab state in India, followed by disregard for the Government of India’s new found APMC Policy.