SPECIAL ARTICLE

Is Fixed Price Contract a Viable Option for Farmers?

Prasenjit Barik, Rajshree Bedamatta

T
This paper explores the economics of contract versus omatoes, onions, and potatoes (collectively known as TOP
non-contract potato farming in West Bengal, India, vegetables) are the three highest cultivated, produced, and
consumed vegetables in India. Despite the relatively ad-
using primary data collected from a household survey of
vanced state of procurement and marketing within the cereal and
263 farmers (2021–22 potato season). While proponents dairy sectors, farmers engaged in the cultivation of high-value crops,
of contract farming argue that fixed prices and secure such as vegetables and fruits, encounter formidable challenges,
markets provide farmers with better returns, this study notably encompassing post-harvest losses and market failures
(Gulati et al 2022). Frequently, the prices of vegetables experi-
shows that non-contract farmers actually obtained
ence a significant surge in the open market; nonetheless, the
much higher farm investment income (`42,413.63) per portion attributed to farmers within consumer expenditure
acre than contract farmers (`9,703.94). Without any remains unaffected. It has been argued that contract farming
significant differences in yield and production costs, the can offer a solution by linking farmers to an alternative market
and providing them with farm support to cultivate high-value
higher open market price (`1,458) per quintal benefits
crops. As a result, contract farming is increasingly viewed as
non-contract potato farmers despite production loss, an alternative institutional arrangement that can effectively
while the fixed price in contract farming (`1,106) leads to mitigate market risks, enhance production, and secure a minimum
significantly less farm returns for contract potato farmers. 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 agricul-
ture 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). Sub-
sequently, 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.
The predominant literature concerning contract farming
practices in India is centred on the dimensions of production,
income, and employment. This body of work underscores that
contract farming frequently yields higher profitability when
contrasted with non-contract farming. Scholars have argued
that fixed-price contract provides farmers with an assured
Prasenjit Barik (pbarik@iitg.ac.in) is PhD candidate in development price for their harvest, which secures minimum returns in case
studies and Rajshree Bedamatta (rajshree@iitg.ac.in) is professor of of market failure. Studies have found that farmers under fixed-
economics at the Department of Humanities and Social Sciences, Indian price contract and secure markets often obtain better returns
Institute of Technology Guwahati.
compared to non-contract farmers, even with lower yields
42 september 23, 2023 vol lViII no 38 EPW Economic & Political Weekly
 SPECIAL ARTICLE

(Birthal et al 2005; Tripathi et al 2005; Dhillon et al 2006; Singh average output values compared to non-contract farmers with
and Meena 2012; Pandit et al 2015; Sharma 2016). smaller landholdings. Direct association with contracting
In comparison, non-contract farmers often face income loss firms leads to enhanced productivity due to better extension
due to price fluctuations in the open market and receive fewer services and buy-back guarantees (Kumar and Kumar 2008).
returns despite higher yields. The proponents of contract farming
have emphasised this fixed price and market support as an Impact of contract farming on crop productivity: Contracting
overly simplified narrative of “win-win” situations for farmers companies often supply specific seeds to contract farmers to
(Vicol 2019). This paper raises a question against this overly obtain the quality raw materials required for their operations.
simplified fixed-price and market-support narrative of contract Consequently, they provide farmers with high-quality seeds
farming. Does fixed-price give contract farmers income assur- intended for cultivation under contract arrangements. Litera-
ance and better returns despite price fluctuations and produc- ture shows contract farming positively affects crop productivi-
tion loss? This paper explores the production and returns of ty, particularly in the case of high-value crops. Studies on bas-
potato contract farming from the small farmer-dominant state mati rice in Punjab and various crops in Karnataka demon-
of West Bengal under the leading agribusiness firm, PepsiCo. strate that contract farmers achieve higher yields compared to
We compare the costs and return of contract versus non-contract non-contract farmers. This is attributed to improved seeds,
potato farmers to highlight the limitations of fixed price and management practices, and monitoring provided by sponsors,
the economics of potato farming. which offset higher production costs (Sharma 2008; Kumar
The extant body of literature concerning contract farming and Kumar 2008; Nagaraj et al 2008).
investigates various dimensions, including yield, pricing, pro-
duction, and income dynamics. The following section provides Diverse impact across commodity sectors: The literature
a brief overview of these explored facets. indicates that the effects of contract farming vary significantly
across different commodity sectors. While some commodities
Benefits of contract farming for yield and returns: The litera- like papaya and broilers yield clear financial gains for contract
ture highlights the positive impact of contract farming on farmers, others like marigold may lead to reduced financial
farmers’ yields and returns. In both tomato and potato cultivation, returns. This variability underscores the complex impact of con-
contract farmers in Haryana and Punjab achieved higher yields tract farming on different agricultural products (Narayanan 2014).
and gross returns despite incurring higher production costs. Furthermore, variations in farm returns exist across different
Contractual arrangements assure a stable market and fixed crops and are contingent upon the characteristics of the con-
prices, protecting farmers from market uncertainty and there- tracting companies. For instance, a comprehensive study eval-
by contributing to better financial outcomes (Dileep et al 2002; uating the cultivation of over 20 different crop types under
Tripathi et al 2005; Paltasingh and Jena 2023). The surge in contract in Punjab revealed that state-led contracts failed to
yield can be attributed to the adoption of high-yielding crop confer benefits upon farmers (Kumar and Kumar 2008). This
varieties and the implementation of improved farming prac- is due to the limited extension supports to farmers and lack of
tices, including enhanced fertilisation and modern techniques. management throughout the cultivation.

Technology adoption and socio-economic factors: The litera- Market risks and risk shifting: The advocates of contract
ture underscores the role of socio-economic factors in contract farming praise it for its price support particularly for the high-
farming participation. Farmers in states like Punjab and value crops such as fruits and vegetables for which prices
Karnataka with better socio-economic conditions, education, fluctuate in open market and farmers often face economic loss.
larger farm sizes, and access to institutional credit are more likely Contract farming is found to shift risks from growers to pro-
to engage in contract farming. This suggests that resource- cessors. Contract growers experience higher gains compared
rich farmers with greater access to finance and technology to non-contract growers due to reduced cost of funds and
are biased towards contract farming (Sharma 2008; Swain improved technology adoption. This suggests that contract
2012; Narayanan 2014; Sharma 2016). Critics of contract farming farming serves as an institutional arrangement that provides
in India express these issues as significant concerns due to the credit, insurance, and technology, addressing challenges for
predominant presence of small and marginal farmers who lack farmers (Murthy and Madhuri 2013). Although contract farm-
the resources necessary for adopting modern technology and ing often provides input and market support to farmers, it
acquiring farming equipment. This situation could potentially transfers the production risks to them (Singh 2002).
accentuate disparities between large-scale, resource-rich
farmers and their counterparts. Challenges and implication for policy: The literature acknowl-
edges challenges in contract farming, such as market risks for
Income disparities and farmer class: Critics of contract farming non-contract farmers and the potential bias towards resource-
raise concerns about income disparities among different farming rich farmers. Additionally, it explores the implications of contract
classes. Larger-scale farmers tend to benefit more compared to farming for policy frameworks, including the role of contracts in
small-scale farmers. Studies from Punjab reveal that contract emerging alternative institutions (Behera et al 2022; Mukherjee
farmers with larger landholdings gain significantly higher 2022). The literature includes case studies from different Indian
Economic & Political Weekly EPW september 23, 2023 vol lViII no 38 43
SPECIAL ARTICLE
Figure 1: Location of the Study Area farmers of different sizes and compares individual agent-based
1 Bankura district contract farming with cooperative-based contract farming us-
India ing logistic regression. The study suggests that the success of
contract farming, aligned with the 2020 Farm Bill, hinges upon
Joypur block product specificity and contract terms (Mukherjee 2022).
Kotulpur block
The studies we mentioned earlier show that even though
contract farming might lead to lower yields, farmers often make
West Bengal
more money because they get a set price for their crops. How-
2 Hooghly district ever, there has not been much discussion about whether this
fixed price is always good for farmers or not. Also, we need to
Goghat–I block
study more about how this fixed price affects small farmers’ in-
come. To fill this gap, our current research focuses on how
farmers grow potatoes through contract farming and for this
The top left side map shows the location of West Bengal in India. The middle map shows
purpose, the present study focuses on potato cultivation under
the location of two districts in West Bengal. The right side top map shows the two blocks: contract and non-contract. It compares the distribution of costs
Joypur and Kotulpur in Bankura. The right side bellow map shows the Goghat-I block. We
have mentioned the number of villages in the following section but did not mention the
and farm return with non-contract farming.
names of the villages to protect participants' privacy.
states, such as Andhra Pradesh, Tamil Nadu, West Bengal, Methodology
Punjab, and Karnataka. These case studies highlight the diverse This paper draws its primary data from a household survey of
outcomes and impacts of contract farming across various re- 263 potato farmers, comprising 130 contract farmers and 133
gions and commodities. non-contract farmers. The fieldwork for this study was con-
Based on what we discussed earlier, it is clear that there has ducted from May to July 2022 in seven villages located within
not been much examination about how contract farming affects three blocks of two districts in West Bengal—Hooghly and
the earnings and production of small and marginal farmers. Bankura—that are highly concentrated in potato cultivation.
Most of the research has been focused on states in the north and The study gathered information from potato contract farmers
west, leaving out the eastern states. These eastern states strug- who were cultivating crops during the 2021–22 season under
gle with issues like low-yielding, low income, unemployment the leading agribusiness firm, PepsiCo.
and poverty. Few recent studies have shown that contract Table 1 presents the distribution of households covered in
farming in West Bengal under PepsiCo is cultivating potatoes. the study at the district level, categorised by contract and non-
So, there is relatively less information on how contract farm- contract farming. The caste composition details suggest that
ing affects farmers who are not well-off in these areas. contract farming has a better representation of socially disad-
The summarised literature encompasses three studies con- vantaged groups, such as Other Backward Class and Scheduled
ducted in West Bengal, shedding light on various aspects of Caste categories, as more households in these categories opt
contract farming within the region. A study of 139 non-contract for contract farming than non-contract farming. Overall, no
farming and 144 contract farming households in West Bengal significant difference is observed in landownership between
reveals that contract farming arrangements primarily take the the two groups. However, non-contract farming households, on
form of verbal agreements without government involvement. average, have a better landholding (1.30 acres) than contract
Company-appointed vendors manage operations in a group of households (1.12 acres). In contrast, a higher per cent of contract
villages. Despite lower yield levels, contract farming yields sig- farming households (53.86%) took land on sharecropping than
nificantly higher net returns of around `15,000 per hectare non-contract farming households (42.31%). This information
compared to non-contract farming. This is attributed to the suggests that farming households belonging to socially disad-
elevated prices received by contract farmers, compensating for vantaged groups with relatively small landholdings tend to take
lower yields (Pandit et al 2015). Another study examines market more land on sharecropping and prefer cultivating contract crops.
risks faced by small and marginal farmers in the same region, The allocation of cultivable land reveals that contract farming
who constitute the majority of farmers. Both contract farming households allocated less land (0.51 acres) out of the total opera-
and non-contract farming farmers are exposed to market risks, tional land (1.66 acres). In comparison, non-contract farming
with non-contract farming farmers Table 1: Basic Details of Farming Households
vulnerable to price fluctuations and Farming Type District No of Caste (%) Landholding (Acre)
House-
contract farming farmers at risk of holds
Owned Land Sharecropping Average Land
Operational Allocated
meeting quality contract requirements General OBC SC House- Average House- Average
Landholding (Acre)
hold (%) (Acre) hold (%) (Acre)
(Behera et al 2022). A recent study (Acre)
Contract Bankura 81 69.14 3.7 27.16 97.53 1.1 51.85 0.99 1.69 0.55
delves into contract farming models
Hooghly 49 71.08 1.2 27.71 100 1 57.14 1.02 1.6 0.53
in the study area, exploring diverse Non-contract Bankura 83 57.14 14.29 28.57 100 0.97 32.53 1.21 1.77 1.37
contract types and crop characteristics. Hooghly 50 70 14 16 96 1.08 56 1.43 1.6 0.97
It also analyses the factors influencing Overall Contract 130 63.14
Non-contract 133 70.54
9 27.87 98.56
7.6 21.86 98.5
1.12 53.85
1.3 42.31
1.03
1.01
1.66
1.7
0.54
1.22
contract farming adoption among Source: Field data (2021–22).
44 september 23, 2023 vol lViII no 38 EPW Economic & Political Weekly
 SPECIAL ARTICLE

households allocated a larger landholding for potatoes (1.22 more on seeds, while contract farmers paid the fi xed price as
acres) out of the total operational holding (1.7 acres). per their contract. This explains the cost difference between
During the survey, contract farmers disclosed their prefer- the two types of farming with regard to seeds. The price
ence for cultivating PepsiCo potatoes, as it offers a fixed price structure for fertilisers is the same for both types of farmers
that secures minimum returns during market fluctuations. as PepsiCo or intermediaries do not supply any fertiliser to
However, the fixed price does not guarantee high returns, as contract farmers. The cost difference for fertiliser in the con-
non-contract farmers can benefit from higher open market prices. tract (`19,867 per acre) is higher than the non-contract
Additionally, non-contract farmers have the option to store (`17,108 per acre), indicating that fertiliser usage is relatively
their produce in cold storage to potentially obtain a better price in higher under contract farming.
the future. Contract farmers, on the other hand, are bound to Table 2 shows a significant difference in rent paid for leased
supply their produce on time at the pre-sowing fixed contract land and rental value of owned land between contract and
price. Hence, contract farmers cultivate a portion of their land non-contract farming. This difference is reflected due to the price
with traditional varieties to earn more profits if the open mar- difference of potato that farmers received in contract and non-
ket price increases. They believe that fixed price for contract contract. Because the nature of rent is sharecropping and there
potatoes will balance the fluctuations in the open market. was no significant difference, farmers paid crops as rent to the
Conversely, potato farmers who do not opt for contract farm- owners. Despite the difference in rent, the cost of B2 is signifi-
ing argue that although fixed prices provide a minimum in- cantly different between contract (cost B2—`84,852) and non-
come, it restricts benefits from upward price movement in the contract farming (cost B2—`87,952) due to potato price. The
open market. Moreover, the rejection of contract varieties higher price of non-contract potatoes (average price `1,458 per
based on quality is another issue that discourages non-contract quintal [q]) compared to contract potatoes (average price
farmers from cultivating contract corps. The fixed price is the `1,106 per q) is reflected in the difference in cost B2. The costs of
primary factor differentiating households opting for contract potato cultivation, with significant contribution from seeds, ferti-
and non-contract farming. liser and hired human labour constitute more than half of the
The following section analyses the costs and returns in contract costs (for contract, it was 52.99%, and for non-contract, it was
and non-contract potato farming. It explains the influence of 54.05%). For contract farmers, out of their total spending (out of
fixed prices on returns. To collect production cost information, cost C2), they spent 23.55% on seeds, 20.82% on fertiliser and
we adopted the Manual on Cost of Cultivation Surveys available 8.62% on hired human labour. In comparison, non-contract
from the Ministry of Statistics and Programme Implementation, farmers spent 25.39% on seeds, 17.94% on fertiliser and 10.72%
Government of India.2 The various cost concepts that Sharma on hired human labour.
(2016) used have been applied in this study. Table 2: Cost of Production of Potato under Contract and Non-contract Farming (` per acre)
Cost of Production CF NCF Overall
Results and Discussion Bankura Hooghly Bankura Hooghly CF NCF
Value of hired human labour 8,257 8,167 10,232 10,212 8,224 10,226
Comparison of costs and returns between contract Value of hired bullock labour 900 1,399 350 1,723 1,084 761
Value of owned bullock labour 790 1,008 1,398 599 870 1,159
and non-contract farming: The expected farm returns
Value of owned machine labour 512 93 309 259 358 294
in cultivation primarily depend on the costs of cultivation, Hired machine labour charges 3,696 3,669 4,270 3,511 3,686 4,043
production and market price for the harvest. The costs Value of seeds 21,536 24,097 24,509 23,522 22,479 24,214
and return for contract and non-contract potato farming Value of insecticides and pesticides/ 6,368 5,374 5,656 5,150 6,002 5,505
are calculated at current prices. The total cost (C2) of medicines
Value of manure (purchase and 1,985 1,027 2,023 1,298 1,632 1,806
potato cultivation for contract farming is `95,441 per
house produce)
acre, while it is negligibly less in non-contract farming Value of fertiliser 19,536 20,435 16,478 18,586 19,867 17,108
at `95,367 per acre. There is a significant difference in Depreciation on implements and 0 0 0 0 0 0
costs (A1) across cost categories (such as labour costs, farm buildings
fertiliser costs, etc) between contract and non-con- Irrigation charges 2,786 3,764 2,742 3,640 3,147 3,010
Land revenue, cases and other taxes 0 0 0 0 0 0
tract farming. Non-contract farmers have hired more
Interest on working capital 1,701 2,237 1,150 2,049 1,898 1,418
human labour (`10,226 per acre) than contract farmers Miscellaneous 1,469 1,442 1,444 1,227 1,459 1,379
(`8,224 per acre). Similarly, non-contract farmers have Cost A1 69,536 72,712 70,561 71,776 70,706 70,923
spent more for seeds (`24,214 per acre) than contract Cost A2 = Cost A1 + rent paid for leased 71,910 75,961 73,615 75,589 73,402 74,204
farmers (`22,479 per acre). Under PepsiCo contract in land
Cost B1 = Cost A1+ interest on value of 69,673 72,712 70,561 71,776 70,792 70,923
farming, intermediaries, that is, vendors, invest capital
owned fixed capital assets
and supply specific varieties of seeds (Atlantic known Cost B2 = Cost B1 + rental value of owned 83,644 86,926 87,116 89,915 84,852 87,952
as ATL and FC3) to farmers on credit, for which price are land and rent paid for leased in land
fixed. However, the crops were damaged after sowing Cost C1 = Cost B1 + imputed value of 80,354 83,144 77,845 79,499 81,381 78,338
family labour
due to winter rains, leading to considerable seed de-
Cost C2 = Cost B2 + imputed value of 94,325 97,358 94,400 97,638 95,441 95,367
mand and shortage. As a result, traditional seed pric- family labour
es increased, causing non-contract farmers to spend Source: Field data (2021–22). CF: Contract farming, NCF: Non-contract farming.

Economic & Political Weekly EPW september 23, 2023 vol lViII no 38 45
SPECIAL ARTICLE

Table 3 presents the per acre returns from potato farming The family labour income reported by non-contract farmers
for contract and non-contract farmers. The table suggests that is higher (`49,828.63) than contract farmers (`20,292.94). But
without any yield differences (average yield per acre for both we can see the difference in income between contract and non-
types is 94.5 q) in the two farming practices, the better price per contract has declined compared to the gross income. Such as,
quintal of potato for non-contract (`1,458) than contract (`1,106) the gross income gap was `32,636 per acre between contract
makes a significant difference in farm returns. Contract farmers and non-contract, which was lower in the case of family labour
under PepsiCo have received 31.83% lower prices than non-con- income at `29,535.69 per acre. This income difference variation
tract farmers. The average gross income from potatoes per acre is suggests that contract farming households use more family labour
much higher for non-contract (`1,37,781) than for contract than non-contract households. Similarly, the tables present high-
(`1,05,145) farmers. The average gross income difference is er per acre farm investment income for non-contract (`42,413.63)
about `32,636 per acre of potato cultivation. Similarly, the than for contract farmers (`9,703.94). The average operational
farm business income for non-contract is also high (`66,857.63 landholding of each household allocated for potato cultivation
per acre against `34,438.94 in contract farming). Owned farm was 0.54 acre for contract and 1.22 acres for non-contract. Consid-
business income is also much higher for non-contract (`63,576.63) ering the average operational landholding each household was
farmers than for contract farmers (`31,742.94). allocated, the average household-level farm investment income is
Table 2.1: Cost of Production of Potato under Contract and Non-contract Farming (per acre cost in %) significantly less for contract (`5,240.13) than
Cost of Production CF NCF Overall for non-contract farmers (`51,744.63).
Bankura Hooghly Bankura Hooghly CF NCF
Value of hired human labour 8.75 8.39 10.84 10.46 8.62 10.72 Regional difference in costs and returns be-
Value of hired bullock labour 0.95 1.44 0.37 1.76 1.14 0.80 tween contract and non-contract farming: To
Value of owned bullock labour 0.84 1.04 1.48 0.61 0.91 1.22 see the regional variation, we have compared the
Value of owned machine labour 0.54 0.10 0.33 0.27 0.38 0.31
costs and return from potato cultivation under
Hired machine labour charges 3.92 3.77 4.52 3.60 3.86 4.24
contract and non-contract between the two
Value of seeds 22.83 24.75 25.96 24.09 23.55 25.39
Value of insecticides and pesticides/ 6.75 5.52 5.99 5.27 6.29 5.77 districts. The total costs (C2) for contract and
medicines non-contract households in Hooghly district
Value of manure (purchase and house 2.10 1.05 2.14 1.33 1.71 1.89 are higher than Bankura district. The contract
produce)
farming households in Bankura district spent
Value of fertiliser 20.71 20.99 17.46 19.04 20.82 17.94
Depreciation on implements and 0 0 0 0 0 0 `94,325 per acre, and in Hooghly, `97,358 per acre
farm buildings for potato cultivation. Similarly, the non-contract
Irrigation charges 2.95 3.87 2.90 3.73 3.30 3.16 potato farming households spent `94,400 and
Land revenue, cases and other taxes 0 0 0 0 0 0 `97,638 per acre in Bankura and Hooghly, respec-
Interest on working capital 1.80 2.30 1.22 2.10 1.99 1.49
tively. The regional difference in cultivation costs
Miscellaneous 1.56 1.48 1.53 1.26 1.53 1.45
Cost A1 73.7196 74.6852 74.7468 73.5124 74.0835 74.3685 suggests the difference and inequality in input
Rent paid for leased in land 2.52 3.34 3.24 3.91 2.82 3.44 market. For example, the irrigation charges sug-
Interest on assets loan 0.15 0.00 0.00 0.00 0.09 0.00 gest that households in Bankura spent relatively
Rental value of owned land 12.29 11.26 14.30 14.67 11.91 14.42 less by contract (`2,786 per acre) and non-contract
Family labour 11.32 10.72 7.72 7.91 11.09 7.78
(`2,742 per acre). In Hooghly, contract (`3,764
Cost C2 100.00 100.00 100.00 100.00 100.00 100.00
Source: Authors’ calculation based on field data (2021–22). per acre) and non-contract households (`3,640
per acre) spent relatively more on irrigation per
Table 3: Returns on Potato under Contract and Non-contract Farming (` per acre)
acre. Irrigation systems in Bankura are primarily
Various Measures Contract Farming at the Non-contract Farming at Overall
District Level the District Level managed by cooperatives, whereas they are
Bankura Hooghly Bankura Hooghly Contract Non-contract primarily privately owned in Hooghly.
Farming Farming
We have highlighted cost distribution at the
Average area under potato (acres) 0.55 0.53 1.37 0.97 0.54 1.22
Average yield (q/acre) 92 99 94.5 95 94.5 94.5
district level where we have found differences
Average price ( `/q) 1,096 1,114 1,398 1,520 1,106 1,458 between contract and non-contract. The value
Average income from 727 457 0 0 628 0 of owned bullock labour in Bankura is compar-
non-chips grade ( `/acre) atively high for non-contract (`1,398 per acre)
Gross income from potato 1,01,559 1,10,743 1,32,111 1,44,400 1,05,145 1,37,781 because household owning of bullocks and
(chips+ non-chips grade)
Farm business income 32,022.65 38,030.69 61,549.51 72,623.99 34,438.94 66,857.63
traditional ploughers are relatively high. In
(gross income-cost A1) ( `/acre) Hooghly district, contract (`1,399 per acre) and
Owned farm business income 29,648.65 34,781.69 58,495.51 68,810.99 31,742.94 63,576.63 non-contract (`1,723 per acre) households spent
(gross income-cost A2) (`/acre) more on hiring bullock labour due to lack of
Family labour income 17,914.65 23,816.69 44,994.51 54,484.99 20,292.94 49,828.63
ownership. Farm use of manure in Bankura dis-
(gross income-cost B2) (`/acre)
Farm investment income 7,233.65 13,384.69 37,710.51 46,761.99 9,703.94 42,413.63 trict is also higher than in Hooghly district,
(gross income-cost C2) (`/acre) which is due to higher household owning of
Source: Field data (2021–22). bullocks in Bankura.
46 september 23, 2023 vol lViII no 38 EPW Economic & Political Weekly
 SPECIAL ARTICLE

The value of seeds in contract farming, which intermediaries This persists in non-contract farming, where farmers, on average
supply to farmers on credit, is supposed to have almost similar per acre, obtained higher farm business income in Hooghly
costs across districts, but we can see costs are relatively higher (`72,623.99) than in Bankura (`61,549.51). Owned farm busi-
in Hooghly (`24,097 per acre) than in Bankura (`21,536 per ness income and family labour income also followed similar
acre). There is a price difference in the price of seeds based on trends. Farm investment income per acre in contract farming
the size that may results differences in total costs. However, is much higher for Hooghly (`13,384.69) than for Bankura
we have noticed price asymmetry even for the same category (`7,233.65). At the district level, farm investment income for
and size of seeds across districts and intermediaries. Contract contract farming in Hooghly is 85.03% higher than for Bankura.
farmers in Hooghly (`20,435 per acre) and Bankura (`19,536 The harvest has been affected due to rain, in addition, the
per acre) spent more on fertiliser. However, although non-con- considerable price differences make a huge difference between
tract farmers spend less on fertiliser, it is relatively high in the two districts. Similarly, an income difference is observed
Hooghly (`18,586 per acre) than in Bankura (`16,478 per acre). at different income levels due to the price difference for non-
The major components of total costs (C2) are seed, fertiliser, contract farming between the two districts. Farm business
and hired human labour. On average, households from Bankura income per acre is much higher for Hooghly (`72,623.99)
spent 52.29% of their total cost on seeds, fertiliser and hired than for Bankura (`61,549.51), which persists in the case
human labour in contract farming, while in Hooghly, this was of owned farm businesses and family labour income. Non-
54.13%. For non-contract farming, households from Bankura contract farmers from Hooghly (`46,761.99) gained per acre
spent 54.23% of their total costs on these categories, while in 24% more than Bankura (`37,710.51). If we compare the
the Hooghly district, this was 53.58% (Table 2.1, p 46). On average farm investment income at the household level based
average, contract farmers from Bankura spent 20.71% of their on average operated land under potato, the average contract
total spending per acre on fertiliser, 22.83% on seeds, and farm household income is `3,978.51 for Bankura and
8.75% on hired labour. On the other hand, in Hooghly district, `7,093.88 for Hooghly. On the other hand, the average non-
contract farmers spent on average per acre, 20.99% on ferti- contract farm household income is `51,663.40 for Bankura
liser, 24.75% on seeds, and 8.39% on hired human labour. and `45,359.13 for Hooghly.
Among contract farming households in both districts, spend-
ing on seeds was higher in Hooghly (24.75%) than in Bankura Conclusions
(22.83%). The costs share under the non-contract farming for The average potato price in March and April 2022 was
Bankura is 17.45% on fertilisers, 25.96% on seeds and 10.84% `1,462 per quintal, according to the APMC information for
on hired labour per acre. This distribution for Hooghly district West Bengal, which is available by AgMarknet.3 The average
is 19.03% on fertilisers, 24.09 seeds and 10.46% on hired la- price of potatoes reported by non-contract farmers who have
bour. Overall and at the district level across contract and non- sold between March and April is `1,458 per quintal. The average
contract potato farming households, they spent an average of price reported in the study is not much different from that
one-fourth of total costs (C2) to procure seeds. reported by the government source. The production for both
Table 3 presents the difference in the distribution of returns types was affected by winter rain, despite which traditional
from potatoes across the district in contract and non-contract. farmers received better returns than contract farmers due to
The gross per acre income from potatoes in the contract is 9.04% price differences. On average, contract farmers from both
higher for Hooghly (`1,10,743) than for Bankura (`1,01,559). districts received `1,106 per quintal, which is `352 higher per
Despite total costs (C2) under contract in Hooghly district quintal of potato. Fixed prices and the absence of compensa-
being more than Bankura, farmers from Hooghly district tion during upward market price movement caused economic
received higher gross income per acre, which is `9,184. The loss to contract farmers.
difference at the district level under the same firm and contract The absence of proper contract-farming compensation
mechanism occurred due to yield and average price differences. makes the condition worse for contract farmers. Fixed prices
On average, contract farmers from Hooghly district produced only provide some price support when the open market price
99 quintals of potatoes per acre, more than Bankura district of decreases and if farmers can produce a minimum quantity. In
92 quintals. In addition, they have received a higher average this case, contract farming transfers production and price risks to
price per quintal. Contract farmers from Hooghly receive `1,114 smallholder potato farmers. Proponents of contract farming
per quintal against `1,096 in Bankura. For non-contract farming argue that fixed prices and secure markets provide farmers
households, there is no significant difference in yield between the better returns. This study shows that non-contract farmers ac-
two districts. However, farmers from Hooghly (`1,520 per acre) tually obtained much higher farm income (`42,413.63) per acre
received, on average, higher prices than in Bankura (`1,398 per than contract farmers (`9,703.94). Without any significant dif-
acre). This suggests that the yield difference in contract farming ferences in yield and production costs, the higher open market
impacts per acre gross income for contract farmers. Similarly, price (`1,458) per quintal benefits non-contract potato farmers
price difference of traditional variety in non-contract farming despite production loss, while the fixed price in contract farming
differently impacts in both districts. (`1,106) leads to significantly less farm returns for contract
Likewise, farm business income per acre is more for Hooghly potato farmers. The paper highlights the limitations of fixed
(`38,030.69) than for Bankura (`32,022.65) in contract farming. price and market support overly simplified “win-win” narratives
Economic & Political Weekly EPW september 23, 2023 vol lViII no 38 47
SPECIAL ARTICLE

for contract farming. It stresses the need for compensation in motivated by the promise of a secure income stemming from
fixed-price contracts to ensure viability for farmers in situa- the stability of fixed prices. However, this ostensibly secure
tions of production loss and price increases. arrangement becomes less beneficial in instances where price
In contemporary times, as the governments at the states and fluctuations occur, leading to economic losses, and when
the centre attempt to foster private sector engagement in agri- unforeseen production setbacks transpire.
culture, it is noteworthy that these initiatives have been set in In the specific context of West Bengal, contract farming
motion within the context of neo-liberal policy reforms. Certain operates without an established legal framework, relying
states have, in the name of agricultural development, directly solely on oral agreements. This absence of state government
promoted the corporatisation of agriculture through the chan- oversight concerning pricing or support mechanisms renders
nel of contract farming (Shrimali 2021). Although the union small and marginal farmers particularly vulnerable. Farmers
government repealed the Contract Farming Act, 2020, it recently have reported that after a span of three–four years, they
introduced the cluster farming in which it allows five private meet price fluctuations that compel them to supply their
firms to undertake specific horticulture crops. So, in the future, produce at a lower fixed contract price. The consequence of
there will be more corporate participation and less public non-compliance would entail restrictions on their access to
control in agriculture. While prevailing literature has under- essential inputs and seeds in the subsequent year. To address
scored the advantages of contract farming, particularly in this predicament, the paper advocates for the implementation
relation to the assurance provided by fixed-pricing structures, of provisions and a robust compensation mechanism by cor-
this present paper seeks to examine the constraints inherent porate entities. This measure is intended to safeguard the
in such fixed-price contracts. Notably, the participation of interests of small and marginal farmers amid situations of
small and marginal farmers in contract farming is often production loss and price volatility.

NoteS Ahead Is Long and Hard,” Economic & Political Livelihoods of Farmers: A Village Case Study
1 In September 2020, the Government of India Weekly, Vol 57, No 5, https://www.epw.in/jour- from West Bengal,” Journal of Rural Studies,
passed three agriculture bills commonly known as nal/2022/5/commentary/repeal-%E2%80%98 Vol 86, pp 127–35, https://doi.org/10.1016/j.
Farm Bills 2020, in which the “Farmers (Empow- black-farm-laws%E2%80%99.html. jrurstud.2021.06.003.
erment and Protection) Agreement of Price Assur- Lerche, Jens (2021): “The Farm Laws Struggle Sharma, N (2016): “Does Contract Farming Improve
ance, Farm Services Bill, 2020” is known as the 2020–2021: Class-caste Alliances and Bypassed Farmers’ Income and Efficiency? A Case
Contract Farming Act, 2020. The government Agrarian Transition in Neoliberal India,” Journal Study from Punjab,” Economic & Political
repealed all three bills in November 2021. of Peasant Studies, Vol 48, No 7, pp 1380–96, Weekly, pp 63–69.
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modities by Directorate of Marketing and Inspec- Bengal: Patterns, Determinants and Policy or Accumulation without Dispossession: The
tion (DMI), Ministry of Agriculture and Farmers Implications,” The Indian Economic Journal: Case of Contract Farming in India,” Human
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48 september 23, 2023 vol lViII no 38 EPW Economic & Political Weekly
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An online database on Indian economy structured in  different modules

Economic & Political Weekly EPW september 23, 2023 vol lViII no 38 49