Determinants of Farmers’ Participation in Contract Farming: The Cases of Gherkin and Paddy Seed in Andhra Pradesh, India

Abstract

Since the last one and half decades, the terms “small farmer” and “contract farming” have come into common usage in academic and policy discussions. The concern is whether small farmers would benefit from contract farming. It is very likely that since firms initiate the contract, a farmer’s participation in contract farming depends largely on firm’s criteria rather than farmer’s choice. Though some studies have discussed this issue, it needs greater attention to identify the factors that influence farmers to be in such new mode of production. In this context, the present paper seeks to identify the characteristics of contract and non-contract farmers and factors that induce farmers to participate in contract farming. The analysis is based on 295 farm households (including both contract and non-contract) from two districts of Andhra Pradesh. Binary logit model was used to identify the determinants of farmers’ participation in contract farming. The results indicate that contract farmers were generally from better segments of farming community in terms of education level, productive assets and access to market as compared to the non-contract ones. The result of binary logit model confirmed that large farmers with better irrigation facilities are more likely to be in contract mode of production. In addition, farmers having bigger family size are more likely to be in contract mode of production as compared to others. It could be argued that in this scenario, contract farming practice may lead to higher inequality in the agrarian economy. There is a need for better institutional mechanisms to make contract farming more inclusive.